With efforts to reform the American financial system gaining momentum, PERI's 'Economists' Committee for Stable, Accountable, Fair and Efficient Financial Reform' (SAFER) project continues to provided research and analysis that are helping shape the legislative agenda.

In a recent SAFER policy brief, James Crotty, Gerald Epstein, and Iren Levina explain the important role played by 'proprietary trading' by large banks in the financial collapse, and the need to limit such trading with the proposed 'Volcker Rule.' Although the banks (and the financial press) argue that proprietary trading is insubstantial, Crotty, et. al. show that proprietary trading accounted for one- to two-thirds of net revenues for some of the biggest Wall Street banks. Not only is the 'Volcker Rule' critical for financial reform, but it should be strengthened and broadened to apply to investment banks and non-bank financial institutions as well.

A new SAFER policy brief from Arjun Jayadev and Michael Konczal analyzes the recent Senate Banking Committee finance reform bill. They find the bill takes a number of important steps toward a more stable and efficient financial system, but fails to limit the size of banks or strengthen restrictions on derivatives trading. These flaws could derail financial reform efforts unless substantially remedied.

SAFER members Tom Schlesinger, Jennifer Taub, and Adam Hersh have been monitoring and analyzing the work of the Financial Crisis Inquiry Commission, charged by Congress to investigate the root causes of the crisis. SAFER has launched new “FCIC Watch” web pages to provide in-depth information about the commission, its members and expert witnesses, and its proceedings.

SAFER has also begun regular commentary on financial reform issues on the Huffington Post. Recent posts include:
■ " Ending Wall Street's Vise: It's Prevention, Stupid"
■ "Will the Senate Clear the Financial Market Minefield?"
■ "Why Human Rights are Indispensable to Financial Regulation"
■ "The Real Price of Proprietary Trading"

■ Go to the SAFER website
■ Go to the FCIC Watch homepage

The Financial Transaction Tax: A Tool for Reform
In this joint working paper from PERI and the Center for Economic and Policy Research, Dean Baker, Robert Pollin, Travis McArthur and Matt Sherman present updated calculations on the potential of a financial transactions tax to provide significant revenue. The authors analyze the potential revenue generated by financial transactions taxes across a range of financial assets, and under a range of scenarios. They find that potential revenue from a financial transactions tax would total between $177 and $354 billion annually, and that in addition to raising this revenue, a transactions tax has the potential benefit of reducing the volume of speculation in a seriously bloated financial sector. The revenue generated can be earmarked for productive purposes, such as clean-energy activities.
■ Download “The Potential Revenue from Financial Transactions Taxes”

Using Asset-Based Reserve Requirements for Financial Reform
In this column for the New America Foundation's "New American Contract," Robert Pollin asks "How do we design measures that are capable of promoting both financial stability and broadly-shared social welfare?" One element of the framework he envisions is an asset-based reserve requirement, which would require financial institutions to maintain a cash reserve proportional to the riskier assets in their portfolios. Pollin lays out the history of such requirements and the mechanisms by which they create stabilization in financial markets and create incentives for banks to channel funds towards socially desirable economic activities.
■ Read "Credit Allocation Policies to Advance Financial Stability and Social Welfare"

'Rainmaker' Compensation and the Financial Crisis
James Crotty evaluates extensive data on compensation practices in investment banks and other important financial institutions, which show that the compensation of ‘rainmakers’ — key decision makers in these institutions — has been rising rapidly, is very large, and has properties that induce reckless risk-taking. Crotty reviews the literature on financial firm compensation practices in general and those of investment banks in particular, and demonstrates that the giant bonuses of the recent past are not efficient returns to human capital – they are unjustified rents. He asks: what is the source of rainmaker rents and how are they sustained over time? Answers to these questions can help guide debates over the appropriate regulation of financial markets.
■ Download "The Bonus-Driven 'Rainmaker' Financial Firm"
■ Read Nancy Folbre’s New York Times “Economix” blog on this paper

The Troubling Economics and Politics of Paying Interest on Bank Reserves
Thomas Palley argues that Federal Reserve’s newly acquired powers to pay interest on reserves of depository institutions is bad policy, in that it (1) has a deflationary bias; (2) is costly to taxpayers and that cost will increase as normal conditions return; and (3) establishes institutional lock-in that obstructs desirable changes to regulatory policy. Palley recommends repealing the Fed’s power to pay interest on bank reserves, repealing ‘Regulation Q,’ which prohibits payment of interest on demand deposits, and immediately implementing an alternative system of asset based reserve requirements at the Fed.
■ Download "The Troubling Economics and Politics of Paying Interest on Bank Reserves: A Critique of the Federal Reserve’s Exit Strategy"

In this, its third release, the Toxic 100 Air Polluters Index names the large corporations that release the most toxic pollutants into our air. This edition has been expanded to include large privately held firms, such as number 10, Koch Industries, as well as the world’s largest publicly traded corporations. The top five air polluters among large corporations are the Bayer Group, ExxonMobil, Sunoco, DuPont, and Arcelor Mittal.

The Toxic 100 project is co-directed by James K. Boyce & Michael Ash. It continues to be used by socially responsible investment activists, local organizers, and the media to target polluters in their local regions. This year, the Toxic 100 has become an even more powerful advocacy tool, with the addition of information on the disproportionate risk burden for minorities and low-income communities. This makes it possible to compare corporations and facilities in terms of their environmental justice performance as well as overall pollution.

“In making this information available, we are building on the achievements of the right-to-know movement,” explains Michael Ash. “Our goal is to engender public participation in environmental decision-making, and to help residents translate the right to know into the right to clean air.”

■ Go to the Toxic 100 website
■ Read more about toxic releases and environmental justice

In a new partnership between PERI and The Real News Network, we are bringing progressive economic thinking to an ever-widenng audience. This collaboration between PERI and The Real News Network presents regular interviews and debates which bring current economic issues into focus. These interviews shed light on the full range of potential solutions to the current economic crisis, the economics of climate change, and PERI's long-term mission of bringing economic tools to bear to improve the daily lives of workers and families around the world.

Recent interviews include Jayati Ghosh on the commoditization of staple foods and the impact on the world's poorest citizens; Robert Pollin on how we can create jobs with decent wages without creating inflation; Jane D'Arista on how the use of the U.S. dollar as the world reserve currency may exacerbate the crisis; and Gerald Epstein on the Obama administration's track record addressing the crisis.

■ Go to the full list of PERI/ RNN interviews

DEEPENING THE RESEARCH AGENDA ON CLEAN-ENERGY ECONOMICS:
A SURDNA FOUNDATION CONFERENCE

On March 22, the Surdna Foundation and PERI convened a small conference for researchers at the foundation's New York City headquarters on the topic of “Major Economic Challenges Ahead in Building a Clean-Energy Economy in the United States.”  The aim of the conference was to bring together a wide range of researchers whose work either directly or indirectly addresses the economic challenges of transforming the United States into a clean-energy economy over the next twenty to thirty years.  Conference participants who have been working explicitly on matters of clean energy included Marilyn Brown of Georgia Tech, Mark Delucchi of UC Davis, Gary Gereffi of Duke, Skip Laitner of the American Council for an Energy-Efficient Economy, and Robert Repetto of the UN Foundation, as well as Robert Pollin, James Heintz and Heidi Garrett-Peltier of PERI.  Their work formed the framework for the conversation, which included the perspectives of Eileen Appelbaum of Rutgers, who works on labor markets and gender issues; Fred Block of UC Davis, whose recent research is on U.S. industrial policy; Richard Freeman of Harvard, whose research covers a wide span of issues in labor economics; and Chad Stone of the Center on Budget and Policy Priorities, who is interested in linking a clean-energy agenda with measures to reduce poverty.  

A clear set of outstanding issues and themes arose from the discussion, to be pursued in the ongoing research agendas of PERI and the other participants. These included:
> increased focus on energy efficiency;
> defining effective industrial policies;
> creating mechanisms to incorporate private and public funding sources;
> prioritizing benefits for low-wage workers and the poor; and
> improving the communication of research findings to the public and to policy makers.

■ Go to the Surdna Foundation website

As a member of California’s Economic and Allocation Advisory Committee, James K. Boyce, director of PERI’s program on development, peacebuilding and the environment, contributed to formulating recommendations on how the state should allocate the “allowance value” – a.k.a. carbon rent – that will be created under the California Global Warming Solutions Act of 2006. The Committee estimates that the value of the permits (allowances) that will be required to emit carbon dioxide from fossil fuels will be $2.5-$7.5 billion/year in 2012 and rise to $7.3-$21.9 billion/year in 2020. The Committee’s final report, released in March 2010, recommends that all of the permits should be auctioned – with no free permit giveaways to polluters – and that 75% of the revenue should be returned to the people of California by either equal per capita dividends or cuts in personal taxes. The report recommends devoting the other 25% to public investments in the state’s clean energy transition, with special attention to investments in disadvantaged communities.

Congress is expected to take up the Carbon Limits and Energy for America’s Renewal (CLEAR) Act in the coming months. In preparation for that debate, James K. Boyce and Matthew E. Riddle have updated earlier analyses of the household-level impacts of the cap-and-dividend plan, and how these differ among states. In their newest paper, the authors not only consider the specific parameters of the CLEAR Act, but also add an assessment of the state-by-state job creation from the bill.

Boyce & Riddle find that interstate differences in the bill’s impact on household incomes are small: much smaller than differences across the income spectrum, and vastly smaller than the differences in other federal programs, such as defense spending. As a result, the CLEAR Act delivers positive net benefits to the majority of households in every state. Where there are interstate differences, Boyce & Riddle suggest ways in which the CLEAR Act could be modified to reduce or eliminate them altogether.

■ Download "Clear Economics: State-Level Impacts of the Carbon Limits and Energy for America’s Renewal Act  on Family Incomes and Jobs"

PERI WORKING PAPERS

Capital Controls and 21st Century Financial Crises: Evidence from Colombia and Thailand
Bruno Coelho & Kevin Gallagher
The authors analyze the extent to which unremunerated reserve requirements in Thailand and Colombia were successful in reducing the overall level and composition of capital inflows, reducing exchange rate appreciation and volatility, stemming asset bubbles, and granting more independence for monetary policy. 

The International Circuit of Key Currencies and the Global Crisis: Is there Scope for Reform?
Lilia Costabile
Costabile asks whether the global imbalances in international monetary systems contributed to the current crisis, whether these imbalances are rooted in the current organization of the international monetary system, and whether a Keynesian monetary system reform might cut some of the causes of global crises at their roots.

Rethinking Monetary and Financial Policy: Practical suggestions for monitoring financial stability while generating employment and poverty reduction
Gerald Epstein
Epstein summarizes employment-oriented macroeconomic and financial policies that governments in developing countries can adopt to help promote more and better employment as a key to reducing poverty.

A Rapid Impact Assessment of the Global Economic Crisis on Liberia
James Heintz
In this study for the I.L.O., Heintz undertakes a rapid assessment of the impact of the global economic crisis on Liberia’s employers and workers and considers the implications for the realization of the objectives of the Liberia Poverty Reduction Strategy.

Is There a Case for Formal Inflation Targeting in Sub-Saharan Africa?
James Heintz & Léonce Ndikumana
Heintz & Ndikumana examine the question of whether inflation-targeted monetary policy is an appropriate framework for sub-Saharan African countries, present an overview of inflation targeting, review the justification for the regime, and summarize some major critiques.

Property Rights Reform and Development: A Critique of the Cross-National Regression Literature
Osvaldo Gómez Martínez & Lawrence King
This papers evaluates the relationship between the protection of property rights and growth using three property rights indices, finding a strong correlation between the level of country property rights protections and economic growth, but not between the change and improvement in country rankings on property rights and economic growth.

Productive Incoherence in an Uncertain World: Financial Governance, Policy Space and Development after the Global Crisis
Ilene Grabel
Grabel asks how the current global crisis will influence various dimensions of financial governance vis-à-vis developing and transitional economies, specifically how the crisis might affect the governance and policies of the IMF; the prospects of regional alternatives to the Fund; and the policy space available to developing and transitional countries.

Falling into the Liquidity Trap: Notes on the Global Economic Crisis
Thomas R. Michl
Michl explores the underlying structural imbalances leading up to the Great Recession of 2007-2009 from the vantage point of Hyman Minsky’s theory of the liquidity trap, finding that the current recession appears to be a crisis of disproportionality.

Climate Change and Damage from Extreme Weather Events
Robert Repetto & Robert Easton
The authors argue that the risks of extreme weather events are typically being underestimated, by federal agencies and others, relying on historical data stretching back as far as fifty or a hundred years that may be increasingly unrepresentative of future conditions. They illustrate the issue with an economic analysis of the risks of relatively intense hurricanes striking the New York City region.

The Interaction of Metropolitan Cost-of-living & the Federal Earned Income Tax Credit: One Size Fits All?
Jeff Thompson & Katie Fitzpatrick
The authors find that the EITC ’s welfare-enhancing properties are undermined by the interaction of the program’s fixed national rules and geographic variation in wages and cost-of-living, and that the EITC does little to reduce joblessness in many of the nation’s largest cities.

Economic Inequality and Environmental Quality: Evidence of Pollution Shifting in Russia
Marina Vornovytskyy & James Boyce
The authors use the Russian Statistical Agency's data on air pollution in Russia to analyze the impact of economic inequalities among Russia's regions on environmental degradation.

New Labor Forum

In "Economic Prospects," Robert Pollin explore a range of topics, under the broad theme of how economic trends, policy debates, and economic theory matter in terms of promoting the well-being of working people in the U.S.

Winter 2010: Pollin points out that for decades, the federal government has run an effective industrial policy program through the Pentagon. He describes how this might be refocused to support industrial growth that would simultaneously promote our employment and environmental goals.
■ Download “Industrial Policy and the Revival of U.S. Manufacturing”

Fall 2009 : Pollin questions the media’s alarmism over the deficit, and argues that federal spending is a safe and effective short-term approach to stimulate economic growth and employment in targeted activities, as long as policies are developed to control spending in the longer term.
■ Download “The U.S. Fiscal Deficit: Scare Stories vs. Reality"

Fall 2009: Gerald Epstein describes the Obama-Geithner plan for financial reform as “mostly inadequate to the task.” Epstein asks that President Obama deliver on his promise that “financial institutions that pose serious risks—systemic risks—to our markets should be subject to serious oversight by the government.”
■ Download "Taming High Finance: Why the Obama-Geithner Plan Won’t Work"

Spring 2009: Pollin describes how a long-term plan for economic and environmental stability must balance the need to maintain our traditional infrastructure with serious commitments to clean-energy infrastructure initiatives, while prioritizing job creation which provides for equity and opportunity for all.
■ Download "Infrastructure Investments and the Obama Recovery Plan"

Dollars & Sense

Jeannette Wicks-Lim writes about the role of unions in creating decent jobs, particularly in this economy.
■ Read "Creating Decent Jobs: The Role of Unions"

Heidi Garrett-Peltier explains why war is not a sustainable strategy for economic recovery
■ Read "Is Military Keynesianism the Solution?"

Other media

"Roots of Capitalist Stability and Instability," a review of The Value of Money by Prabhat Patnaik
In this review written for India's Economic & Political Weekly, Robert Pollin explores the major themes of Prabhat Patnaik’s new book, The Value of Money.
■ Read "Roots of Capitalist Stability and Instability"

Other highlights:
■ “Don’t nibble around the edges of financial reform” The Hill, November 2, 2009
■ “The economics of the climate bill” Living on Earth (PRI), November 30, 2009
■ “Growing 'Green' Jobs Is a Long-Term Task, Advocates Say” New York Times, August 14, 2009
■ “Green Economy Is Not Yet Made in U.S.A.” New York Times, April 19, 2010
■ “Tracking the stimulus: Some jobs cost more to create” USA Today, March 22, 2010

PERI and the Real News Network:
video interviews on timely economic policy questions

Gerald Epstein, April 2010
The Senate finance reform bill and 'too big to fail'

Jayati Ghosh, April 2010
The financial crisis and the future of the Eurozone

Jane D'Arista, April 2010
The U.S. dollar as the world's reserve currency

William Black, March 2010
The bank fraud behind the crisis

Gerard Dumenil, March 2010
The causes of the crisis in Greece

Robert Pollin, March 2010
Raising wages and inflation

Robert Pollin, February 2010
Creating 18 million jobs by 2012

Robert Pollin, February 2010
Alternative approaches to reducing the deficit

James K. Boyce, February 2010
The proceeds from a carbon tax

Gerald Epstein, January 2010
The Obama administration and Wall Street

James Crotty, January 2010
Executive compensation and bonuses

Robert Pollin, January 2010
A financial system that promotes productive activity

James Heintz, January 2010
The fiscal state of the states

Robert Pollin, December 2009
Alternatives to military investment

Jane D'Arista, November 2009
Casino capitalism

Robert Pollin, November 2009
The economics of climate change policy

Over the past few months, PERI and the University of Massachusetts Department of Economics have been honored to host eminent economists from around the globe to speak on their research and timely topics in economic policy. A sample of recent speakers is below; please check the PERI website for a new speaker series in the fall.

May 4, 2010
Ilene Grabel, University of Denver
Productive Incoherence in an Uncertain World: Financial Governance, Policy Space and Development after the Global Crisis

April 13, 2010
Rob Parenteau, MacroStrategy Review
A Minsky View of the Financial Crisis, and Future Prospects

April 12, 2010
Guy Standing, University of Bath, United Kingdom
Work After Globalization: Building Occupational Citizenship

April 6, 2010
Jayati Ghosh, Jawaharlal Nehru University
The Crisis of Capitalism: A Global Perspective

March 11, 2010
Perry Mehrling, Barnard College
The New Lombard Street

March 9, 2010
William Black, University of Missouri, Kansas
Why Neoclassical Economics and Modern Finance Create Perfect Environments for Perfect Crimes, Bubbles, and Crises

March 1, 2010
Gabriel Porcile, University of Parana, Brazil
Real Exchange Rate and Elasticity of Labor Supply in a Balance-of-Payments Constrained Macrodynamics

February 23, 2010
Jane D'Arista, PERI
The Monetary Threat to the Global Economy

February 16, 2010
Gerard Dumenil, University of Paris
Neo-liberalism, Financialization and the Economic Crisis

February 12, 2010
Teresa Ghilarducci, New School for Social Research
The Political Economy of Retirement and Work

December 2, 2009
Feridoon Koohi-Kamali, Levy Economics Institute of Bard College
Child Gender Bias in Ethiopia, Iran, and India: The Rothbarth Intrahousehold Allocation Model Re-examined

November 18, 2009
Susan Pennybacker, Trinity College
From Scottsboro to Munich: Transnationalism and the History of the 1930s

November 10, 2009
Ozgur Orhangazi, Roosevelt University
Contours of Alternative Policy Making in Venezuela

October 30, 2009
Eloi Laurent, Sciences-Po Economic Research Centre and Harvard Center for European Studies 
Carbon Taxation in the European Union

October 21, 2009
Marie Duggan, Keene State College
The Financial Crisis of 1810: Indians and Spaniards in California React to Spain's Imperial Collapse

October 16, 2009
Robert Repetto, United Nations Foundation
How Badly Are Climate Risks Being Under-Estimated?

October 13, 2009
Patrick Mason, Florida State University
Culture and Identity Matters: America’s African Diaspora and Labor Market Outcomes

October 7, 2009
John deGraaf
What's the Economy for, Anyway?

September 29, 2009
Minqi Li, University of Utah
Socialization of Risks without Socialization of Investment: A Marxian-Minskian Analysis of Big Government Capitalism

September 22, 2009
Ajit Singh, Cambridge University
Does Fast Growth in India and China Harm US Workers? Insights from Simulation Analysis

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