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Working Papers |
Volume 1, Spring 1997 Table of Contents
The Center for Economic Policy Analysis The Center for Economic Policy Analysis (CEPA) was established in Fall of 1995 and began operations at its newly-renovated premises at 80 Fifth Avenue in the Fall of 1996. It is the goal of CEPA to place the analysis of economic policy at the core of the research agenda of the Economics Department at the New School’s Graduate Faculty of Political and Social Science. The three main areas of particular emphasis at CEPA are macroeconomic policy, inequality and poverty, and globalization. The Center for Economic Policy Analysis is building an active forum for economic policy debate through its working papers and workshop series. CEPA is fortunate to have secured substantial support from a number of donors, including a grant from the John D. and Catherine T. MacArthur Foundation to study the connections between the globalization of the international economy and the possibilities for a variety of domestic social policies. CEPA research projects are led by Economics Department faculty members, employing graduate students from the Department as research assistants. The late David Gordon was the founding Director of CEPA. The acting Director is Lance Taylor, Arnhold Professor of International Cooperation and Development at the Graduate Faculty Economics Department. CEPA Projects The MacArthur Project on Globalization and Social Policy Research on the three-year MacArthur Globalization and Social Policy project began in the Fall of 1996 and constitutes one of the Center’s most important current activities. The MacArthur project aims to explore the possible interconnections between globalization and social policy at the level of theory and to analyze recent experiences of groups of countries in both the developed and developing worlds. It also hopes to identify types of domestic social policies which are most compatible with a national economy’s increased integration into the international economy. The role of principal investigator of the project was turned over from John Eatwell to Lance Taylor in December 1996, upon Eatwell’s becoming President of Queens’ College at Cambridge University. Project associates are Bennett Harrison, Professor of Urban Political Economy at the Robert J. Milano Graduate School of Management and Urban Policy at the New School, David Howell, Associate Professor and Chair of the Urban Policy and Management Program at the Milano Graduate School and William Milberg, Assistant Professor of Economics at the New School. In its first year, the MacArthur Globalization and Social Policy program has concentrated on four main projects: 1. The development of a macroeconomic modeling framework for the study of labor markets, social policy, and macro-performance; 2. A critical analysis of the microeconomic literature on global-ization and social policy; 3. A critical analysis of the literature on globalization, trade, and labor markets; and 4. An analysis of social policy and international competitiveness. For the macro-modeling project, a complete macroeconomic model of the U.S. economy is now up and running at CEPA, thanks to assistance from Wynne Godley of the Jerome Levy Economics Institute of Bard College. This project has benefited from major input from the macro-modeling project which is directed at CEPA by Anwar Shaikh, Professor of Economics at the New School, and assisted by four graduate students, with the close collaboration of Wynne Godley of the Levy Institute. The great strength of the model is its coherent structure of accounts of stocks and flows, financial and real. Many of the behavioral relationships are modeled with dummy variables. An important part of the development of the MacArthur project is to replace these dummies with behavioral analyses of, for example, the labor market or the international capital market. The structure of the model allows CEPA to incorporate David Gordon’s insights into the relationship between labor market characteristics, income distribution, and macroeconomic perfor-mance. This macroeconomic model will be supplemented by a world model, analyzing trade and financial flows in a world economy of at least seven "blocks" of countries. This will enable CEPA to link the structure of globalization to its impact on the U.S. economy. Regarding the analysis of the microeconomic literature on globalization and social policy, a distinctive characteristic of CEPA’s approach is the linkage between the microeconomic impact of globalization and the perfor-mance of the macroeconomy. In particular, this project involves developing an analysis of the inter-relationships among globalization, real wages, social policy (including the "wedge" of non-wage costs), and labor market behavior. The third area of the concentration of the MacArthur project, an critical analysis of the literature on globalization, trade and labor markets, deals specifically with the contention that increasing wage inequality is a function of trade with low wage countries as well as the "skills mismatch" which severely damages the employment prospects of low-skilled labor. In contrast with more orthodox analyses, CEPA’s report suggests that neither relationship is independent of the rate of growth of the economy. For in the more rapid growth years of the 1950s and 1960s, similar dramatic changes in the scale and structure of international trade took place without producing unemployment or growing inequality. Moreover, micro-economic studies suggest that institutional characteristics of the labor market are as important as skill levels in determining the patterns of job loss. The analysis of social policy and international competitiveness is an extension of the literature on the technology gap to cover social variables. This analysis uses the recently-compiled OECD input-output data in order to study the sectoral impact of social policy variables in integrated industry competitiveness. CEPA’s Joint Macro-Modeling Project with the Jerome Levy Economics Institute of Bard College CEPA recently began a joint macro-modeling project with the Levy Institute. This project has several aims, including extending and refining the empirical macro-model of the U.S. developed by Wynne Godley of the Levy Institute, comparing the structures of various heterodox macro-models, particularly those of Wynne Godley and Lance Taylor, and establishing a publication featuring policy analyses by members of both institutions. Faculty members involved include Wynne Godley and Dimitri Papadimitriou of the Levy Institute and Lance Taylor, Anwar Shaikh, Will Milberg, and Eugene Canjels of CEPA and the New School Graduate Faculty Economics Department. At present, the macro-modeling project has four areas of research concentration. The first of these involves investigating the determinants of the net foreign income flows into the United States, with emphasis on the long-term and economic policy implications of these flows. Godley and Milberg have noted that the U.S. became the world’s largest debtor nation by 1988, and yet foreign income remained positive for five years thereafter. This aspect of the modeling project attempts to explain this phenomenon by distin-guishing between individual components of gross stocks and flows of foreign investment, so as to separately model the associated income flows. The question of transfer pricing will also be studied, as this device of over- or under-pricing components of intra-firm trade is used by many multinational firms as a means of shifting declared profits out of higher tax areas, thereby distorting reported profit flows. A second part of the macro-modeling project is to refine the manner in which foreign trade is treated in large-scale macro-models. The preliminary work on this aspect of the modeling project involves reviewing the literature on the treatment of the foreign trade sector in macro-models and analyzing and comparing different data sources on international trade and competitiveness. Deficits in foreign trade and their putative links with government deficits (the "twin deficits" hypothesis) plays a major role in current policy debates, and thus this issue is of considerable practical importance. The third part of the joint Levy Institute-CEPA project involves analyzing the dynamics of the government sector. Of particular interest is the often-heard claim that the fiscal budget as well as the Social Security Fund will be in crisis in the next 10 to 15 years. This component of the project addresses the exact methods by which such projections are made by key participants in the debate, including the U.S. Congressional Budget Office, the General Accounting Office, the Office of Management and Budget, and various private research institutes. Given the importance for policy discussions of the general trends involved, the overall goal of this aspect of the modeling project is to create a reliable and credible means of anticipating these trends. The last aspect of the macro-modeling project addresses the basic structure of Godley’s and related models. The current large-scale Godley model contains over 400 equations, typical in a full-scale model of this type. As such, the model’s level of detail can obscure key elements of its underlying structure. This part of the modeling project attempts to extract the basic relations that have informed Godley’s work over the years and which remain critical to current versions of his macro-models. The roots and structure of Godley’s basic model is being analyzed and compared with the work of others in the post-Keynesian and structuralist tradition, with special attention to the policy implications of such models. The ultimate goal is to better understand how and why the large-scale model behaves as it does, so as to inform the model’s ongoing development. The Institute of Developing Economies (IDE) Project
Through CEPA, Lance Taylor directed a project called "East Asian Development Experience and its Applicability," which was funded by Japan’s Institute of Developing Economies. The project culminated in a paper titled "Present Conditions and Challenges of Latin American Development" which was presented at a symposium in Tokyo on January 21-22, 1997. The paper featured country studies on Brazil, Peru and Mexico by, respectively, Edward Amadeo (Pontifical Catholic University of Rio de Janeiro, Brazil), Oscar Dancourt (Pontifical Catholic University of Peru, Lima), and Nora Lusting (Brookings Institution). The paper argues that Latin America recently passed through a major realignment of its economic policy regime and that, while it is too early to say anything about ultimate results, preliminary outcomes are not entirely favorable. In the paper’s conclusion, Lance Taylor writes that "Combining structuralist macroeconomics with enterprise and sector level insights emerging from the Economics Systems Approach might shed light on the reasons why the neoliberal policy package has not been fully successful and suggest appropriate corrections." CEPA Activities For the 1996-1997 academic year, CEPA awarded dissertation fellowships to Thorsten Block and Ute Pieper, graduate students in the Graduate Faculty Economics Department. Thorsten Block’s dissertation consists of three essays dealing with the macroeconomic history of Germany. The first essay investigates the changing nature of the business cycle in Germany comparing the period before 1914 with the period after 1950. Considerable differences in the behavior of key macroeconomic variables are detected which suggest the existence of two different macroeconomic adjustment processes. This finding challenges Real Business Cycle theory which states that "business cycles are all alike." In the second essay, several alternative approaches to modeling macroeconomic regime change are reviewed. A basic structuralist Keynesian model is identified as a common element in all of the theories. It is suggested that this model presents an alternative analytical foundation to the neoclassical paradigm in approaching macroeconomic history. The third essay attempts to contribute to the ongoing discussion on the causes and severity of the Great Depression in Germany by comparing Weimar Germany with the recent Latin American experience. It is argued that the exchange-rate-based stabilization policies adopted to end hyperinflation in connection with a liberal international market environment go a long way in explaining economic stagnation and subsequent collapse of the Weimar economy. In her dissertation Essays on Structural Change: Productivity, Employment and Growth, Ute Pieper investigates changes in labor productivity, employment, and output at the sectoral level in cross-country studies. The first essay analyzes the relation between neoliberal policies and deindustrialization in 30 developing countries for the period since 1975. In her second essay, Pieper adopts an accounting framework to decompose changes in total employment into its structural components of labor productivity and sectoral demands. The third essay re-examines the so-called Kuznets productivity convergence hypothesis.
CEPA’s Support of Economics Department Faculty Research CEPA provides research assistance to faculty members of the Economics Department. Professor Willi Semmler received research assistance for two projects, one on economic growth and public debt and the other on financial markets and the macroeconomy. The first project, near completion, estimates an endogenous growth model with public capital. In contrast with recent studies, however, Semmler’s work allows for capital market borrowing by the government. The results of this project enable the interpretation of the contribution of public capital and government borrowing to the economic growth of the U.S. and Germany in the postwar years. Moreover, Semmler’s methodology addresses the sustainability of public debt for these two economies. This results of this project are presented in the paper "Estimating an Endogenous Growth Model with Public Capital and Government Borrowing for the U.S. and Germany (1952-1990)," co-authored by Alfred Greiner of the University of Augsburg, in collaboration with Gang Gong of the Graduate Faculty Economics Department. Professor Semmler’s second project is titled "Financial Markets and the Macroeconomy: Theory, Empirics and Economic Policy." This project aims at contributing to the ongoing discussion in the U.S. and Europe on the role of financial markets and their globalization for economic growth, employment, and the effectiveness of monetary and fiscal policies. Semmler’s project will address the stock, credit, and foreign exchange markets and their relationship with the macroeconomy in an effort to address the inadequacies of previous studies on the interdependence of financial markets and economic activity. Preliminary empirical results have been obtained for the U.S. for the postwar years, and similar empirical work on European countries is in progress.
The Statistics Committee of CEPA and The Graduate Faculty Economics Department The Statistics Committee is a joint committee of the Graduate Faculty Economics Department and CEPA and is chaired by Eugene Canjels, Assistant Professor of Economics. The Committee is responsible for three types of resources for (mainly empirical) economic research: hardware, software, and data. The most pressing recent needs were in the last two areas. During the last half year the Committee made the statistical package E-Views available on the New School network and started a workshop for the Gauss software package. The Statistics Committee is also carrying through projects to improve the availability of research resources at CEPA, the Economics Department, and the New School as a whole. These projects are discussed below.
One of CEPA’s ongoing projects is to make research resources more readily available to all Economics Department members. At present, CEPA has a computer set aside for which the primary purpose is to enable Department members to access data. A report titled "Research Resources at CEPA" was distributed recently to all members of the Department. This report provided a list of data and resources that are presently available at CEPA. Included are data for OECD countries at both the macroeconomic and industry level, international financial data, and macroeconomic data for developing countries. Detailed user guides were made for all of these data sets to facilitate their use.
Technology Initiatives Fund Grant Improves Data Accessibility CEPA, the Graduate Faculty Economics Department, and the Raymond Fogelman Library recently received a Technology Initiatives Fund grant through the New School. The purpose of this grant is to: 1. Make widely available at the New School a variety of research data sets and publicize their availability; 2. Educate New School researchers in the use of these materials; 3. Catalog these resources in BobCat Plus, the new Web-based online consortium catalog; and 4. Create a website to provide ready access to the data sets. Priority will be given to facilitating the use of data sets offered through the Interuniversity Consortium on Political and Social Research (ICPSR) at the University of Michigan. This involves running training sessions and developing a short user guide and general extraction computer programs, enabling most researchers to work independently. The research materials on ICPSR span a variety of subjects, including economics, health care, urban policy, immigration, sociology, and government information -- materials useful to faculty and students in the Graduate Faculty and the Robert J. Milano Graduate School of Management and Urban Policy at the New School. An additional goal of this project is to facilitate the use of data resources available on the internet.
In September 1996, CEPA provided its seminar room for the annual Analytical Marxist Seminar, which generally meets in London. In attendance were Pranab Bardhan (Department of Economics, University of California, Berkeley), Samuel Bowles (Department of Economics, University of Massachusetts, Amherst), Robert Brenner (Department of History, UCLA), Josh Cohen (Department of Philosophy, MIT), G.A. Cohen (All Souls College, Oxford University), Jon Elster (Department of Political Science, Columbia University), Thomas Piketty (CEPREMAP, Paris and MIT), Adam Przeworski (Department of Political Science, New York University), John Roemer (Department of Economics, University of California, Davis), Hillel Steiner (Department of Government, University of Manchester), Robert Van Der Veen (Algemene Politicologie, Amsterdam, Netherlands), Philippe Van Parijs (Chair Hoover, Universite Catholique de Louvain, Belgium), and Erik Olin Wright (Department of Sociology, University of Wisconsin).
Facilitating Fundraising by the Economics Department CEPA is undertaking efforts to aid Economics Department members in the process of writing research grant proposals and seeking out prospective donors. A report titled "Research Grant Proposals and other Fundraising Information" was recently distributed to Economics Department faculty members. The report had two main elements, a description of the components of a typical research proposal and information on targeting foundations. The latter section of the report contains information on the Foundation Center and courses on fundraising offered at the New School, as well as information on fundraising reference manuals and resources available at the Raymond Fogelman Library and CEPA.
Joint Course with Cambridge University The Economics Department at the Graduate Faculty of the New School for Social Research and Cambridge University are jointly offering a 3-credit course on International Economic Policy and Problems. The course is being held at Cambridge from March 17 to March 22, 1997 and will be taught by John Eatwell and Murray Milgate, both of Cambridge University. Up to ten economics students from the New School will be attending, along with ten students from Cambridge. In order to support this program, awards are being provided for six New School students by New School Trustee and CEPA Executive Board member William H. Janeway.
CEPA Events CEPA had an exceptionally busy Fall 1996 workshop series. Presenters and their workshop titles are as follows, in order of occurrence: Lance Taylor (New School for Social Research), Can Expansionary or Progressively Redistributive Macro Policies Work, Or Were Modigliani and Friedman Right?; James Rebitzer (Massachusetts Institute of Technology), The Sociology of Groups and the Economics of Incentives; Robert Guttmann (Hofstra University), The Transformation of Financial Capital; Anwar Shaikh (New School for Social Research), International Competitiveness and Economic Policy; Malcolm Sawyer (University of Leeds), An Evaluation of the Tobin Transactions Tax; Paul Davidson (University of Tennessee), Are Grains of Sand in the Wheels of International Finance Sufficient to do the Job when Boulders are often Required?; Kim Moody (Editor, Labor Notes), Global Lean Production: Its Rise, Limits, and Consequences; Bennett Harrison (New School for Social Research); Agglomeration and Innovation Redux: How Economics is (Finally) Validating Jane Jacobs; Edward Wolff (New York University), Earnings Inequality and Technical Change: Evidence on the Industry Level in the U.S., 1970-1990; Meghnad Desai (London School of Economics), A Monetary Theory for a Monetary Economy; Thea Lee (Economic Policy Institute), Trade and Inequality: Direct and Indirect Links; Michael Piore (Massachusetts Institute of Technology), Case Studies in Product Design: Toward a Theory of the New Industrial Organization. The schedule for the Spring 1997 CEPA workshop series is as follows: Wednesday, February 12: Wednesday, February 26: Wednesday, March 12: Wednesday, April 2: Wednesday, April 16: Wednesday, April 30: Wednesday, May 7: Workshops will run from 6:00 to 7:30 p.m. in the Seminar Room at 80 Fifth Avenue, 5th Floor, on the Southwest corner of 14th Street and Fifth Avenue. (The exception to this is the May 7 workshop by William Darity, Jr., which will run earlier in the day, from 5:00 to 6:30 p.m.) Copies of papers will be available at workshops.
The CEPA Student Seminar Series was initiated in the Spring of 1997 and is intended to provide a regular forum for New School economics students to present their research and receive comments from both students and faculty. The schedule for the CEPA Student Seminar Series is as follows: Tuesday, February 18: Tuesday, March 4: Tuesday, March 25: Wednesday, April 9: Tuesday, April 22: Tuesday, May 6: To be announced: Seminars will run from 2:00 to 4:00 p.m. in the Seminar Room at 80 Fifth Avenue, 5th Floor. The Tuesday dates may be changed to the following Wednesdays. For the most up-to-date schedule information, call Ellen Houston, Thorsten Block, or David Kucera at 229-5901.
CEPA's Executive Board consists of the following members:
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