The eurozone’s public finance crisis continues to fester, reflecting both political and intellectual failure. The intellectual failure is the crisis has been interpreted exclusively as a debt crisis when it is also a central bank design crisis resulting from the euro’s flawed architecture. The flaw is the inability of eurozone governments to harness the central bank’s power to assist government finances. This systemic weakness explains why U.S. and U.K. government bonds are weathering the storm, whereas Spain confronts default rumors despite having roughly similar debt and deficit profiles. Read the rest of this entry »
Euro Bonds Are Not Enough: Eurozone Countries Need a Government Banker
September 6th, 2011A Global Minimum Wage System [1]
July 18th, 2011Published in the FT Economists’ Forum, July 18, 2011
The global economy is suffering from severe shortage of demand. In developed economies that shortfall is explicit in high unemployment rates and large output gaps. In emerging market economies it is implicit in their reliance on export-led growth. In part this shortfall reflects the lingering disruptive effects of the financial crisis and Great Recession, but it also reflects globalization’s undermining of the income generation process. One mechanism that can help rebuild this process is a global minimum wage system. That does not mean imposing U.S. or European minimum wages in developing countries. It does mean establishing a global set of rules for setting country minimum wages. Read the rest of this entry »
Deaf to History’s Rhyme: Why President Obama is Failing
December 2nd, 2010The great American novelist Mark Twain observed “history does not repeat itself but it rhymes.” Today the rhyme is with the 1930s, and if you don’t hear it read FDR’s great Madison Square Garden speech of October 1936:
“For twelve years this nation was afflicted with hear-nothing, see-nothing, do-nothing government. The nation looked to government but the government looked away. Nine mocking years with the golden calf and three long years with the scourge! Nine crazy years at the ticker and three long years in the breadlines! Nine mad years of mirage and three long years of despair! Powerful influences strive today to restore that kind of government with its doctrine that that government is best which is most indifferent.”
Despite this clarity, the Obama administration insists on hearing a rhyme with the 1990s. That tone deafness has its roots in political choices made at the administration’s outset and explains why the administration has stumbled so badly in its first years. If continued, the economic and social consequences will be grave. Read the rest of this entry »
Plan B for Obama on the economy
September 8th, 2010TO: President Obama
FROM: Thomas I. Palley
RE: How to avoid stagnation and restore shared prosperity
DATE: Labor Day, 2010
Mr. President,
With hopes of a V- or U-shaped recovery fading, there is the increasing prospect of an L-shaped future of long stagnation, or even a W-shaped future in which W stands for something worse.
The reason for this dismal outlook is economic policy is trapped by failed conventional thinking that can only deliver wage stagnation and prolonged mass unemployment. Read the rest of this entry »
The Federal Reserve Should Raise Rates and Lower Them Too
August 30th, 2010There is much debate over whether the Federal Reserve should tighten or further ease monetary policy. This dichotomous framing overlooks another possibility, which is whether the Fed should change the mix of its stance, tightening in some areas and further easing in others. Read the rest of this entry »
Europe’s debt crisis and Keynes’ green cheese solution
May 26th, 2010The great German physicist Max Planck remarked that “Science advances one funeral at a time.” The situation is worse in economics which is subject to regress, as happened when the valuable but imperfect insights of Keynesianism were supplanted by the ideological blinkers of neoliberalism. Read the rest of this entry »
Euroland Is Being Crucified Upon Its Own Cross of Gold
March 18th, 2010The last quarter of the 19th century witnessed a period of sustained global deflation. In the 1896 US presidential election, William Jennings Bryan famously attacked the gold standard as the cause of deflation, declaring “You shall not press upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.” Read the rest of this entry »
A Better Way to Regulate Financial Markets: Asset Based Reserve Requirements
November 16th, 2009There is widespread recognition that the financial crisis which triggered the Great Recession was significantly due to financial excess, particularly regarding real estate lending. Now, policymakers are looking to reform the financial system in hope of avoiding future crises. But like the drunk who looks for his lost keys under the lamp post because that is where the light is, policymakers remain fixated on capital standards because that is what is already in place. Read the rest of this entry »
Death by Renminbi
November 9th, 2009Washington, DC – Over the last several weeks, the dollar’s depreciation against the euro and yen has grabbed global attention. In a normal world, the dollar’s weakening would be welcome, as it would help the United States come to grips with its unsustainable trade deficit. But, in a world where China links its currency to the dollar at an under-valued parity, the dollar’s depreciation risks major global economic damage that will further complicate recovery from the current worldwide recession. Read the rest of this entry »
A Second Great Depression Is Still Possible
October 12th, 2009Over the past year the global economy has experienced a massive contraction, the deepest since the Great Depression of the 1930s. But this spring, economists started talking of “green shoots” of recovery and that optimistic assessment quickly spread to Wall Street. More recently, on the anniversary of the Lehman Brothers crash, Federal Reserve Chairman Ben Bernanke officially blessed this consensus by declaring the recession is “very likely over”. Read the rest of this entry »