US Financial Regulations: Plugging holes in a faulty dam

Jeff Madrick

Paul Volcker says the financial reregulation bill passed to much hoopla by Congress in mid-July deserves only a grade of B.  Sheila Bair, head of the Federal Deposit Insurance Corporation, says the Basel committee of the Bank for International Settlements is already backing off stern capital requirements for banks that the bill was supposed to establish. Michael Mandel, the former chief economist of Business Week, says he cannot even tell you what the financial regulation bill is trying to accomplish.

To most people, the new financial reregulation package must look like the work of a bunch of Congressmen, along with the President’s economic team, plugging holes in a dam.   The Obama Treasury got the nation off on the wrong track when it issued its June 2009 white paper. It basically listed a series of problems that had to be dealt with. Does anyone have a sense which are the biggest holes, how many there are, and whether we’ve really plugged them?   Or why there were holes in the first place?

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Essentials of Smart Climate Policy

James Boyce

Triple Crisis blogger James Boyce published the following commentary on E3’s Real Climate Economics blog.

“In one of the more memorable moments of the 2008 presidential campaign, candidate Barack Obama explained why he rejected John McCain’s call to postpone their September debate in Oxford, Mississippi, during the negotiations on the first financial bailout package. “It’s going to be part of the president’s job,” Obama declared, “to be able to deal with more than one thing at once.””

“Something similar can be said about climate policy. A variety of proposals – for public investment, carbon pricing, regulatory standards – are cooking in Washington’s political stew. Sometimes the proponents of specific policies are tempted to oversell their merits, while dismissing other policies as unnecessary or even counterproductive. But if Congress and the Obama administration are going to get smart on climate change, part of their job is to deal with more than one policy at once…”

Read the full commentary on E3’s Real Climate Economics blog

Post-Crisis Economics: Are We All Structuralists Now?

Kevin P. Gallagher

In the immediate aftermath of the global financial crisis even the deepest market fundamentalists embraced the core Keynesian insight that when in deep recession, monetary policy will be ineffective and fiscal stimulus is required.  They have now abandoned that view as calls for fiscal austerity abound regardless of the increasingly fragile nature of the global recovery.

While economists and policy-makers debate the short and medium-term remedies to the crisis, there is an incredibly surprising and under-discussed consensus emerging for the longer run.  From the Financial Times to the South Centre there is agreement that the United States and East Asia (notably China) have to change the ‘structures’ of their economies.

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Hungary, the IMF and the EU

Jayati Ghosh

The more things change, the more they really do stay the same. For a while after the global crisis, we were told that the IMF had changed its position with respect to the strict and generally pro-cyclical measures it had been suggesting to countries in the throes of financial or balance of payments crisis. Their economists openly accepted the need for fiscal stimuli and generally counter-cyclical macroeconomic policies to combat the recession.

According its own internal review in September 2009, the IMF has really changed in this respect: “Internalizing lessons from the past, (IMF) programs have responded to country conditions and adapted to worsening economic circumstances to attenuate contractionary forces…The stance of fiscal policy in most cases has been accommodative and adjusted to evolving conditions. Deficits were allowed to rise in response to falling revenues and, in cases where domestic and external financing was lacking, this was facilitated by channeling Fund resources directly to the budget.”

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Bankers’ Pay: What Economics has to Say

Sanjay Reddy

The recent global debate over the pay of bankers has raised issues that are basic to economic theory, and to moral and political philosophy, simultaneously. One question concerns what level of pay is necessary in order to attract people to do a certain job, and to do it effectively. Another question concerns what level of pay would be appropriate, fair, or just to pay people to do that job. Both are entailed in the current debate on the pay of bankers (particularly investment bankers).

The G-20, and more recently the European Parliament, as well as individual countries (especially Germany, France and the UK) have promoted the institution of new norms to govern the pay of bankers, requiring for example that their pay should be spread over a number of years, or be provided in part in the form of shares or other instruments, the return of which will depend on the success of the bankers’ strategies over a longer period than previously.

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Is De-Growth Compatible with Capitalism?

Alejandro Nadal

A serious campaign in favor of “de-growth” has been going on for some time and has made important contributions. This movement has opened new avenues for debate and analysis on technology, credit, education and other important areas. It’s an effort that needs support and attention, and we must applaud their initiators and promoters for their boldness and dedication.

De-growth is defined as “a reduction of production and consumption in physical terms through down-scaling and not only through efficiency improvements”. Kallis-Schneider-Martínez Alier explain that de-growth is a smooth, voluntary and equitable downscaling of production and consumption that insures human wellbeing and ecological sustainability locally as well as globally on the short and long term. Thus, de-growth is not limited to a technological dimension.

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Capital controls: “The new normal” (Part II)

Ilene Grabel

In a recent post, I argued that capital controls have become the new normal. This is welcome news to progressives who have long argued that developing countries should have the right to deploy capital controls.  A reasonable question for progressives to ask at this point is why are capital controls breaking out all over?

There are several possible (and no doubt, mutually reinforcing) reasons for the resurgence of controls.

First, on a practical level, they are needed in many countries. Policymakers in the developing economies that are performing well now are using these policies to contain the asset bubbles (and attendant inflationary pressures and currency appreciation) stimulated by the foreign investment that is flooding developing economy markets (itself the consequence of the low interest rates and dim economic prospects of the USA and Europe).

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What Can Proponents of a Green New Deal Learn from the German Presidential Election?

Gerhard Schick

As of Friday, July 2, Mr. Wulff became Germany’s new Federal President, the state’s highest office. The election electrified the German public even though the German President has little power and is chosen by the members of the German Parliament and representatives of each of the sixteen states rather than by public vote.

It has been a long time since the German public was as captivated as they were by Mr. Wulff’s opponent, Mr. Gauck.  Despite the great enthusiasm for his candidacy, he was, at last, defeated by the conservative majority of electoral delegates.  But one can learn a lot from Gauck’s one-month campaign: He was able to inspire people to become politically active.  Broad-based activism is needed to transform society and achieve a socially and ecologically sustainable economy.

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Capital controls: “The new normal” (Part I)

Ilene Grabel

Like many progressive economists, I’m addicted to economics and business news. These days one phrase is repeated constantly—“The new normal.” Indeed, National Public Radio’s show, “Planet Money” recently featured a story on this omnipresent phrase.  The new normal is shorthand for features of a dismal new economic reality to which the (investing) public must adjust. The new realities of our era include lower rates of return on stocks, bonds and real estate; larger government budget deficits which precipitate higher inflation rates; sluggish (and even negative) rates of growth in rich countries; and a shift in economic (and political) power to the world’s dynamic developing countries.

But another new normal has flown in under the pundit’s radar screen. This new normal is the proliferation of capital controls, which are being implemented rather widely across the developing world.

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