Robert Pollin University of MassachusettsAmherst For conference on Transatlantic Agenda for Shared Prosperity Berlin March 11 2013 1 An Economic Crisis of Neoliberal Capitalism Wall Street Crash and Great Recession ID: 369831
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The Possibilities and Limits of Macro Policy in the U.S.
Robert PollinUniversity of Massachusetts-AmherstFor conference on: Transatlantic Agenda for Shared Prosperity,BerlinMarch 11, 2013
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An Economic Crisis of Neoliberal Capitalism
Wall Street Crash and Great RecessionDeregulation of financial markets produced hyper-speculation and overleveragingThis has been pattern with unregulated financial markets throughout history
Kindleberger
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Manias, Panics and Crashes
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From Financial Bubble To Crash
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Evaporation of $17 Trillion in Household Wealth
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Policy Responses to Crisis
Bailouts for financial institutions and markets, and auto industryVia both U.S. Treasury and Federal ReserveNear-zero interest rate for Fed policy rate—federal funds rate$787 billion fiscal stimulusAmerican Recovery and Reinvestment Act (ARRA) of 2009
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Why Weak Recovery?
Wealth evaporationWealth effect ~ 3 – 5%$17 trillion in lost wealth = ~ $500 billion in aggregate demand lossStimulus too dependent on tax cutsCongressional Budget Office: Mulipliers for direct govt. spending 4 times higher than for tax cuts for high-income people
Tax cuts 24% of stimulus
Collapse of Credit for Small Businesses
Banks hoarding cash instead
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Arguments of Austerity Hawks
Most fundamental problem with economy is fiscal deficits/debtNot mass unemployment/weak growth recoveryIncreases in fiscal deficits will produceInflationHigh interest ratesOverwhelming government debt burden
Arguments for “sequestration”
$110 billion/year in automatic cuts relative to previous allocations
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Prof. John Taylor on Rising Debt/GDP Ratio
“Its soaring upward climb resembles the fireworks on America’s Independence Day. But rather than remind us of America’s founding, it portends America’s ending. I carry a version of the chart in my wallet and show it to my students, and to my children and grandchildren, because it’s their future on the line,” (p. 101).
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Interest Rates?
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Debt Burden?
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Macro Policy Imperatives for Now
Fiscal Policy: New Round of Fiscal StimulusFocused on direct government spendingState & Local GovernmentsEducation, Health Care, Public InfrastructureGreen Economy
Monetary Policy:
Carrot and Stick with Bank Cash Hoards
Maximum reserve requirement/excess reserve taxExpand loan guarantees for small businesses
Measures will have almost no fiscal impact
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