Jane D'Arista: An Appreciation

By Tom Schlesinger

Throughout her career as an author, analyst, congressional staff economist and teacher, Ms. D’Arista has brought together several strands of heterodox economics. While she may be characterized accurately as one of the last great institutionalists, her work also defies easy classification. Perhaps the clearest way to view Jane is as a tough-minded empiricist who has produced critical, original insights into the functioning of the financial system and economy – and done so with the uncompromising goal of improving human welfare.

From the Introduction to the book Banking, Monetary Policy And The Political Economy Of Financial Regulation: Essays in the Tradition of Jane D'Arista. Read rest here. Jerry Epstein posted this on Elgar's blog too.

PS: Jane is also a poetess, see her book here. The drawing of her above was done by Robert D'Arista, her late husband.

Jerry Epstein on the financial crisis after six years

By Gerald Epstein

It has now been almost six years since Lehman Brother’s collapsed and, as Warren Buffett famously put it, all the world could see who had been “swimming naked”. Alan Greenspan, Ben Bernanke, and many economists claimed that “no one could see it coming”, but many economists working without the ideological blinders of mainstream economic theory did, in fact, see “it” coming.

Prominent among these economists is Jane D’Arista, whose prescient and insightful work on financial and monetary issues serves as a guide and inspiration for those who want to clear away the cobwebs of distorting economic ideology and, in the tradition of Keynes, Minsky and Kindleberger, sink their intellectual teeth into the real economic institutions and dynamics that drive our macroeconomy. If we do that, and ask how the dynamics and institutions of monetary policy, banking and financial regulation have evolved since Lehman Brothers, the panorama is astonishing.

Read rest here.

Banking, Monetary Policy And The Political Economy Of Financial Regulation

To be published soon. A Festschrift for Jane D'Arsita. From the dust-jacket:

"Jane D’Arista is one of those towering figures who thinks way ahead of the conventional understandings. A generation ago she recognized the distorted architecture of finance and banking and described in lucid detail the reform agenda for restoring a stable and equitable system. Written in the tradition of D’Arista, the essays in this important collection point the way toward overcoming the recurrent financial disorders of our gilded age. Like Jane D’Arista’s work, this timely volume demands the attention of both policy experts and the politicians who must do the reconstruction."

William Greider, author of Secrets of the Temple: How the Federal Reserve Runs the Country

For more info go here.

Palley and the case for asset based reserve requirements

Revised paper by Tom Palley available here. From the abstract:

This paper critiques the Federal Reserve’s quantitative easing (QE) exit strategy which aims to deactivate excess liquidity via higher interest rates on reserves. That is equivalent to giving banks a tax cut at the public’s expense. It also risks domestic and international financial market turmoil. The paper proposes an alternative exit strategy based on ABRR which avoids the adverse fiscal and financial market impacts of higher interest rates. ABRR also increase the number of monetary policy instruments which can permanently improve policy. This is especially beneficial for euro zone countries. Furthermore, ABRR yield fiscal benefits via increased seignorage and can shrink a financial sector that is too large.

Read more here. Jane D'Arista has also made the case of ABRR, for example here.

Jane D'Arista - Tapering of Quantitative Easing Is Throwing Emerging Markets into Chaos

From The Real News Network

Emerging markets have been reeling since the beginning of the new year. The currencies and stock markets of Argentina, South Africa, Turkey, among other countries, have declined substantially, prompting their central banks to increase interest rates to stem the outflow of capital. The emerging-market rout, the worst start to a year on record, is widely believed to be related to the winding down of the U.S. Federal Reserve's quantitative easing program.Now joining us to discuss this is Jane D'Arista. She's a research associate with the Political Economy Research Institute, or PERI, at the University of Massachusetts, Amherst, where she also cofounded an economist committee for financial reform called SAFER, or Stable, Accountable, Fair and Efficient Financial Reform.

See here

Jane D'Arista on Asset Inflation and Wealth Effects

Jane D'Arista, sharp as always, argues that the recovery in asset prices cannot be expected to lead to a strong recovery, in particular becuase the positive wealth effects are too small when compared to the negative distributive effects. In her words:

"By March 2013, rising asset values succeeded in filling the $12.5 trillion hole in households’ net worth that developed in 2008. Quantitative easing appears to have played a major role in spurring that recovery. As in the period leading up to the recession, some think this rapid increase in household net worth is a clear sign that monetary ease is producing asset inflation rather than price inflation. But, unlike the previous period, the distribution of these gains primarily benefits upper and upper-middle income households. The largest increases were in their holdings of corporate stocks, mutual fund shares and pension funds, while growth in the values of residential real estate and households’ equity in non-corporate (small) businesses remains below pre-recession levels. Thus, what seems a resurgence of the potential for the so-called “wealth effect” to increase confidence and stimulate demand may be undermined by the further boost this uneven appreciation in asset values gives to inequality.

The benefits of the rise in households’ net worth are far weaker than in the past because there is no clear connection to employment. In addition, the fact that inflated capital market assets held in pension funds are not easily used to back new borrowing may have limited the effect on spending."

Read the rest here.

PS: On a related topic, the negative effect that higher bond prices might have on income distribution and the level of activity, see Tom Palley here.

It's the model stupid!

Brad DeLong, that together with Krugman has been a force for sanity within the mainstream, arguing for more fiscal expansion, shows why we need heterodox economists.  He says in a recent post:

This is a bad time to be an economist. If you were fresh from the womb and had no past opinions to defend, if you had never said anything notable before, it might be a fine time to be an economist. If you are one of those soap-opera characters who has complete amnesia and no memory of anything that they ever said or did or any intellectual position they took before January 1, 2010, it might be a fine time to be an economist. But for the rest of us--we who are now looking back at our opinions and analytic judgments and statements and pronouncements of the past 15 years and thinking: "how could I ever have been so stupid; how could I have missed so much?"--it is a bad time to be economist?

Four years ago we economists were writing learned papers about the "Great Moderation": about how it looked as though the governing institutions of the world economy had finally learned how to control and moderate if not completely eliminate the business cycle--the epileptic seizures of the economy that leave us with pointlessly high unemployment, pointlessly idle capacity, and pointlessly rusting away machines in spite of there being no fundamental cause for machines to be idle, factories closed, and workers unemployed.

Funny, I know of several economists that suggested that an economy based on debt-led consumption, on the basis of asset bubbles, was not sustainable and that a crisis was coming.  It would be tedious to cite all, and I'm lazy and don't want to find links to their papers, but a limited list of names (do a google search) would include Dean Baker, Jane D'Arista, Jerry Epstein, Jamie Galbraith, Wynne Godley, Thomas Palley, Bob Pollin and Lance Taylor (before hand I'm sorry for any significant omissions).  I knew enough to be sure that it was not sustainable.

But I'm glad that the best in the mainstream admit that it was stupid not to see it coming. I would suggest to him that part of the problem of the inability of the mainstream to see it coming is their theoretical framework.  The consensus macroeconomic model, based on an IS curve, a monetary policy rule, and a Phillips Curve with a natural rate of unemployment, in particular because it assumes that the economy automatically returns to the natural rate, is a flawed basis for understanding the real world.