The State of the U.S. and World Economies

The central focus in this program area is the use of Levy Institute macroeconomic models in generating strategic analyses of the U.S. and world economies. The outcomes of alternative scenarios are projected and analyzed, with the results—published as Strategic Analysis reports—serving to help policymakers understand the implications of various policy options.

The Levy Institute macroeconomic models, created by Distinguished Scholar Wynne Godley, are accounting based. The U.S. model employs a complete and consistent system (in that all sectors “sum up,” with no unaccounted leakages) of stocks and flows (such as income, production, and wealth). The world model is a “closed” system, in which 11 trading blocs—of which the United States, China, Japan, and Western Europe are four—are represented. This model is based on a matrix in which each bloc’s imports are described in terms of exports from the other 10 blocs. From this information, and using alternative assumptions (e.g., growth rates, trade shares, and energy demands and supplies), trends are identified and patterns of trade and production analyzed.

The projections derived from the models are not presented as short-term forecasts. The aim is to display, based on careful analysis of the recent past, what it seems reasonable to expect if current trends, policies, and relationships continue. To inform policy, it is not necessary to establish that a particular projection will come to pass, but only that it is something that must be given serious consideration as a possibility. The usefulness of such analyses is strategic: they can serve to warn policymakers of potential dangers and serve as a guide to policy instruments that are available, or should be made available, to deal with those dangers, should they arise.

Research Group: Wynne Godley, Dimitri B. Papadimitriou, James K. Galbraith, Jan Kregel, L. Randall Wray, Greg Hannsgen, Kijong Kim, Gennaro Zezza, Claudio H. Dos Santos, Robert W. Parenteau

Program Publications
Strategic Analysis | March 2010 Getting Out of the Recession? Research Scholar Gennaro Zezza updates the Levy Institute’s previous Strategic Analysis (December 2009) and finds that the 2009 increase in public sector aggregate demand was a result of the fiscal stimulus, without which the recession would have been much deeper. He confirms that strong policy action is required to achieve full employment in the medium term, including a persistently high government deficit in the short term. [more] Strategic Analysis, March 2010
In the Media | January 2010 Who Are These Economists, Anyway? By James K. Galbraith, Thought and Action, The NEA Higher Education Journal, Fall 2009. [more] In the Media, Fall 2009
Press Releases | December 2009 Unemployment Will Remain Very High without Continued Strong Fiscal Stimulus Polices, New Levy Study Says [more] Press Release, December 7, 2009
Strategic Analysis | December 2009 Sustaining Recovery: Medium-term Prospects and Policies for the U.S. Economy Though recent market activity and housing reports give some warrant for optimism, United States economic growth was only 2.8 percent in the third quarter, and the unemployment rate is still very high. [more] Strategic Analysis, December 2009
Policy Notes | October 2009 Fiscal Stimulus, Job Creation, and the Economy: What Are the Lessons of the New Deal? As the nation watches the impact of the recent stimulus bill on job creation and economic growth, a group of academics continues to dispute the notion that the fiscal and job creation programs of the New Deal helped end the Depression. The work of these revisionist scholars has led to a public discourse that has obvious implications for the controversy surrounding fiscal stimulus bills. [more] Policy Note 2009/10
Working Papers | October 2009 Lessons from the New Deal Since the current recession began in December 2007, New Deal legislation and its effectiveness have been at the center of a lively debate in Washington. This paper emphasizes some key facts about two kinds of policy that were important during the Great Depression and have since become the focus of criticism by new New Deal critics: (1) regulatory and labor relations legislation, and (2) government spending and taxation. [more] Working Paper No. 581
Public Policy Brief Highlights | September 2009 The New New Deal Fracas: Did Roosevelt’s “Anticompetitive” Legislation Slow the Recovery from the Great Depression? A wave of revisionist work claims that “anticompetitive” New Deal legislation such as the National Industrial Recovery Act (NIRA) and the National Labor Relations Act (NLRA) greatly slowed the recovery from the Depression; in this new public policy brief, President Dimitri B. Papadimitriou and Research Scholar Greg Hannsgen review these claims in light of current policy debates and cast into doubt the argument that NIRA and NLRA significantly prolonged or worsened the Depression. [more] Public Policy Brief Highlights No. 104A, 2009
In the Media | September 2009 Why capitalism fails; the man who saw the meltdown coming had another troubling insight: it will happen again September 13, 2009. The Boston Globe. [more] In The Media, September 13, 2009
In the Media | September 2009 Why some economists could see the crisis coming September 7, 2009. Copyright 2009 The Financial Times Limited. From the beginning of the credit crisis and ensuing recession, it has [more] In The Media, September 7, 2009
Public Policy Briefs | August 2009 The New New Deal Fracas: Did Roosevelt’s “Anticompetitive” Legislation Slow the Recovery from the Great Depression? A wave of revisionist work claims that “anticompetitive” New Deal legislation such as the National Industrial Recovery Act (NIRA) and the National Labor Relations Act (NLRA) greatly slowed the recovery from the Depression; in this new public policy brief, President Dimitri B. Papadimitriou and Research Scholar Greg Hannsgen review these claims in light of current policy debates and cast into doubt the argument that NIRA and NLRA significantly prolonged or worsened the Depression. [more] Public Policy Brief No. 104, 2009
Working Papers | June 2009 Fiscal Policy and the Economics of Financial Balances This paper presents the main features of the macroeconomic model being used at The Levy Economics Institute of Bard College, which has proven to be a useful tool in tracking the current financial and economic crisis. We investigate the connections of the model to the “New Cambridge” approach, and discuss other recent approaches to the evolution of financial balances for all sectors of the economy. [more] Working Paper No. 569
Working Papers | June 2009 Revisiting (and Connecting) Marglin-Bhaduri and Minsky Many heterodox strands of thought share both a concern with the study of different phases or growth regimes in the history of capitalism and the use of formal short-run models as an analytical tool. The authors of this new working paper suggest (1) that this strategy is potentially misleading, and (2) that the stock-flow consistent (SFC) approach, while providing a general framework that may facilitate dialogue among those currents, is particularly well suited to all those who think that macroeconomic models may illuminate historical quests. [more] Working Paper No. 567
Working Papers | May 2009 The Return of the State: The New Investment Paradigm To save America—indeed, the global economy as a whole—the private/public sector balance has to shift, and the neoliberal economic model on which the country has been based for the past 25 years has to be modified. In this new working paper, Marshall Auerback details why the role of the state needs to be reemphasized. [more] Working Paper No. 561
Strategic Analysis | April 2009 Recent Rise in Federal Government and Federal Reserve Liabilities: Antidote to a Speculative Hangover Federal government and Federal Reserve (Fed) liabilities rose sharply in 2008. Who holds these new liabilities, and what effects will they have on the economy? Some economists and politicians warn of impending inflation. [more] Strategic Analysis, April 2009
Conference Proceedings | April 2009 18th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies A conference organized by The Levy Economics Institute of Bard College with support from the Ford Foundation. On April 16 and 17, more than 150 policymakers, economists, and analysts from government, industry, and academia gathered at the NYC headquarters of the Ford Foundation for the Levy Institute’s annual Minsky conference on the state of the US and world economies. [more] Conference Proceedings, April 16–17, 2009
Strategic Analysis | April 2009 A “People First” Strategy: Credit Cannot Flow When There Are No Creditworthy Borrowers or Profitable Projects In 1930, John Maynard Keynes wrote: “The world has been slow to realise that we are living this year in the shadow of one of the greatest economic catastrophes of modern history.” The same holds true today: we are in the shadow of a global catastrophe, and we need to come to grips with the crisis—fast. [more] Strategic Analysis, April 2009
Press Releases | January 2009 Large Fiscal Stimulus Plans Not Enough to Prevent Rising Unemployment Over Next Two Years, New Levy Study Says [more] Press Release, December 23, 2008
Strategic Analysis | January 2009 Flow of Funds Figures Show the Largest Drop in Household Borrowing in the Last 40 Years The Federal Reserve’s latest flow-of-funds data reveal that household borrowing has fallen sharply lower, bringing about a reversal of the upward trend in household debt. According to the Levy Institute’s macro model, a fall in borrowing has an immediate effect—accounting in this case for most of the 3 percent drop in private expenditure that occurred in the third quarter of 2008—as well as delayed effects; as a result, the decline in real GDP and accompanying rise in unemployment may be substantial in coming quarters. [more] Strategic Analysis, January 2009
Strategic Analysis | December 2008 Prospects for the United States and the World: A Crisis That Conventional Remedies Cannot Resolve The economic recovery plans currently under consideration by the United States and many other countries seem to be concentrated on the possibility of using expansionary fiscal and monetary policies alone. In a new Strategic Analysis, the Levy Institute’s Macro-Modeling Team argues that, however well coordinated, this approach will not be sufficient; what’s required, they say, is a worldwide recovery of output, combined with sustainable balances in international trade. [more] Strategic Analysis, December 2008
Public Policy Brief Highlights | October 2008 The Commodities Market Bubble In a new public policy brief, Senior Scholar L. Randall Wray shows how money manager capitalism—characterized by highly leveraged funds seeking maximum returns in an environment that systematically underprices risk—has destabilized one asset class after another, with commodities being simply the latest. [more] Public Policy Brief Highlights No. 96A, 2008
In the Media | October 2008 Asia’s revenge October 8, 2008. Copyright 2008 The Financial Times Limited. [more] In The Media, October 2008
Public Policy Briefs | August 2008 Shaky Foundations: Policy Lessons from America's Historic Housing Crash A bursting asset bubble inevitably requires central bank action, usually when it is already too late and with adverse spillover effects. In this sense, the Federal Reserve and other central banks already target asset prices; yet, by taking aim at them only on the way down—as in the current housing and credit crisis—the “Big Banks” create a self-perpetuating cycle of perverse incentives and moral hazard that often gives rise to yet another round of bubbles. [more] Public Policy Brief No. 95, 2008
Public Policy Brief Highlights | August 2008 Shaky Foundations Treasury Secretary Henry Paulson’s latest plan for tackling the housing-centered credit crisis involves giving the Federal Reserve vast new authority to regulate investment banks, not just depository institutions. However, news analyst Pedro Nicolaci da Costa argues that attitude changes among regulators will be even more important than shifts in mandate in ensuring that regulators like the Fed do their jobs properly. [more] Public Policy Brief Highlights No. 95A, 2008
Working Papers | July 2008 The Buffett Plan for Reducing the Trade Deficit This paper considers a plan proposed by Warren Buffett, whereby importers would be required to obtain certificates proportional to the amount of non-oil goods (and possibly also services) they brought into the country. These certificates would be granted to firms that exported goods, which could then sell certificates to importing firms on an organized market. [more] Working Paper No. 538
Working Papers | July 2008 The Keynesian Roots of Stock-flow Consistent Macroeconomic Models This paper argues that institutionally rich stock-flow consistent models—that is, models in which economic agents are identified with the main social categories/institutional sectors of actual capitalist economies, the short period behavior of these agents is thoroughly described, and the “period by period” balance sheet dynamics implied by the latter is consistently modeled—are (1) perfectly compatible with John Maynard Keynes’s theoretical views, (2) the ideal tool for rigorous post-Keynesian analyses of the medium run, and (3) therefore crucial to the consolidation of the broad post-Keynesian research program. [more] Working Paper No. 537
Conference Audio | May 2008 17th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies The focus of this year's conference was the current economic and financial crisis in the United States and its effects on the world economy. Topics included the causes and consequences of the “Minsky moment”; the impact of the credit crunch on the economic and financial market outlook; dislocations and policy options; margins of safety, systemic risk, and the American subprime mortgage market; financial markets regulation-reregulation; the inefficiency of computer-driven markets; currency market fluctuations; and exchange rate misalignment. [more] Conference Audio, April 17–18, 2008
Conference Proceedings | April 2008 17th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies In April 2008, top policymakers, economists, and analysts from government, industry, and academia gathered at the Levy Institute’s research and conference facility in Annandale-on-Hudson, New York, to present their insights about the American economy and the financial sector in the context of Minsky’s economic theories. Participants discussed Minsky’s financial instability hypothesis and the ability of monetary policy to stabilize financial markets and the economy, as well as the role of the Federal Reserve and its ability to function as a systemic lender of last resort. [more] Conference Proceedings, April 17–18, 2008
Working Papers | April 2008 Old Wine in a New Bottle: Subprime Mortgage Crisis—Causes and Consequences This paper seeks to explain the causes and consequences of the United States subprime mortgage crisis, and how this crisis has led to a generalized credit crunch in other financial sectors that ultimately affects the real economy. It postulates that, despite the recent financial innovations, the financial strategies—leveraging and financial risk mismatching—that led to the present crisis are similar to those found in the United States savings-and-loan debacle of the late 1980s and in the Asian financial crisis of the late 1990s. [more] Working Paper No. 532
Press Releases | April 2008 Larger Fiscal Stimulus Needed to Limit Impact of Downturn, New Levy Economics Institute Analysis Says [more] Press Release, April 15, 2008
Working Papers | April 2008 Changes in the U.S. Financial System and the Subprime Crisis This paper traces the evolution of housing finance in the United States from the deregulation of the financial system in the 1970s to the breakdown of the savings and loan industry and the development of GSE (government-sponsored enterprise) securitization and the private financial system. The paper provides a background to the forces that have produced the present system of residential housing finance, the reasons for the current crisis in mortgage financing, and the impact of the crisis on the overall financial system. [more] Working Paper No. 530
Strategic Analysis | April 2008 Fiscal Stimulus—Is More Needed? As the government prepares to dispense the tax rebates that largely make up its recently approved $168 billion stimulus package, President Dimitri B. Papadimitriou and Research Scholars Greg Hannsgen and Gennaro Zezza explore the possibility of an additional fiscal stimulus of about $450 billion spread over three quarters—challenging the notion that a larger and more prolonged additional stimulus is unnecessary and will generate inflationary pressures. [more] Strategic Analysis, April 2008
Public Policy Brief Highlights | April 2008 Financial Markets Meltdown: What Can We Learn from Minsky? According to Senior Scholar L. Randall Wray, the current crisis in financial markets can be traced back to securitization (the “originate and distribute” model), leverage, the demise of relationship-based banking, and a dizzying array of extremely complex instruments that—quite literally—only a handful understand. [more] Public Policy Brief Highlights No. 94A, 2008
Public Policy Briefs | April 2008 Financial Markets Meltdown In this new Public Policy Brief, Senior Scholar L. Randall Wray explains today’s complex and fragile financial system, and how the seeds of crisis were sown by lax oversight, deregulation, and risky innovations such as securitization. [more] Public Policy Brief No. 94, 2008
Strategic Analysis | November 2007 The U.S. Economy: Is There a Way Out of the Woods? In their latest Strategic Analysis, Distinguished Scholar Wynne Godley, President Dimitri B. Papadimitriou, and Research Scholars Greg Hannsgen and Gennaro Zezza review recent events in the housing and financial markets to obtain a likely scenario for the evolution of household spending in the United States. [more] Strategic Analysis, November 2007
Public Policy Briefs | October 2007 Globalization and the Changing Trade Debate The failure of the Doha Development Round of World Trade Organization (WTO) negotiations in July 2006 was the first major collapse of a multilateral trade round since World War II. Research Associate Thomas Palley sees the failure as an event that could mark the close of a 60-year era of trade policy largely centered on increasing market access and reducing tariffs, quotas, and subsidies. [more] Public Policy Brief No. 91, 2007
Working Papers | July 2007 The Effects of a Declining Housing Market on the U.S. Economy Longstanding speculation about the likelihood of a housing market collapse has given way in the past few months to consideration of just how far the housing market will fall, and how much damage the debacle will inflict on the economy. This paper assesses the magnitude of the impact of housing price decreases on real private expenditure, examines the role of new types of mortgages and mortgage-related securities, and analyzes possible policy responses. [more] Working Paper No. 506
Public Policy Briefs | July 2007 Cracks in the Foundations of Growth With economic growth having cooled to less than 1 percent in the first quarter of 2007, the economy can ill afford a slump in consumption by the American household. But it now appears that the household sector could finally give in to the pressures of rising gasoline prices, a weakening home market, and a large debt burden. [more] Public Policy Brief No. 90, 2007
Public Policy Brief Highlights | July 2007 Cracks in the Foundations of Growth With economic growth having cooled to less than 1 percent in the first quarter of 2007, the economy can ill afford a slump in consumption by the American household. But it now appears that the household sector could finally give in to the pressures of rising gasoline prices, a weakening home market, and a large debt burden. [more] Public Policy Brief Highlights No. 90A, 2007
Working Papers | June 2007 A Simplified “Benchmark” Stock-flow Consistent (SFC) Post-Keynesian Growth Model Despite being arguably one of the most active areas of research in heterodox macroeconomics, the study of the dynamic properties of stock-flow consistent (SFC) growth models of financially sophisticated economies is still in its early stages. This paper attempts to offer a contribution to this line of research by presenting a simplified Post-Keynesian SFC growth model with well-defined dynamic properties, and using it to shed light on the merits and limitations of the current heterodox SFC literature. [more] Working Paper No. 503
Strategic Analysis | April 2007 The U.S. Economy: What's Next? The collapse in the subprime mortgage market, along with multiple signals of distress in the broader housing market, has already drawn forth a large body of comment. Some people think the upheaval will turn out to be contagious, causing a major slowdown or even a recession later in 2007. [more] Strategic Analysis, April 2007
Working Papers | April 2007 Fiscal Policy in a Stock-flow Consistent (SFC) Model This paper deploys a simple stock-flow consistent (SFC) model in order to examine various contentions regarding fiscal and monetary policy. It follows from the model that if the fiscal stance is not set in the appropriate fashion—that is, at a well-defined level and growth rate—then full employment and low inflation will not be achieved in a sustainable way. [more] Working Paper No. 494
Conference Proceedings | April 2007 16th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies The 2007 Hyman P. Minsky Conference focused on monetary and fiscal policies for continued growth and employment; currency markets fluctuations and the consequent exchange-rate misalignments, as well as possible cures; and the United States' households and trade deficits, their implications for growth and employment, and their effect on the conduct of monetary and fiscal policy. [more] Conference Proceedings, April 19–20, 2007
Working Papers | January 2007 Demand Constraints and Big Government In a series of articles and books, Harold Vatter and John Walker attempted to make the case that the American economy suffers from chronically insufficient demand that leads to growth below capacity. Of particular interest are a 1989 Journal of Post Keynesian Economics article that extends Domar’s work on the supply side effects of investment spending and a 1997 book that provides a comprehensive analysis of the evolution of the U. [more] Working Paper No. 488
Policy Notes | January 2007 The April AMT Shock Anyone who reads a newspaper knows that most Americans have accumulated excessive levels of debt, and realizes that as interest rates climb, it becomes more difficult to service financial liabilities. To add insult to injury, wage growth has been slow, while prices—especially for energy—have risen sharply. [more] Policy Note 2007/1
Working Papers | December 2006 Global Imbalances, Bretton Woods II, and Euroland's Role in All This Approaching the issue of mounting global imbalances from the perspective of the “Bretton Woods II hypothesis,” this paper argues that the popular preoccupation with China’s supposed export-led development strategy is misplaced. It also suggests, similar to Japan’s depression, subdued growth in Euroland for most of the time since the Maastricht Treaty has been of first-order importance in these developments. [more] Working Paper No. 486
Public Policy Briefs | November 2006 U.S. Household Deficit Spending Over the past decade, deficit spending by consumers has supported the United States economy. Research Associate Robert Parenteau analyzes the financial balance of American households and finds that the pace of deficit spending is likely to stall and, possibly, reverse course. [more] Public Policy Brief No. 88, 2006
Strategic Analysis | November 2006 Can Global Imbalances Continue? In this new Strategic Analysis, we review what we believe is the most important economic policy issue facing policymakers in the United States and abroad: the prospect of a growth recession in the United States. The possibility of recession is linked to the imbalances in the current account, government, and private sector deficits. [more] Strategic Analysis, November 2006
Public Policy Brief Highlights | November 2006 U.S. Household Deficit Spending Over the past decade, deficit spending by consumers has supported the United States economy. Research Associate Robert Parenteau analyzes the financial balance of American households and finds that the pace of deficit spending is likely to stall and, possibly, reverse course. [more] Public Policy Brief Highlights No. 88A, 2006
Public Policy Briefs | October 2006 Rethinking Trade and Trade Policy The theory of comparative advantage says that there are gains from trade for the global economy as a whole. In this second brief of a three-part study of the international economy, Research Associate Thomas Palley observes that comparative advantage is driven by technology, which can be influenced by human action and policy. [more] Public Policy Brief No. 86, 2006
Public Policy Brief Highlights | October 2006 Rethinking Trade and Trade Policy The theory of comparative advantage says that there are gains from trade for the global economy as a whole. In this second brief of a three-part study of the international economy, Research Associate Thomas Palley observes that comparative advantage is driven by technology, which can be influenced by human action and policy. [more] Public Policy Brief Highlights No. 86A, 2006
Strategic Analysis | May 2006 Can the Growth in the U.S. Current Account Deficit Be Sustained? Can the growth in the current account deficit be sustained? How does the flow of deficits feed the stock of debt? How will the burden of servicing this debt affect future deficits and economic growth? President Dimitri B. Papadimitriou and Research Scholars Edward Chilcote and Gennaro Zezza address these and other questions in a new Strategic Analysis. [more] Strategic Analysis, May 2006
Policy Notes | April 2006 Debt and Lending Many papers published by the Levy Institute during the last few years have emphasized that the American economy has relied too much on the growth of lending to the private sector, most particularly to the personal sector, to offset the negative effect on aggregate demand of the growing current account deficit. Moreover, this growth in lending cannot continue indefinitely. [more] Policy Note 2006/4
Policy Notes | April 2006 Twin Deficits and Sustainability In the mid-to-late 1980s, the American economy simultaneously produced—for the first time in the postwar period—huge federal budget deficits as well as large current account deficits, together known as the “twin deficits”. This generated much debate and hand-wringing, most of which focused on supposed “crowding-out” effects. [more] Policy Note 2006/3
Working Papers | April 2006 A Random Walk Down Maple Lane? The development of the permanent income/life cycle consumption hypothesis was a key blow to Keynesian and Kaleckian economics. According to George Akerlof, it “set the agenda” for modern neoclassical macroeconomics. [more] Working Paper No. 445
Policy Notes | February 2006 The Fiscal Facts Today’s federal budget deficits are a preoccupation of many American citizens and more than a few political leaders. Is the American government going bankrupt? [more] Policy Note 2006/2
Working Papers | February 2006 Prolegomena to Realistic Monetary Macroeconomics This paper sets out a rigorous basis for the integration of Keynes-Kaleckian macroeconomics (with constant or increasing returns to labor, multipliers, markup pricing, et cetera) with a model of the financial system (comprising banks, loans, credit money, equities, and so on), together with a model of inflation. Central contentions of the paper are that there are virtually no equilibria outside financial markets, and the role of prices is to distribute the national income, with inflation sometimes playing a key role in determining the outcome. [more] Working Paper No. 441
Strategic Analysis | January 2006 Are Housing Prices, Household Debt, and Growth Sustainable? Rising home prices and low interest rates have fueled the recent surge in mortgage borrowing and enabled consumers to spend at high rates relative to their income. Low interest rates have counterbalanced the growth in debt and acted to dampen the growth in household debt-service burdens. [more] Strategic Analysis, January 2006
Strategic Analysis | September 2005 The United States and Her Creditors The main arguments in this paper can be simply stated: 1) If output in the United States grows fast enough to keep unemployment constant between now and 2010, and if there is no further depreciation in the dollar, the deficit in the balance of trade is likely to get worse, perhaps reaching 7.5 per cent by the end of the decade. [more] Strategic Analysis, September 2005
Policy Notes | June 2005 Some Unpleasant American Arithmetic Is it sufficiently realized how intractable those account imbalances—and how dangerous their potential consequences at home and abroad—have now [more] Policy Note 2005/5
Policy Notes | April 2005 Imbalances Looking for a Policy The latest batch of numbers from the United States makes for a disturbing read. The GDP growth rate of GDP has been adequate. [more] Policy Note 2005/4
Working Papers | April 2005 The Disutility of International Debt In dealing with the problematic relationship of morality to rational choice theory, neoclassical economists since Lionel Robbins have often argued that they can incorporate moral values into consumer theory by putting those values into the utility function. This paper tests the viability of such an approach in the context of international finance. [more] Working Paper No. 422
Working Papers | April 2005 A Simplified Stock-flow Consistent Post-Keynesian Growth Model Despite being arguably the most rigorous form of structuralist/post-Keynesian macroeconomics, stock-flow consistent models are quite often complex and difficult to deal with. This paper presents a model that, despite retaining the methodological advantages of the stock-flow consistent method, is intuitive enough to be taught at an undergraduate level. [more] Working Paper No. 421
Strategic Analysis | March 2005 How Fragile Is the U.S. Economy? As we projected in a previous Strategic Analysis, the United States' economy experienced growth rates higher than 4 percent in 2004. The question we want to raise in this Strategic Analysis is whether these rates will persist or come back down. [more] Strategic Analysis, March 2005
Working Papers | November 2004 Measuring Capacity Utilization in OECD Countries This paper derives measures of potential output and capacity utilization for a number of OECD countries, using a method based on the cointegration relation between output and the capital stock. The intuitive idea is that economic capacity (potential output) is the aspect of output that co-varies with the capital stock over the long run. [more] Working Paper No. 415
Strategic Analysis | August 2004 Prospects and Policies for the U.S. Economy The American economy has grown reasonably fast since the second half of 2003, and the general expectation seems to be that satisfactory growth will continue more or less indefinitely. This paper argues that the expansion may indeed continue through 2004 and for some time beyond. [more] Strategic Analysis, August 2004
Book Series | August 2004 Induced Investment and Business Cycles This unique volume presents, for the first time in publication, the original doctoral thesis of Hyman P. Minsky, one of the most innovative thinkers on financial markets. [more] Book Series, August 2004
Working Papers | May 2004 Keynesian Theorizing during Hard Times This paper argues that the Stock-Flow Consistent Approach to macroeconomic modeling can be seen as a natural outcome of the path taken by Keynesian macroeconomic thought in the 1960s and 1970s, a theoretical frontier that remained largely unexplored with the end of Keynesian academic hegemony. The representative views of Davidson, Godley, Minsky, and Tobin as different closures of the same SFC accounting framework are presented, and similarities and problems discussed. [more] Working Paper No. 408
Policy Notes | May 2004 Those “D” Words Recent economic commentary has been filled with “D” words: deficits, debt, deflation, depreciation. Deficits—budget and trade—are of the greatest concern and may be on an unsustainable course, as federal and national debt grow without limit. [more] Policy Note 2004/2
Strategic Analysis | April 2004 Is Deficit-financed Growth Limited? Wynne Godley, our Levy Institute colleague, has warned since 1999 that the falling personal saving and rising borrowing trends that had powered the U.S. [more] Strategic Analysis, April 2004
Working Papers | February 2004 A Stock-flow Consistent General Framework for Formal Minskyan Analyses of Closed Economies This paper reviews the general tenets of "stock-flow consistent" and the "formal Minskyan" literatures and argues that the advantages and weaknesses of the latter become clearer when analyzed with the tools of the former. It also analyzes a small but representative and influential sample of seminal "formal Minskyan" models, particularly the Taylor-O'Connel model, in light of a fully consistent "Minskyan artificial economy. [more] Working Paper No. 403
Working Papers | February 2004 A Post-Keynesian Stock-flow Consistent Macroeconomic Growth Model Stock-flow consistent models may be considered the rallying point for heterodox authors interested in modeling macroeconomic relations, since these models incorporate real and financial relations in an entirely consistent way, therefore providing macroeconomic constraints to individual behavior. The present model expands on the Godley-Lavoie model of growth, which was based on a two-asset world, with only bank deposits and the shares issued by private corporations. [more] Working Paper No. 402
Working Papers | January 2004 Borrowing Alone Over the past 20 years, finance has become commodified. Firms increasingly obtain finance from securities markets, instead of borrowing from commercial banks with which they have long-term relationships, while Fannie Mae and Freddie Mac package a growing number of mortgages into bonds. [more] Working Paper No. 401
Strategic Analysis | October 2003 Deficits, Debts, and Growth These are fast-moving times. Two years ago, the Congressional Budget Office (CBO, 2001) projected a federal budget surplus of $172 billion for fiscal year 2003. [more] Strategic Analysis, October 2003
Policy Notes | September 2003 Is International Growth the Way Out of U.S. Current Account Deficits? The current account deficit of the United States has been growing steadily as a share of GDP for more than a decade. It is now at an all-time high, over 5 percent of GDP. [more] Policy Note 2003/6
Policy Notes | September 2003 Deflation Worries For the first time since the 1930s, many worry that the world's economy faces the prospect of deflation—accompanied by massive job losses—on a global scale. In a rather hopeful sign, policymakers from Euroland to Japan to America all seem to recognize the threat that falling prices pose to markets. [more] Policy Note 2003/5
Working Papers | September 2003 Measures of the Real GDP of U.S. Trading Partners This paper provides the details of the construction of new quarterly measures of the real GDPs of the 36 trading partners that are taken into consideration by the Federal Reserve in its "broad exchange rate" indexes. These new measures have some important advantages. [more] Working Paper No. 387
Working Papers | May 2003 How Long Can the U.S. Consumers Carry the Economy on Their Shoulders? The consumer has been on a tightrope since the bursting of the "new economy" bubble, as losses in equity markets have been partly offset by gains in real estate and fiscal support and mortgage refinancing have partly offset increased consumer cautiousness. The consumer will remain on a tightrope in the near future, but if the economy were to stumble, the fragile consumer might contribute to turning the downturn into a deep and protracted recession. [more] Working Paper No. 380
Working Papers | May 2003 The Conditions for Sustainable U.S. Recovery The anemic U.S. [more] Working Paper No. 378
Strategic Analysis | March 2003 The U.S. Economy Right through the boom years prior to 2001, the American economy faced a strategic predicament in that the main engine of growth (credit-financed private spending) was unsustainable, from which it followed that the whole stance of the government's fiscal policy would have to be radically changed if the New Economy were not to become stagnant. The boom was indeed broken, because private expenditure fell relative to income. [more] Strategic Analysis, March 2003
Strategic Analysis | November 2002 Is Personal Debt Sustainable? The long economic expansion was fueled by an unprecedented rise in private expenditure relative to income, financed by a growing flow of net credit to the private. On the surface, it seemed that the growing burden of the household sector’s debt was counterbalanced by a spectacular rise in the relative value of its financial assets, but this was never a match among equals, and the great meltdown in the financial markets has proved this imbalance to be true. [more] Strategic Analysis, November 2002
Strategic Analysis | April 2002 Strategic Prospects and Policies for the U.S. Economy Notwithstanding the great achievements of the American economy, the growth of aggregate demand during the past several years has been structured in a way that would eventually prove unsustainable. During the main period of economic expansion, the fiscal stance tightened at a much greater pace than in any period during the previous 40 years, and net export demand progressively deteriorated to record deficit levels. [more] Strategic Analysis, April 2002
Strategic Analysis | October 2001 The Developing U.S. Recession and Guidelines for Policy The United States should now be prepared for one of the deepest and most intractable recessions of the post–World War II period, with no natural process of recovery in prospect unless a large and complex reorientation of policy occurs both here and in the rest of the world. The grounds for reaching this somber conclusion are that very large structural imbalances, with unique characteristics, have been allowed to develop. [more] Strategic Analysis, October 2001
Policy Notes | August 2001 The War Economy There is no chance that events will right themselves in a few weeks, or that we will be saved by such underlying factors as technology and productivity growth or by lower interest rates or the provisions of the recent tax act. Rather, we are in for a crisis; the sooner this is recognized and acted upon, the better. [more] Policy Note 2001/8
Strategic Analysis | August 2001 As the Implosion Begins . . . ? Distinguished Scholar Wynne Godley and Research Scholar Alex Izurieta respond to Jan Hatzius’s rebuttal of their July 2001 Strategic Analysis, in which they stated that the American economy was probably already in recession, and that a prolonged period of subnormal growth and rising unemployment was likely unless there were another round of policy changes. Hatzius, a senior economist with Goldman Sachs, vigorously disagreed. [more] Strategic Analysis, August 2001
Policy Notes | July 2001 The New Old Economy Consensus opinion sees the United States' economy growing by around 3 percent per year over the next few years, a high enough rate to keep unemployment low and outpace Europe. One problem with the consensus view is that it pays little heed to the very unusual nature of the American expansion. [more] Policy Note 2001/7
Strategic Analysis | July 2001 As the Implosion Begins . . . ? The American economy is probably now in recession, and a prolonged period of subnormal growth and rising unemployment is likely unless there is another round of policy changes. A further relaxation of fiscal policy will probably be needed, but if a satisfactory rate of growth is to be sustained, this will have to be complemented by measures that raise exports relative to imports. [more] Strategic Analysis, July 2001 (revised August 2001)
Working Papers | June 2001 Contradictions Coming Home to Roost? It is widely believed that the current economic slowdown will be mild and temporary in nature, the result of a momentary wobble in the stock market. This paper argues that the slowdown stands to be more deep-seated, owing to contradictions in the existing process of aggregate demand generation. [more] Working Paper No. 332
Strategic Analysis | January 2000 Interim Report If the United States’ balance of trade does not improve, the country could eventually find itself in a “debt trap,” the author says. The aim of this paper, the second in a series offering Godley’s strategic analysis, is to display what seems reasonably likely to happen if world output recovers but otherwise past trends, policies, and relationships continue. [more] Strategic Analysis, January 2000
Strategic Analysis | January 1999 Seven Unsustainable Processes Conference on Inequality in the Industrialized and Developing Countries * Special Feature on Inventories and the U.S. [more] Strategic Analysis, January 1999 (revised October 2000)
Working Papers | August 1998 Derivatives and Global Capital Flows Four factors in the current financial crisis in Asia have surprised observers. First, although capital flows in Asia appeared stable, the crisis was precipitated by the reversal of the very large proportion of short-term lending. [more] Working Paper No. 246
Public Policy Briefs | September 1995 A Critical Imbalance in U.S. Trade According to Wynne Godley, the significance of the deficit in the United States' balance of payments has been underestimated in both public policy and academic discussions, despite the fact that American markets are increasingly dominated by foreign manufacturers. Godley analyzes the problem posed by the current balance of payments deficit. [more] Public Policy Brief No. 23, 1995
Public Policy Briefs | September 1992 An Economic Assessment: Contained Depression or the Foothills of Recovery? Robert Barbera and David A. Levy offer contrasting assessments of the United States' economy during the late 1980s and early 1990s. [more] Public Policy Brief No. 2, 1992
Book Series | April 1992 Profits, Deficits, and Instability Business accounting defines profits as total revenue minus total costs. Economic theory uses various definitions of profits according to what is being measured (for example, return to ownership, national income profits, real profits) and for what purpose. [more] Book Series, April 1992