"Promoting Equality Through an Employment of Last Resort Policy"

To put an economy on an equitable growth path, economic development must be based on social efficiency, equity, and job creation. It has been shown that unemployment has far-reaching effects, all leading to an inequitable distribution of well-being. But many economists assume that unemployment tends toward a natural rate below which it cannot go without creating inflation. The paper considers a particular employment strategy: a government job creation program, such as an employment guarantee or employer-of-last-resort scheme, that would satisfy the noninflationary criteria. The paper analyzes the international experience of government job creation programs, with particular emphasis on the cases of Argentina and India. We conclude by considering the application of an employer-of-last-resort policy to the developing world and as a vehicle to meeting the Millennium Development Goals.

"Government Effects on the Distribution of Income: An Overview"

This paper is the overview chapter of an edited volume on "The Distributional Effects of Government Spending and Taxation." The paper offers the author's perspective on the government's role as a redistributive agent. Taxation and public spending programs are analyzed using the experiences of the United States and other OECD countries. The stark differences among the respective welfare systems are examined from an economic policy lens assessing the success and failure of the tested social policy programs. The measurement and distribution of well-being for special segments of the population, i.e., the elderly and women, are considered.

Europe is now stuck in a fiscal trap, brought about by the failure of orthodox economics to provide an effective strategy for economic growth

The United States has yet to resolve its “fiscal cliff”, its own version of austerity. Dimitri B. Papadimitriou and Greg Hannsgen of the Levy Economics Institute offer an analysis of what they term the “fiscal trap.” They argue many economists and policymakers continue to misunderstand the role of fiscal policy, especially in times of economic turmoil, and have, as a result, failed to offer effective policies to repair the economies of the US and eurozone

"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. In this new Strategic Analysis, the Levy Institute's Macro-Modeling Team focuses on one positive effect--a badly needed improvement of private sector balance sheets--and suggest some of the reasons why it is unlikely that the surge in Fed and federal government liabilities will cause excessive inflation.

"Full Employment Has Not Been Achieved, Full Employment Policy: Theory and Practice"

Claims that the nation has reached full employment take for granted the need for a reserve pool of labor to maintain price stability and labor market flexibility, but are millions of jobless and underemployed workers the best we can do in these times of economic expansion and what will happen when the inevitable downturn comes? Reduction of the workweek and employment subsidies have been proposed to achieve higher employment, but neither is sure to raise employment and both may have serious side effects. A public service employment program that offers jobs at a fixed wage to all who are willing and able to work can provide full employment without inflationary pressures and with labor market flexibility, preserve workers' skills, contribute valuable public services, and be relatively inexpensive.

"Lessons from the New Deal--Did the New Deal Prolong or Worsen the Great Depression?"

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. We argue that initiatives in these policy areas probably did not slow economic growth or worsen the unemployment problem from 1933 to 1939, as claimed by a number of economists in academic papers, in the popular press, and elsewhere. To substantiate our case, we cite some important economic benefits of New Deal–era laws in the two controversial policy areas noted above. In fact, we suggest that the New Deal provided effective medicine for the Depression, though fiscal policy was not sufficiently countercyclical to conquer mass unemployment and prevent the recession of 1937–38; 1933's National Industrial Recovery Act was badly flawed and poorly administered, and the help provided by the National Labor Relations Act of 1935 came too late to have a big effect on the recovery.New Deal; Public Works Projects; NIRA; NLRA; Cartelization; Unions; Labor Relations Policy; Fiscal Policy; Fiscal Stimulus; Unemployment; Great Depression

"The Central Bank 'Printing Press': Boon or Bane? Remedies for High Unemployment and Fears of Fiscal Crisis"

In recent years, the US public debt has grown rapidly, with last fiscal year's deficit reaching nearly $1.3 trillion. Meanwhile, many of the euro nations with large amounts of public debt have come close to bankruptcy and loss of capital market access. The same may soon be true of many US states and localities, with the governor of California, for example, publicly regretting that he has been forced to cut bone, and not just fat, from the state's budget. Chartalist economists have long attributed the seemingly limitless borrowing ability of the US government to a particular kind of monetary system, one in which money is a "creature of the state" and the government can create as much currency and bank reserves as it needs to pay its bills (this is not to say that it lacks the power to impose taxes). In this paper, we examine this situation in light of recent discussions of possible limits to the federal government's use of debt and the Federal Reserve's "printing press." We examine and compare the fiscal situations in the United States and the eurozone, and suggest that the US system works well, but that some changes must be made to macro policy if the United States and the world as a whole are to avoid another deep recession.Budget Deficit; Federal Debt; Debt Tolerances

"(Full) Employment Policy: Theory and Practice"

Although the U.S. unemployment rate in 1998 was at its lowest level since the late 1960s, the nation's employment problem is still far from solved. Although many economists assume that unemployment tends toward a natural rate below which it cannot go without creating inflation, this paper asks whether the current employment levels are the best that can be achieved in times of prosperity and whether current employment policies will be able to deal with the challenges of the next downturn. To evaluate these questions, the author examines the relative merits of three proposed strategies to improve the employment situation-a reduced workweek, employment subsidies, and a public service job opportunity program-to see if they will meet the challenges of upholding an individual's basic right to job while not stimulating inflation. He finds that a shorter workweek and wage subsidies both have failed to meet one or both of these challenges, but that a public service job opportunity program, such as the "employer of last resort policy," would satisfy both the full employment and noninflationary criteria.

"Fiddling in Euroland as the Global Meltdown Nears"

President Dimitri B. Papadimitriou and Senior Scholar L. Randall Wray argue that the common diagnosis of a "sovereign debt crisis" ignores the crucial role of rising private debt loads and the significance of current account imbalances within the eurozone. Profligate spending in the periphery is not at the root of the problem. Moreover, pushing austerity in the periphery while ignoring the imbalances within the eurozone is a recipe for deflationary disaster. The various rescue packages on offer for Greece will not ultimately solve the problem, say the authors, and a default is a very real possibility. If a new approach is not embraced, we are likely seeing the end of the European Monetary Union (EMU) as it currently stands. The consequences of a breakup would ripple throughout the EMU as well as the shaky US financial system, and could ultimately trigger the next global financial crisis.