Levy Economics Conference Proceedings Institute of Bard College nd ANNUAL HYMANP . MINSKYCONFERENCE ONTHESTATEOFTHEUSAND 22WORLDECONOMIES Building a Financial Structure for a More Stable and Equitable Economy April 17–19, 2013, New York City A conference organized by the Levy Economics Institute of Bard College with support from the Contents FOREWORD 1 PROGRAM 2 WELCOME AND INTRODUCTION Leonardo Burlamaqui 5 Dimitri B. Papadimitriou 9 SPEAKERS James Bullard 12 Eric Rosengren 25 Thomas M. Hoenig 34 Luis A. Ubiñas 39 Narayana Kocherlakota 42 Benjamin M. Lawsky 48 Sarah Bloom Raskin 60 Mary John Miller 70 SESSIONS 1. Five Years After: Is There Progress in Financial Regulation? 76 2. Measures and Implications of Inequity in Income and Wealth 80 3. Minsky on Ending Poverty: Jobs, Not Welfare 84 4. Systemic Sources of Inequity and Instability 89 5. Legal Implications of Measures to Improve Financial Stability 92 6. Regulation and Supervision of the New Financial Structure 97 7. Financial Stability and Inequality: Compatible or Contradictory? 102 8. Inequality, Instability, Labor Markets, and the Fiscal Compact 106 PARTICIPANTS 109 These proceedings consist of edited transcripts of the speakers’ remarks and summaries of session participants’ presentations. Levy Economics Institute of Bard College Foreword I am delighted to welcome you to the 22nd Annual Hyman P. Minsky Conference, “Building a Financial Structure for a More Stable and Equitable Economy,” organized by the Levy Economics Institute with support from the Ford Foundation. As part of its monetary policy research, the Institute is partnering with the Ford Foundation to examine financial instability and the reregulation of financial institutions and markets within the context of Minsky’s path-breaking work on financial crises. In 2008–09, the world experienced its worst financial and economic crisis since the Great Depression. Global employment and output collapsed, and an estimated 84 million people fell into extreme poverty. Given the fragility and uneven progress of the economic recovery, social conditions are expected to improve only slowly. Meanwhile, austerity measures imposed in response to high government debt in some of the advanced economies are making the recovery even more uncertain. It’s time to put global finance back in its proper place as a tool to achieving sustainable development. This means substantial downsizing, careful reregulation, universal social protections, and an active, per- manent employment-creation program. This year’s conference, therefore, addresses both financial reform and poverty in the context of Minsky’s work on financial instability and his proposal for a public job guarantee. Panels will focus on the design of a new, more robust, and stable financial architecture; fiscal austerity and the sustainability of the US economic recovery; central bank independence and financial reform; the larger implications of the eurozone debt crisis for the global economic system; improving governance of the social safety net; the institutional shape of the future financial system; strategies for promoting poverty eradication and an inclusive economy; sustainable development and market trans- formation; time poverty and the gender pay gap; and the policy and regulatory challenges facing emerg- ing-market economies. I look forward to seeing you again at future Levy Institute events. Dimitri B. Papadimitriou President, Levy Economics Institute, and Jerome Levy Professor of Economics, Bard College 1 22nd Annual Hyman P. Minsky Conference on the State of the US and World Economies Program Wednesday, April 17 8:45–9:30 a.m. WELCOME AND INTRODUCTION Leonardo Burlamaqui, Ford Foundation Dimitri B. Papadimitriou, Levy Institute 9:30-10:30 a.m. SPEAKER James Bullard, President and CEO, Federal Reserve Bank of St. Louis “Some Unpleasant Implications for Unemployment Targeters” 10:30 a.m.-12:00 p.m. SESSION 1 Five Years After: Is There Progress in Financial Regulation? Moderator: Floyd Norris, Chief Financial Correspondent, The New York Times Robert J. Barbera, Co-director, Center for Financial Economics, The Johns Hopkins University José Antonio Ocampo, Professor of Professional Practice, Director of the Economic and Political Development Concentration, and Member of the Committee on Global Thought, Columbia University Frank Veneroso, President, Veneroso Associates, LLC 12:00-2:00 p.m. SPEAKER Eric Rosengren, President and CEO Federal Reserve Bank of Boston “Risk of Financial Runs—Implications for Financial Stability” 2:00–4:15 p.m. SESSION 2 Measures and Implications of Inequity in Income and Wealth Moderator: Dimitri B. Papadimitriou, President, Levy Institute Branko Milanovic, Lead Economist, Development Research Group, The World Bank Edward N. Wolff, Senior Scholar, Levy Institute, and Professor of Economics, New York University Thomas Masterson, Research Scholar, Levy Institute 4:30-6:30 p.m. SESSION 3 Minsky on Ending Poverty: Jobs, Not Welfare Moderator: Justin Lahart, Reporter, “Heard on the Street,” The Wall Street Journal L. Randall Wray, Senior Scholar, Levy Institute, and Professor, University of Missouri–Kansas City Dimitri B. Papadimitriou, President, Levy Institute Jan Kregel, Senior Scholar, Levy Institute, and Professor, Tallinn University of Technology 6:30 p.m. SPEAKER Thomas M. Hoenig, Vice Chairman, Federal Deposit Insurance Corporation “Choosing a Banking Model for the US Economy” 2 Levy Economics Institute of Bard College Thursday, April 18 8:50–9:00 a.m. SPEAKER Luis A. Ubiñas, President, Ford Foundation 9:00–10:00 a.m. SPEAKER Narayana Kocherlakota, President and CEO, Federal Reserve Bank of Minneapolis “Low Real Interest Rates” 10:00-11:00 a.m. SESSION 4 Systemic Sources of Inequity and Instability Moderator: John Cassidy, Financial Writer, The New Yorker Alan S. Blinder, Professor of Economics and Public Affairs, Princeton University Steven M. Fazzari, Research Associate, Levy Institute, and Professor, Washington University–St. Louis 11:00 a.m.-12:00 p.m. SPEAKER Benjamin M. Lawsky, Superintendent of Financial Services, New York State Department of Financial Services “Regulating in an Evolving Financial Landscape” 1:00-3:00 p.m. SESSION 5 Legal Implications of Measures to Improve Financial Stability Moderator: Paula Dwyer, Editor, Bloomberg View Emilios Avgouleas, Chair, International Banking Law and Finance, School of Law, University of Edinburgh José Gabilondo, Professor of Law, Florida International University George S. Zavvos, Legal Adviser, European Commission; formerly, Member of European Parliament and European Commission Ambassador 3:15-4:15 p.m. SPEAKER Sarah Bloom Raskin, Member, Federal Reserve Board of Governors “Reflections on Inequality and the Recent Business Cycle” 4:15–6:15 p.m. SESSION 6 Regulation and Supervision of the New Financial Structure Moderator: Yalman Onaran, senior writer, Bloomberg News, and author, Zombie Banks Jan Kregel, Senior Scholar, Levy Institute, and Professor, Tallinn University of Technology L. Randall Wray, Senior Scholar, Levy Institute, and Professor, University of Missouri–Kansas City Walker F. Todd, Research Fellow, American Institute for Economic Research 6:15 p.m. SPEAKER Mary John Miller, Under Secretary for Domestic Finance, US Department of the Treasury “Progress towards a Stronger Financial System” 3 22nd Annual Hyman P. Minsky Conference on the State of the US and World Economies Friday, April 19 9:00-11:00 a.m. SESSION 7 Financial Stability and Inequality: Compatible or Contradictory? Moderator: Stephan G. Richter, Publisher and Editor-in-Chief, The Globalist, and President, The Globalist Research Center Robert Kuttner, American Journalist and Writer; Co-founder and Co-editor, The American Prospect Alex J. Pollock, Resident Fellow, American Enterprise Institute Jeff Madrick, Director, Rediscovering Government Initiative, Roosevelt Institute; Editor, Challenge; Visiting Professor of Humanities, The Cooper Union; and Economics Columnist, Harper’s Magazine 11:15 a.m.-12:45 p.m. SESSION 8 Inequality, Instability, Labor Markets, and the Fiscal Compact Moderator: Peter Coy, Economics Editor, Bloomberg Businessweek Nora Lustig, Samuel Z. Stone Professor of Latin American Economics, Tulane University, and Nonresident Fellow, Center for Global Development and the Inter-American Dialogue Frank Veneroso, President, Veneroso Associates, LLC 4 Levy Economics Institute of Bard College Welcome and Introduction LEONARDO BURLAMAQUI Program Officer, Ford Foundation DIMITRI B. PAPADIMITRIOU President, Levy Economics Institute Leonardo Burlamaqui Dimitri B. Papadimitriou LEONARDO BURLAMAQUI: It’s a great pleasure to be back here. I think it’s the fifth time that we’re doing the conference here at the Ford Foundation, so I’m already very much used to that; it’s part of the calendar. And of course the expectation is the same, which is that we’ll have a lot of interesting discussions and also a lot of out-of-the-box thinking, which is not very usual to have them in a lot of the places where we have these big conferences. I think here is one of the places that we can take for granted that we’ll have that. Let me thank Luis Ubiñas, Maya Harris, and Martin Abregú from the Foundation, and also Dimitri, Jan, and the many, many other people who helped to make this happen. This year I chose to say something to you about the initiative itself, a quick overview of the Reforming Global Financial Governance initiative, because this is a very important component; but it’s not all that we’re doing under this rubric. So I’m going to try to give you a quick sum-up of this. The first thing is that I think we came up with two diagnostics that were quite, I would say, on the money. The first one is that we have global markets, especially in finance, but we still don’t have—and in 2013 I think this is still valid—global governance to oversee them. The second piece of the diagnostics— pretty much a Minskyan one—is that finance impacts everybody. It impacts all economic and social spheres. It’s part of our daily lives, [whether] we like it or not. But the problem is that those who are most influenced don’t have much of a say in that. So with these diagnostics we came to our vision.