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Always hopeful for signs of intelligent life

And usually disappointed. However, I awoke early, and before my brain was adequately caffeinated, stumbled into a place I wouldn't normally venture (h/t Mark Thoma). And, wonder of wonders, found, ummm, maybe embers of economic intelligence.

The source may not surprise the less cynical reading this, but it certainly surprised me: Bill Dudley, President of the Federal Reserve Bank of New York, owner of open market operations, and permanent member of the FOMC. Bill addressed the Foreign Policy Association, and his text is worth reading.

Especially the section about half way down, where he clearly explains the policy implications of (but doesn't attribute) Wynne Godley's triple balance stock flow consistent approach.

And he understands the challenges of rebalancing the world economy.

He doesn't spend quality time on debt sustainability, caving to the current austerian meme for the most part, and thus does not tackle the unemployment equilibrium/deficient effective aggregate demand problem in the U.S. and other developed economies, which is the dog that will increasingly wag the fiscal and financial tail.

But it seems to me there are signs of intelligent embers here. Spoken in public. Will it matter?


  1. Steve,

    Good talk overall and you are right about what Dudley has missed out.

    The "Global Imbalances" problem is important and even Tim Geithner seems to understand it.

    The work of Godley is really important in addition to sectoral balances, because as he and his colleagues argued, its "A Crisis That Conventional Remedies Cannot Resolve".

  2. From that paper

    The prospects for the U.S. economy have become uniquely dreadful, if not frightening. In this paper we argue, as starkly as we can, that the United States and the rest of the world’s economies will not be able to achieve balanced growth and full employment unless they are able to agree upon and implement an entirely new way of running the global economy. Yet we should admit up front that while we feel able to outline the nature and magnitude of the emerging crisis, and even to set down some of the things that must happen in order to counter it, we have few solid suggestions as to how these changes can be brought about at present.


    By our reckoning (which is put forward with great diffidence), if the United States were to attempt to restore full employment by fiscal and monetary means alone, the balance of payments deficit would rise over the next, say, three to four years, to 6 percent of GDP or more—that is, to a level that could not possibly be sustained for a long period, let alone indefinitely. Yet, for trade to begin expanding sufficiently would require exports to grow faster than we are at present expecting, implying that in three to four years the level of exports would be 25 percent higher than it would have been with no adjustments. It is inconceivable that such a large rebalancing could occur without a drastic change in the institutions responsible for running the world economy—a change that would involve placing far less than total reliance on market forces.


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