"The Brazilian Swindle and The Larger International Monetary Problem"

The IMF has offered Brazil a $30 billion loan, most of it reserved for next year, on condition that the country continue to run a large primary surplus in the government budget. In this way the Fund maintains a strong arm over Brazil's next government. Any significant move toward fiscal expansion would trigger revocation of the promised loan, followed by capital market chaos. Or so one is led to suppose.

"Is the New Economy Rewriting the Rules?"

Full employment without inflation can continue--with the right leadership, prudent policy changes to manage the dangers, and cooperation from all branches of the government.

"The Great Crisis and the American Response"

The global abatement of the inflationary climate of the past three decades, combined with continuing financial instability, helped to promote the worldwide holding of U.S. dollar reserves as a cushion against financial instability outside the United States, with the result that, for the United States itself, this was a period of remarkable price stability and reasonably stable economic expansion. For the most part, the economics profession viewed these events as a story of central bank credibility, fiscal probity, and accelerating technological change coupled with changing demands on the labor market, creating a model of self-stabilizing free markets and hands-off policy makers motivated by doing the right thing - what Senior Scholar James K. Galbraith calls "the grand illusion of the Great Moderation." A dissenting line of criticism focused on the stagnation of real wages, the growth of deficits in trade and the current account, and the search for new markets. This view implied that a crisis would occur, but that it would result from a rejection of U.S. financial hegemony and a crash of the dollar, with the euro and the European Union (EU) the ostensible beneficiaries. A third line of argument was articulated by two figures with substantially different perspectives on the Keynesian tradition: Wynne Godley and Hyman P. Minsky. Galbraith discusses the approaches of these Levy distinguished scholars, including Godley’s correlation of government surpluses and private debt accumulation and Minsky's financial stability hypothesis, as well as their influence on the responses of the larger economic community. Galbraith himself argues the fundamental illusion of viewing the U.S. economy through the free-market prism of deregulation, privatization, and a benevolent government operating mainly through monetary stabilization. The real sources of American economic power, he says, lie with those who manage and control the public-private sectors - especially the public institutions in those sectors - and who often have a political agenda in hand. Galbraith calls this the predator state: a state that is not intent upon restructuring the rules in any idealistic way but upon using the existing institutions as a device for political patronage on a grand scale. And it is closely aligned with deregulation.

"What is the American Model Really About? Soft Budgets and the Keynesian Devolution "

The "American Model" serves as a point of reference in discussions of economic policy around the world especially in Europe; many claim that the American version of the free market represents an ideal type-it is the highest form of capitalism. The author argues, however, that the United States has relied heavily on government intervention in housing, health care, pensions, and education. Not only have these programs been largely successful and popular, they also provide a Keynesian stimulus to spending that help account for the strength of the U.S. economy. Now that the U.S. is in a weak, jobless recovery, the key to restoring growth may lie in the kinds of governmental programs that have helped to sustain and stabilize the U.S. economy in the past.

"The Big Fix: The Case For Public Spending"

Keynesian economics is back. As John Maynard Keynes stressed, total spending matters-and not who does it or for what purpose. Tax cuts and deficit spending are, therefore, on the agenda; low interest rates seem here to stay. Stimulus is the watchword of the day. It remains only to fill in the details, or so it seems.

"Is the Federal Debt Unsustainable??"

By general agreement, the federal budget is on an "unsustainable path." Try typing the phrase into Google News: 19 of the first 20 hits refer to the federal debt. But what does this actually mean? One suspects that some who use the phrase are guided by vague fears, or even that they don't quite know what to be afraid of. Some people fear that there may come a moment when the government's bond markets would close, forcing a default or "bankruptcy." But the government controls the legal-tender currency in which its bonds are issued and can always pay its bills with cash. A more plausible worry is inflation-notably, the threat of rising energy prices in an oil-short world-alongside depreciation of the dollar, either of which would reduce the real return on government bonds. But neither oil-price inflation nor dollar devaluation constitutes default, and neither would be intrinsically "unsustainable." After a brief discussion of the major worries, Senior Scholar James Galbraith focuses on one, and only one, critical issue: the actual behavior of the public-debt-to-GDP ratio under differing economic assumptions through time. His conclusion? The CBO's assumption that the United States must offer a real interest rate on the public debt higher than the real growth rate by itself creates an unsustainability that is not otherwise there. Changing that one assumption completely alters the long-term dynamic of the public debt. By the terms of the CBO's own model, a low interest rate erases the notion that the US debt-to-GDP ratio is on an "unsustainable path." The prudent policy conclusion? Keep the projected interest rate down. Otherwise, stay cool: don't change the expected primary deficit abruptly, and allow the economy to recover through time.

"Dangerous Metaphor: The Fiction of the Labor Market, Unemployment, Inflation, and the Job Structure"

The concept of a labor market, responding to familiar underpinnings of supply and demand, completely colors thought on the relationship between employment, wages, and inflation, according to James K. Galbraith. However, he asserts, wages are determined not by such market forces, but by what he calls the job structure--a complex set of status and pay relationships involving individual qualifications, job characteristics, and industry patterns. What is the meaning of the job structure for policy? Notions of natural rates of unemployment and inflationary barriers to full employment fade away. Supply-side measures can no longer been seen as adequate to deal with problems of unemployment and inequality. Questions of distribution of income and adjustment of the wage structure are returned to the political context. The active pursuit of full employment is returned to the list of respectable, and essential, policy goals.

"Financial and Monetary Issues as the Crisis Unfolds"

A group of experts associated with the Economists for Peace and Security and the Initiative for Rethinking the Economy met recently in Paris to discuss financial and monetary issues; their viewpoints, summarized here by Senior Scholar James K. Galbraith, are largely at odds with the global political and economic establishment. Despite noting some success in averting a catastrophic collapse of liquidity and a decline in output, the Paris group was pessimistic that there would be sustained economic recovery and a return of high employment. There was general consensus that the precrisis financial system should not be restored, that reviving the financial sector first was not the way to revive the economy, and that governments should not pursue exit strategies that permit a return to the status quo. Rather, the crisis exposes the need for profound reform to meet a range of physical and social objectives.

"The Collapse of Monetarism and the Irrelevance of the New Monetary Consensus"

What in monetarism, and what in the "new monetary consensus," led to a correct or even remotely relevant anticipation of the extraordinary financial crisis that broke over the housing sector, the banking system, and the world economy in August 2007 and that has continued to preoccupy central bankers ever since? Absolutely nothing, says Senior Scholar James K. Galbraith. In this new Policy Note, Galbraith reevaluates monetary policy in light of the collateral damages inflicted by the subprime mortgage crisis. He provides a critique of monetarism--what Milton Friedman famously defined as the proposition that "inflation is everywhere and always a monetary phenomenon"--and of the "new monetary consensus" on which Federal Reserve Chairman Ben Bernanke's ostensible doctrine of inflation targeting rests. Given the current economic crisis, Galbraith says, the Fed would do well to embrace the intellectual victory of John Maynard Keynes, John Kenneth Galbraith, and Hyman P. Minsky--and act accordingly.

"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.