Wednesday, November 19, 2008

Report from the Galbraith Conference in New York, 11/14

I previously posted what I was planning to say, which I did, at the Conference on "The Financial Crisis, the US Economy, and International Security in the New Administration," organized by James Galbraith at New School University on Nov. 14, and sponsored by Economists for Peace and Security. They will have a full video up at some point on their website at, and currently have the full program. I shall focus on main points presented by others, with an emphasis especially on new policy proposals, and will not cover the remarks by quite a few who spoke. I may add more later.

Galbraith indicated he would be presenting many of the ideas to the Obama economic transition team this week, as well as in a keynote address he gave yesterday to Congressional Democrats at EPI.

Galbraith was the first speaker and recounted points that have appeared in an article by him in this month's Challenge magazine. His main proposals were to revive the New Deal Housing Ownership and Loan Corporation (HOLC), strongly supported by others as well, to reinstitute general revenue sharing to support state and local governments, to institute an infrastructure investment fund, with emphasis on green technologies, and to increase social security benefits.

Joseph Stiglitz called for converting the housing tax deduction to a tax credit for poorer homeowners, for the government to make mortgage payments for those who become unemployed, and to institute a law forbidding US banks from dealing with foreign ones that do not conform to global banking standards.

Pierre Calame supported establishing global commodity buffer stocks to moderate price fluctuations of basic commodities.

Allen Sinai forecast a 24 month recession, which he considers to have begun in January 2008, and called for a $350 fiscal stimulus package. Others called for larger such packages.

Teresa Ghilarducci supported Galbraith's proposal on converting tax deductions to credits, and also supported having the government pay employers' contributions to fica for the duration of the recession, and finally a much-discussed proposal to lower the medicare eligibility age to 55.

Perry Mehrling provided an insightful account of how the Fed has become effectively the world's central banker, taking much of the world's dodgy paper onto its books. He proposed establishing an insurance scheme for credit-default swaps that would involve them providing appropriate collateral, and would also requiring turning them into operating with transparency through an exchange rather than over the counter.

Gary Dymski supported my proposal for using shared appreciation mortgages and called for more direct efforts to prevent "exploitative" housing lending, as well as directing some of the infrastructure spending towards housing, high speed rail networks, and such social support services as child care.

John Eatwell called for increasing the regulatory authority of the IMF, noting that the Forum for Stability has many ideas that it could use. This did not come out of the G-20 summit, but another idea he supported did, that of establishing "colleges of supervisors" (Eatwell said "regulators") in which the regulators meet and coordinate their activities from the main nations that a particular multinational financial entity operates.

Paul Davidson supported establishing the 1944 "Keynes Plan" that would have a strong central bank, with international clearing units, and a responsibility placed on surplus nations for making adjustments. With the large stimulus plan in China happening, this may be occurring to some degree at this time, especially as the Chinese seem to be allowing some RMB appreciation.


Sandwichman said...

So, based on your report, Barkley, reducing the hours of work remains one policy option that is not on the agenda even of progressive economists? It's not a proposition that is raised but then rejected for one reason or another. It is simply not raised.

Daro said...

You mention Stiglitz... I recall him being featured on Alex Jones' radio show in 2006 saying he expected the US to be in a depression by 2009. I totally concurred but what shocked me was when I ran this view past a couple of traders in CitiGroup they totally concurred! But since their business was just to respond to market moves minute by minute the news had no relevance to them at all... Unfortunately this time I disagree partially with him. Subsidizing the unemployed by paying their mortgage will dis-insentivize them from working and let the mortgage arrangers off the hook from seeking methods to fix their wicked, wicked practices... said...


For better or worse, nobody mentioned something like the mandated 35-hour work week, not even the Frenchman, Pierre Calame, whose longer discussion focused more on global cooperation to save the environment.


Are you serious about you last sentence? I take it you want to punish the "wicked" lenders. How about simply forbidding some of their more wicked practices, such as interest-only mortgages?

I will probably post a bit more about this conference.

Eleanor said...

Thanks for posting this. I would certainly be interested in a longer report.

I have serious questions about moral hazard as a problem for ordinary working people. For most people working is source of self-esteem and a way to belong to the community. And they need the money that comes from working. They are not going to stop looking for work because they have unemployment for 9 months and some help with their mortgage. They may look more carefully and take a bit longer to find a job. So what? We want people to have good jobs that fit their skills and provide them with enough to live on.

Driving large numbers of Americans from their homes because you suspect a small percentage are lazy and willing to be poor is nuts.

I suspect that moral hazard is a problem for the upper and upper middle classes. But they live in a very different world than factory workers and janitors. said...

daro and eleanor,

There was a great deal of discussion about the housing issue at the conference, not all of which I have reproduced here. A major tension is between the fact that on the one hand housing prices are still arguably "too high," with the best guess being that they have only come down about halfway from their bubble peaks to what is more sustainable in the long run. So, to make housing more affordable and to put a more stable foundation on the system, we really do want those housing prices to go down more.

OTOH, clearly we do not want to see people being tossed out of their homes as part of this process, and certainly wish to protect those who have been defrauded or are hurting specifically because of the recession. Many of us are not all that worked up about higher income people hanging on to overpriced second (or third or fourth) homes, and a substantial portion of the problem is exactly such dwellings.

I would note that implicit in the recommendations of Dymski with the preventing of "overexploitation" of homeowners is the matter of people having been defrauded and tricked into gonzo mortgages. Two participants in my session, Bill Black and Jack Blum, are former regulators, and both had horror stories about fraud and regulatory failures. What was frustrating was that they did not really have much in the way of hopeful suggestions aside from "hire more enforcers and get the FBI to go after more cases of fraud," with a lot of pessimism about really seriously rooting it out. said...

I have just heard from Thea Harvey of EPS that it will probably be next week before the video of the conference is up on their website.