"Minsky's Analysis of Financial Capitalism"

In this paper, the authors discuss Minsky's analysis of the evolution of one variety of capitalism--financial capitalism--which developed at the end of the nineteenth century and was the dominant form of capitalism in the developed countries after World War II. Minsky's approach, like those of Schumpeter and Veblen, emphasized the importance of market power in this stage of capitalism. According to Minsky, modern capitalism requires expensive and long-lived capital assets, which, in turn, necessitate financing of positions in these assets as well as market power in order to gain access to financial markets. It is the relation between finance and investment that creates instability in the modern capitalist economy. Financial capitalism emerged from World War II with an array of new institutions that made it stronger than ever before. As the economy evolved, it moved from this more successful form of financial capitalism to the fragile form of capitalism that exists today.

"Does Social Security Need Saving? Providing for Retirees throughout the Twenty-first Century"

Projections of an impending crisis in financing Social Security depend on unduly pessimistic assumptions about basic demographic and economic variables. Moreover, even if the assumptions are accepted, the projected gap between Social Security revenues and expenditures would not constitute a "crisis" and could be eliminated with relatively simple adjustments when it occurs. The real issue regarding our ability to provide for retirees throughout the coming century is not the size of Social Security Trust Funds, but the size and distribution of the whole economic pie. When the issue is viewed in this light, it becomes clear that most proposals to "save" the system-locking away budget surpluses, investing the Trust Funds in the stock market, privatization, reduction of benefits-do not address the real problem of caring for future retirees. Solutions consistent with the true nature and scope of the problem lie not within the Social Security system itself but in the realm of a general fiscal policy aimed at ensuring the growth of the economy.

Minsky's Analysis of Financial Capitalism

In this paper, the authors discuss Minsky's analysis of the evolution of one variety of capitalism-financial capitalism-which developed at the end of the nineteenth century and was the dominant form of capitalism in the developed countries after World War II. Minsky's approach, like those of Schumpeter and Veblen, emphasized the importance of market power in this stage of capitalism. According to Minksy, modern capitalism requires expensive and long-lived capital assets, which, in turn, necessitate financing of positions in these assets as well as market power in order to gain access to financial markets. It is the relation between finance and investment that creates instability in the modern capitalist economy. Financial capitalism emerged from World War II with an array of new institutions that made it stronger than ever before. As the economy evolved, it moved from this more successful form of financial capitalism to the fragile form of capitalism that exists today.

"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.

"Understanding Deflation: Treating the Disease, Not the Symptoms"

Deflation can be defined as a falling general price level utilizing one of the common price indices.the consumer price index; the GDP deflator or other, narrower indices as the wholesale price index; or an index of manufactured goods prices. Falling indices of output prices can be the result of several mechanisms: productivity increases, quality increases and hedonic imputations of prices, competition from low-cost producers, government policy influences, or depressed aggregate demand. Falling output prices, in turn, can have strong effects, especially on the ability to service debts fixed in nominal terms; depending on the level of indebtedness of households and firms, they can set off a classic Minsky-Fisher debt deflation spiral. In this paper, we argue that deflation can and usually does generate large economic and social costs, but it is more important to understand that deflation itself is a symptom of severe and chronic economic problems. This distinction becomes important for the design and implementation of economic policy.

"Fiscal Policy For the Coming Recession: Large Tax Cuts are Needed to Prevent a Hard Landing"

Growing government surpluses, a ballooning trade deficit, and the resulting growth in private sector debt have placed the U.S. economy in a precarious position. Papadimitriou and Wray agree with President George W. Bush that fiscal stimulus is necessary to reinvigorate the economy; in the current economic environment, monetary policy will not work. However, a tax cut that would adequately stave off a downturn needs to be substantially larger than that proposed by the president. Therefore, in addition to the president's proposal to cut marginal income tax rates, the authors include among their recommends a payroll tax reduction and an expansion of the EITC.

"Are We All Keynesians (Again)?"

It is now widely recognized that economists and policymakers alike had been living a 30-year fantasy. The best government is not that which governs least. The best economy is not that which is abandoned to the invisible fist of the unconstrained market. Our national and individual security is not best left to the fate of the private pursuit of maximum profit. The events of September 11 underscored what was already apparent: Big Government needs to play a bigger role in our economy. Our late Levy Institute colleague Hyman Minsky has been vindicated once more.

"Can Social Security Be Saved?"

The first part of this paper is an overview of projections of Social Security's future and an explanation of why the projections have led many to believe there is a looming financial crisis. We argue that any problems to be faced are far down the road and not severe enough to justify the use of the word "crisis." Something will have to be done to resolve the real and financial problems that are likely to crop up in two or three decades. However, this does not in itself mean that something has to be done today specifically to save Social Security. The second part of the paper discusses the real and financial nature of Social Security's problems. Almost all commentators have focused on the financing of Social Security and thus have proposed financial solutions. We argue that the questions about the future of Social Security concern the size and distribution of the real economic pie. Once this is recognized, it becomes obvious that none of the popular reforms, such as privatization, reduction of current benefits, and President Clinton's proposal to "set aside" budget surpluses, can really help. We conclude with alternative policy recommendations that are consistent with the true nature of the future problem.