L. Randall Wray L. Randall Wray is a professor of economics and research director of the Center for Full Employment and Price Stability at the University of Missouri–Kansas City. His current research focuses on providing a critique of orthodox monetary policy, and the development of an alternative approach. He also publishes extensively in the areas of full employment policy and the monetary theory of production. With Levy Institute President Dimitri B. Papadimitriou, he is working to publish, or republish, the work of the late financial economist Hyman P. Minsky, and is using Minsky's approach to analyze the current global financial crisis. Wray is the author of Money and Credit in Capitalist Economies, 1990, and Understanding Modern Money: The Key to Full Employment and Price Stability, 1998. He is also coeditor of, and a contributor to, Money, Financial Instability, and Stabilization Policy, 2006, and Keynes for the 21st Century: The Continuing Relevance of The General Theory, 2008. Other publications include: * Introduction (with D. B. Papadimitriou) to Minsky’s Stabilizing an Unstable Economy and John Maynard Keynes, reissued 2008; * “Lessons from the Subprime Meltdown,” Challenge, March–April 2008; * “Veblen’s Theory of Business Enterprise and Keynes’s Monetary Theory of Production,” Journal of Economic Issues, June 2007; * “Global Demographic Trends and Provisioning for the Future,” in D. B. Papadimitriou, ed., Government Spending on the Elderly, 2007; and * “International Aspects of Current Monetary Policy,” in P. Arestis, M. Baddeley, and J. McCombie, eds., The New Monetary Policy: Implications and Relevance, 2006. Wray taught for more than a decade at the University of Denver and has been a visiting professor at Bard College, the University of Bologna, and the University of Rome (La Sapienza). He received a B.A. from the University of the Pacific and an M.A. and a Ph.D. from Washington University, where he was a student of Minsky.

Social Security as a Milk Cow, and Other Fallacies

Social Security is our most important intergenerational promise, and there’s no reason to let the deficit commission break it.

Alan Simpson, co-chairman of the President’s deficit commission, recently unloaded on supporters of Social Security: “We’ve reached a point now where it’s like a milk cow with 310 million tits! Call when you get honest work!”

I grew up with cows and recall that each cow has got four milk-giving organs. Our cow easily fed a family of six, including four growing kids, with plenty of milk and cream to spare. The 77.5 million cows to which Simpson refers ought to be able to suckle well over 500 million seniors…

Do Deficits Matter? Foreign Lending to the Treasury

How can we reconcile our lending to China with the interests of the United States?

Deficit hawks raise three objections to persistent federal government budget deficits: a) they pose a solvency risk that could force to government to default on its debt; b) they pose an inflation, or even a hyperinflation, risk; and c) they impose a burden on our grandkids, who will have to pay interest in perpetuity to the Chinese who are accumulating treasuries as well as power over the fate of the dollar.

I have argued that federal budget deficits and debts do not matter so far as national…

Deficits Do Matter, But Not the Way You Think

Budget deficits and government spending are necessary to end today’s crisis.

In recent months, a form of mass hysteria has swept the country as fear of “unsustainable” budget deficits replaced the earlier concern about the financial crisis, job loss, and collapsing home prices. What is most troubling is that this shift in focus comes even as the government’s stimulus package winds down and as its temporary hires for the census are let go. Worse, the economy is still — likely — years away from a full recovery. To be sure, at least some of the hysteria has been manufactured by…

Senator Blanche Lincoln’s Derivatives Reform Bill Must Pass

Randall Wray echoes Senator Lincoln’s calls for splitting up the risky derivatives business from commercial banks which ought to be serving the public good.

While most reformers are dithering around with trying to bring derivatives onto formal exchanges, Senator Blanche Lincoln (D-AR) has got the right idea: get banks like Goldman out of the business of betting against their own customers. Indeed, she rightly argues that “naked shorting” (using derivatives to bet against assets you don’t hold) is just like buying life insurance on your neighbor’s house-and then setting it afire. As we know, that is exactly what Goldman has been doing…

Bye-bye to Bernanke’s ‘Insidious Banks’: End ‘Too Big to Fail’ in 2 Easy Steps

Randall Wray argues that Too Big to Fail banks have no public purpose and can be eliminated.

Chairman Bernanke has rightly argued that the nation’s behemoth banks represent the “most insidious barriers to competition in financial services”. He went on to admonish that “it is unconscionable that the fate of the world economy should be so closely tied to the fortunes of a relatively small number of giant firms. If we achieve nothing else in the wake of the crisis, we must ensure that we never again face such a situation.”

Amen.

Rahm Emmanuel has supposedly told President Obama that this crisis represents a valuable…

The Federal Budget is NOT like a Household Budget: Here’s Why

L. Randall Wray takes the fear and loathing out of understanding federal budget deficits.

Whenever a demagogue wants to whip up hysteria about federal budget deficits, he or she invariably begins with an analogy to a household’s budget: “No household can continually spend more than its income, and neither can the federal government”. On the surface that, might appear sensible; dig deeper and it makes no sense at all. A sovereign government bears no obvious resemblance to a household. Let us enumerate some relevant differences.

1. The US federal government is 221 years old, if we date its birth to the adoption…

3 Reasons to Fear Bernanke’s Reappointment

Wall Street will remain in charge if Bernanke is reappointed, argues L. Randall Wray.

There is a lot of speculation over the reappointment of Ben Bernanke to continue to head the Fed, with the Obama Administration pushing hard. Of course, Wall Street is also calling in its favors. It looks like a done deal. The Administration has probably got the 60 votes required in the Senate to remove the hold, and the 51 votes needed for confirmation.

Does it matter? Well, on one level, this is a reward for incompetence — something that is never a good idea. Chairman Bernanke never saw…

Obama Takes a Baby Step in the Right Direction

Today, President Obama finally took meaningful action toward financial reform, apparently prodded by his disaster in Massachusetts. Heck, if the Democrats cannot retain Teddy’s seat, there is no safe refuge. The Republicans and Tea Partiers will take the next election in a landslide unless Obama changes course, and fast.

Briefly, here is what he announced. Government spent a huge bundle trying to rescue Wall Street, and while that was distasteful, it was necessary, for otherwise the economy would have slipped into a second great depression. The financial system is now stronger than it was when he took office, but Wall Street continues…

Fire Geithner Now!

Randall Wray on why President Obama needs a new economic team, starting with Tim Geithner.

There is a growing consensus that it is time for President Obama to fire Treasury Secretary Timothy Geithner. While he is at it, he needs to clean house by firing Larry Summers, by banning Robert Rubin from Washington, and by appointing a replacement for Chairman Bernanke. It is time for a fresh start.

Geithner is facing renewed scrutiny due to his questionable actions while at the NYFed. As reported on Bloomberg and in the NYT, secret emails show that the NYFed under Geithner’s command prohibited AIG from…

Bernanke’s Apology Doesn’t Cut It

Bernanke’s attempts to defend himself against critics is unconvincing, argues L. Randall Wray.

As discussed in Part 1 here, some of the policymakers responsible for this calamity have started to apologize. On January 3, Chairman Bernanke admitted that rather than using rate hikes back in 2004 to deflate the housing bubble, the Fed should have used “[s]tronger regulation and supervision aimed at problems with underwriting practices and lenders’ risk management”.

There appear to be at least three reasons for Bernanke’s admission that the Fed did not do its job. First, and most obviously, Bernanke is up for reappointment (his term expires January 31)-and…