Considerations on Interest Rate Exogeneity

The idea of an exogenous money supply—controlled entirely through centralbank interventions—was a fundamental tenet of monetarism and New Classical economics. Post Keynesians have developed an extensive literature arguing that the money supply is in fact endogenous—that market forces combine with central banks in establishing the money supply.But Post Keynesians disagree on a related question: to what extent are interest rates set exogenously by central banks? To address this issue, this paper presents evidence regarding the movement of market interest rates in U.S. financial markets relative to the Federal Reserve-controlled Federal Funds rate. Concluding that market interest rates are primarily set through market forces—i.e. are largely endogenous—the paper then discusses the primary source of interest rate endogeneity. This is the instability of deregulated financial markets, which leads market participants to make wide swings in their risk assessments over time. It follows that effective regulatory policies to stabilize markets and control interest rates directly will increase the degree of interest rate exogeneity. The paper concludes with proposals for establishing greater control over market interest rates.

Response to “Seven Myths about Green Jobs” and “Green Jobs Myths”

In this working paper, Robert Pollin responds to critics who purport to debunk “myths” about recent studies on the employment effects of investments in the clean energy economy. These papers are written as a response to what they term the “rapidly gaining popularity” of four studies that attempt to show the employment gains that can emerge from investments in building a clean energy economy in the United States, including Green Recovery, co-published by the Center for American Progress and PERI. Overall, these papers offer no challenge to the central explanations as to how investing in the green economy will provide significant benefits throughout the U.S. economy.

Austerity is Not a Solution: Why the Deficit Hawks are Wrong

Wall Street hyper-speculation brought the global economy to its knees in 2008-09.� To prevent a 1930s-level Depression at that time, economic policymakers throughout the world enacted extraordinary measures.� These included large-scale fiscal stimulus programs, financed by major expansions in central government fiscal deficits.� In the U.S., the fiscal deficit reached 9.9 percent of GDP in 2009, and is projected at 10.3 percent of GDP in 2010.� But roughly 18 months after these measures were introduced, a new wave of opposition to large-scale fiscal deficits has emerged.�� This paper reviews the arguments developed by various leading deficit hawks.� In� fact, they are not advancing one main argument or even a unified set of positions, but rather four distinct claims:� 1)� Large fiscal deficits will cause high interest rates, large government debts, and inflation; 2) Even if the current deficits have not caused high interest rates and inflation, they are eroding business confidence; 3) The multiplier for fiscal stimulus policies is always close to zero and has been so with the current measures; and 4) Regardless of short-term considerations, we are courting disaster in the long run with structural deficits that the recession only worsened.� This paper argues that none of these deficit hawk positions stand up to scrutiny.� I also argue that through critiquing the four deficit-hawk positions, we can also bring greater clarity toward developing a workable recovery program.� This will include fiscal deficits that can stabilize state and local government budgets; maintain sufficient funds for unemployment insurance; and continue support for long-term investments in traditional infrastructure and clean energy.��� But such fiscal policies also need to combine with credit-market measures that are capable of ‘pulling on a string’—i.e. creating strong enough incentives for both lenders and borrowers to unlock credit markets.

Is Full Employment Possible Under Globalization? (revised)

To honor the life work of Professor Sumner Rosen, this lecture examines approaches to promoting full employment at decent jobs within our contemporary era of globalization. The lecture briefly summarizes the theories of unemployment of Marx, Friedman, Keynes and Kalecki. It then addresses the meaning of full employment within the alternative theories and under different historical and country settings. It next considers the issue of the inflation/unemployment trade-off, and the Meidner-Rehn Swedish approach to inflation control under full employment. It concludes by presenting a sketch of something approximating a full employment program for the contemporary U.S. economy, focusing on ending the Iraq war and reallocation public spending toward health care, education, and green growth.�full employment, globalization, theories of unemployment, inflation

Financial Structures and Egalitarian Economic Policy

Written in 1995 and published in the New Left Review, this Working Paper remains highly relevant to the current financial crisis. Pollin grapples with how we can maintain the pursuit of egalitarianism in the context of globalization. He considers how we may harness financial institutions and activities to promote renewed egalitarian policy, by bringing dramatic increases in the democratic control over financial markets and the allocation of credit. He proposes ways to do so without sacrificing the basic sources of micro efficiency and macro coordination and stability that are necessary for any viable economic strategy.