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Thomas I. Palley

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Thomas I. Palley

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Thomas I. Palley

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Thomas I. Palley

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Thomas I. Palley

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Thomas I. Palley

This chapter presents the post-Keynesian theory of endogenous money supply and shows how it is fundamentally different from conventional money-supply theory. The conventional approach relies on the money multiplier and bank lending is invisible. Post-Keynesian theory discards the money multiplier and focuses on bank lending, which drives money creation. The chapter emphasizes the structuralist version of post-Keynesian theory, which retains Keynes’s liquidity-preference theory of long-term interest rates and also recognizes that banks are subject to financial constraints which limit their lending activities. The chapter then shows how to derive the LM schedule in an endogenous-money economy, which is a necessary prelude to reconstructing the IS–LM model.

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Thomas I. Palley

Gattopardo constitutes change that keeps things the same. Gattopardo is relevant for understanding the economics profession's response to the financial crash of 2008. This paper explores gattopardo economics as it applies to the issues of the macroeconomics of income distribution; the global financial imbalances; and inflation policy. Gattopardo economics adopts ideas developed by critics of mainstream economics, but it does so in a way that ignores the thrust of the original critique and leaves mainstream analysis unchanged. Gattopardo economics makes change more difficult because it deceives people into thinking change has taken place. By masquerading as change, it crowds-out space for real change. That makes exposing gattopardo economics a matter of vital importance.

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Thomas I. Palley

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Thomas I. Palley

This paper explores and contrasts the revised Bretton Woods hypothesis (BW II) with the structural Keynesian hypothesis. Whereas the former sees the growing global imbalances of the 3 decades prior to the financial crisis of 2008 as beneficial, the latter sees them as problematic and destructive of shared prosperity in the United States. Moreover, the US economic relationship with China is viewed as especially problematic as it involves the largest bi-lateral trade deficit, and because it has also been a major source of investment diversion and manufacturing job loss. The paper concludes that the BW II analogy between today's global financial system and the original Bretton Woods system is without foundation, but that it survives because the hypothesis helps rationalize and justify large trade deficits and the process of corporate globalization.

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Thomas I. Palley

This paper examines the implications of a currency union for monetary policy. The formation of a currency union worsens the inflation-unemployment trade-off, so that leaving the inflation target unchanged at its pre-currency union level generates increased unemployment. Geographically based fiscal automatic stabilizers can improve the inflation-unemployment trade-off, which has bearings on the Euro area's Stability and Growth Pact. Financial intermediary balance sheet regulation based on asset-based reserve requirements (ABRR) can provide additional country-specific policy instruments. ABRR alleviate the targets and instruments problem afflicting the monetary authority in a currency union context. This is important for the European Central Bank, which is trying to manage divergent country growth rates with a single interest rate instrument.