Posted, July 29, 2010
Financial Crisis | American Economy | Economic Development & Trade | Labor & Employment
The Great Crisis and the American Response
Galbraith, James K.
The Levy Economics Institute of Bard College, Public Policy Brief No. 112, June 12, 2010, 12p (PDF)
"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."
James K. Galbraith is currently a professor at the Lyndon B. Johnson School of Public Affairs and at the Department of Government, University of Texas at Austin. He is also a Senior Scholar with the Levy Economics Institute of Bard College. Fulltext B1/03-10
Too Big to Fail in Financial Crisis: Motives, Countermeasures, and Prospects
The levy Economics Institute of Bard College, June 16, 2010, 31p (PDF)
"Regulatory forbearance and government financial support for the largest U.S. financial companies during the crisis of 2007–09 highlighted a “too big to fail” problem that has existed for decades. As in the past, effects on competition and moral hazard were seen as outweighed by the threat of failures that would undermine the financial system and the economy. As in the past, current legislative reforms promise to prevent a reoccurrence. This paper proceeds on the view that a better understanding of why too-big-to-fail policies have persisted will provide a stronger basis for developing effective reforms. After a review of experience in the United States over the last 40 years, it considers a number of possible motives."
Bernard Shull is Professor Emeritus, Hunter College, CUNY and Special consultant for the National Economic Research Associates. Fulltext B2/03-10
How We Are Handling the Crisis:
Challenge, May/June 2010, v53, #3
How Stimulative has Fiscal Policy Been Around the World
Esteban Perez Caldentey is an economic affair officer at the Economic Commission for Latin America and the Caribbean, Santiago, Chile. Matias Vernengo is associate professor of economics at the University of Utah, Salt Lake City.
Caldentey, Esteban Perez; Vernengo, Matias
Challenge, May/June 2010, v53, #3, pp6-31
"The current credit crisis and worldwide policy response have resurrected the reputation of fiscal policy. But the authors contend that it is still widely misunderstood. Many of those who now support fiscal stimulus – such as more government spending –have a limited view of its usefulness, one advocated by the pre-Friedmanite economists of the University of Chicago. It stands in contrast to the more thorough Keynesian revolution, which they argue now more than ever needs to be understood. The result has been far smaller fiscal stimulus packages than are necessary to return nations to rapid growth."
- New York City’s Tale of Two Recessions
Challenge, May/June 2010, v53, #3, pp32-47
A widening disconnect is emerging between the real economy and the financial sector that precipitated this calamitous downturn. While the unprecedented financial bailout measures by the Treasury and Federal Reserve have not fixed the financial system’s myriad problems, they have restored profitability on Wall Street. Although the gross domestic product’s rebound in the last half of 2009 may signal the technical end to the Great Recession, most economic forecasts expect anemic growth through the end of 2010. Household struggle with debts burdens unsupportable in a bleak labor market with few jobs and stagnant or declining real wages. Unemployment is expected to stay very high well into 2011 and possibly 2012.
James Parrot is the deputy director and chief economist of the fiscal Policy institute, New York. Order articles B3/03-10
Grading Our Policymakers: A Symposium of Views
The International Economy (TIE),
Spring 2010, v24, #2, online edition, 12p (PDF)
"Blame for the Great Financial Crisis can be laid on many causes. Some argue that the crisis stemmed from severe global savings imbalances that led to the under-pricing of financial risk. The United States consumed too much and saved too little, while large parts of the world became dangerously export-dependent. To what extent have our policy leaders addressed these and other causes to prevent future crises? Two dozen experts offer their views." Fulltext B4/03-10
In Defense of Europe’s Grand Bargain
Kirkegaard, Jacob Funk
Peterson Institute, June 2010, online edition, 11p
"The current European economic crisis is principally fiscal in nature. During the
weekend of May 8–9, 2010, European leaders crafted a very important and
constructive political "grand bargain" between EU member states and the European Central Bank (ECB) with far reaching, positive implications for the credibility of the European Union's fiscal policy framework and the long-term sustainability of European government finances. There is no chance that the eurozone will break up as a result of the current economic crisis and in the long term from the effects of the grand bargain."
Jacob Funk Kirkegaard has been a research fellow at the Institute since 2002.
Before joining the Institute, he worked with the Danish Ministry of Defense, the
United Nations in Iraq, and in the private financial sector. Fulltext B5/03-10
The Euro? Will it Still Be Around Five Years from Now?
Brittan, Samuel; Tietmeuer, Hans; Bergsten, Fred C.; Eichengreen, Barry; Meltzer, Allan H.
The International Economy (TIE) , Spring 2010, v24, #2, pp6-11
"It is not given to human beings to foresee the future. But the attempt to do so can often shed light on present problems. When the euro was launched, first as a unit of account in 1999 and then as an actual circulating medium in 2002, the driving force was political, not economic. It was seen by European leaders as a backdoor way of moving towards a federal Europe. Economists and businessmen, especially in Germany, were much more skeptical, but reluctantly went along." Five distinguished thinkers offer their views on the future of the Euro.
Samuel Brittan is a columnist at the Financial Times. Samuel Tietmeuer is the former president of the Deutsche Bundesbank. Fred C. Bergsten is the director of the Peterson Institute for international Economics. Barry Eichengreen is professor of Economics and Political Science at the University of California, Berkeley. Allan H. Meltzer, professor of Political Economy at the Tepper School of Business, Carnegie Mellon University, is a visiting scholar at the American Enterprise Institute. Fulltext B6/03-10
Death of the (German) Euro
Engelen, Klaus C.
The International Economy (TIE), Spring 2010, v24, #2, pp13-22
"For the generation of Germans characterized by European Community President Jacques Delors in 1992 with the words, "Not all Germans believe in God, but they all believe in the Bundesbank," a sense of "Götterdämmerung" has pervaded the air during the past few weeks. The threat of Greek bankruptcy has escalated into a full-blown financial crisis, severely damaging the public's confidence and trust in the single European currency - the euro - and in the European Central Bank, the Bundesbank's successor institution. Europe faces a twilight of the gods, indeed."
Klaus Engelen is a contributing editor for both Handelsblatt and TIE. Fulltext B7/03-10
The Severity of the Economic Crisis and the Direction of America's Recovery
Bailey, Martin Neil
The Brookings Institution, July 2, 2010, online edition, 14p
"The policies that restored the financial sector and helped turn around this very deep recession were not pretty but they were the right policies and they helped save the U.S. economy and indeed the global economy. The high unemployment, fluctuating stock market, struggling housing market and sluggish recovery that unfortunately are still with us are making the Administration and many other policymakers unpopular. It is too bad that the electorate does not give credit for the turnaround that has happened. It should."
Martin Baily, chairman of the Council of Economic Advisers during the Clinton administration (1999–2001). Fulltext B8/03-10
Deficit Hysteria Redux? Why We Should Stop Worrying About U.S. Government Deficits
Nersisyan, Yeva; Wray, L. Randall
The Levy Economics Institute of Bard College, May 2010, 21p (PDF)
The authors "argue that today’s deficits do not burden future generations with debt that must be repaid, nor do they crowd out private spending now or in the future. […] Our arguments are not really new—they can be found in numerous Levy Institute publications over the past two decades. Nor is the deficit hysteria new; it returns predictably on cue, like an undead monster in a horror flick, to constrain rational policy when a downturn causes the deficit to grow. In the current case, however, the stakes are higher than they have been since the 1930s. Our economy faces such strong headwinds that it requires a fiscal expansion that could result in even larger and perhaps more prolonged deficits than those now projected. Thus, it is more important than ever to explain why sustained budget deficits do not threaten our future."
Senior Scholar L. Randall Wray is a professor of economics and director of the Center for Full Employment and Price Stability at the University of Missour, Kansas City. Fulltext B9/03-10
W(h)ither the Dollar?
Dollars & Sense, May/June 2010, pp13-21
"For more than Half a century, the Dollar was both a symbol and an instrument of
U.S. economic and military power. At the height of the financial crisis in the
fall of 2008, the dollar served as a safe haven for investors, and demand for
U.S. Treasury bonds ("Treasuries") spiked. More recently, the United States has faced a vacillating dollar; calls to replace the greenback as the global reserve currency; and an international consensus that it should save more and spend less."
Katherine Sciacchitano is a former labor lawyer and organizer. She teaches
political economy at the National Labor College. Fulltext B10/03-10
Recovery or Relapse: The Role of the G-20 in the Global Economy
Blustein, Paul; Bradford, Paul; Kharas, Homi; Linn, Johannes; Lombardi, Domenico; Prasad, Eswar; Suruma, Ezra
Global Economy and Development at Brookings, June 2010, online edition, 20p (PDF)
Almost a year after the G-20 Summit in Pittsburgh, the question "still remains: is the world economy really recovering? Or are we beginning to see a relapse? Experts from the Brookings Global Economy and Development program examine this question, analyze the current economic climate, and provide recommendations on how the G-20 should continue to serve as the “premier forum for international economic cooperation."
Paul Blustein is a nonresident fellow in the Global Economy and Development Program at the Brookings Institution. Paul Bradford is a nonresident senior fellow in the Global Economy and Development Program at the Brookings Institution. Homi Kharas is a senior fellow and deputy director for the Global Economy and Development program at the Brookings Institution. Linn Johannes is a former World Bank vice president for Europe and Central Asia. Domenico Lombardi is an expert on G-20 and G-8 Summits, international monetary relations, and global currencies. Eswar Prasad is the Tolani senior professor of Trade Policy at Cornell University. Ezra Suruma is a Ugandan economist and banker. He is a visiting fellow at the Brookings Institute. Fulltext B11/03-10
Rajan, Raghuram G.
The National Interest, July/August 2010, pp26-36
"Multilateral organizations like the IMF should present countries with a course
of action that is individually and collectively beneficial. Member states must
be persuaded that the collective gain is worth the short-term national pain.
When national leaders walk into international closed-door meetings, bolstered by greater domestic understanding, if not political support, for painful reforms, worldwide agreements will become easier (though still less than a cakewalk). If we are to have any hope at all of global cooperation, international multilateral organizations will have to work with global democracy rather than avoid it."
Raghuram G. Rajan, a former chief economist at the IMF, is the Eric J. Gleacher
distinguished service professor of finance at the University of Chicago's Booth
School of Business. Fulltext B12/03-10
The New Global Opportunity
Fortune, July 5, 2010, v162, #1, pp96-102
This article discusses economic opportunities during a time of financial crisis. The author
analyzes the global economy in several ways and one of those ways shows that the distribution of most of the world's economic wealth is with countries that have about 16 percent of the population. The article discusses how developing economies in Africa, Asia, and South America are changing social attitudes towards women and how women may be at the center of the economy of the future."
Michael Elliott is editor at large for Time magazine in New York City. Fulltext B13/03-10
CQ Global Researcher, April 2010, v4, #4, pp79-104
"Since the 1980s, millions of impoverished people around the world without access to banks have been able to take out tiny loans to start businesses. Nobel Prize-winning economist Muhammad Yunus, who established the first microfinance bank in Bangladesh and launched the modern microlending movement, claims microloans have lifted millions — especially women — out of poverty and spurred economic growth. But recent studies cast doubt on microcredit's effectiveness. Borrowers have been saddled with multiple loans at exorbitant interest rates, often having to borrow from loan sharks to make their microcredit payments. Economists fear overindebtedness could make borrowers even poorer and that a possible credit bubble could burst. Others worry that in recent years, for-profit investors have swarmed to the field, attracted by high returns on investment. Some governments have capped microlenders' interest rates, but the industry hopes to forestall regulation by adopting voluntary consumer protection measures."
Sarah Glazer, a freelance journalist, is a regular contributor to the CQ Global Researcher. Order article B14/03-10
Business and Trade
The Class of 2010: Economic Prospects for Young Adults in the Recession
Bivens, Josh et al.
Economic Policy Institute, May 11, 2010, 14p (PDF)
"This paper documents several aspects of the grim labor market situation facing young graduates. It also discusses ways that government policy both helps and ways that it fails to help young workers damaged by the recession. The class of 2010 is graduating at a particularly bad time, and their poor job prospects are manifestly not their fault. They need a response from policy makers that appreciates these facts."
Josh Bivens is the director of the Race, Ethnicity, and the Economy program at the Economic Policy Institute. Fulltext B17/03-10
Opening Doors to Women in the Workforce: Making the Workforce Investment Act Work for Women
Center for American Progress, July 2, 2010, online edition, 33p
"The U.S. workforce development system is not meeting the needs of one half of our workforce—women. The Workforce Investment Act is a critical tool for employment and training for American workers. But WIA emphasizes quick job placement over building skills or attaining education, and the system is not set up to recognize and prevent unequal results of women or other participants."
Liz Weiss is a policy analyst with the economic policy team at the Center for American Progress. Her work focuses on the economic security of unmarried women, emphasizing employment and workplace issues. Fulltext B18/03-10
Is a College Education Important?
CQ Researcher, June 4, 2010, v20, #21, pp481-504
"The economy has finally started to grow again, but more than 8 million jobs that
disappeared after the economic crisis began in late 2007 haven't returned, and
the unemployment rate is nearly 10 percent. To be sure, 290,000 jobs have been
added, but the jobless rate remains high. [..] What's the best strategy for getting a job in today's tough job market?
Experts may argue over how many jobs are at risk, but no one disputes that a
college degree gives by far the best salaries and the best odds for finding a
job — and the ability to switch careers if necessary. Demand is also rising at
the low end of the market, but mid-level jobs that fall in between the two
extremes may be most at risk."
Peter Katel is a CQ researcher staff writer. Order article B19/03-10