Thomas Palley

Over the past year the global economy has experienced a massive contraction, the deepest since the Great Depression of the 1930s. But this spring, economists started talking of “green shoots” of recovery and that optimistic assessment quickly spread to Wall Street. More recently, on the anniversary of the Lehman Brothers crash, Federal Reserve Chairman Ben Bernanke officially blessed this consensus by declaring the recession is “very likely over”. Read the rest of this entry »

Her Majesty The Queen
Buckingham Palace
London
SW1A 1AA
29 July 2009
MADAM,

In response to your question why no one predicted the crisis you have recently received a letter from Professors Tim Besley and Peter Hennessy, sent on behalf of the British Academy. They claim economists’ failure to foresee the crisis was the result of a “failure of the collective imagination.” That claim is tendentious and will mislead you. Read the rest of this entry »

The financial crisis that began in 2007 has been persistently marked by muddled thinking and haphazard policymaking. Now, the United States Treasury is headed for a mistake of historic and catastrophic proportions by refusing to bail out America’s Big Three automakers. Read the rest of this entry »

The recent massive sell-off in global stock markets, despite an earlier coordinated half-point interest rate reduction in the U.S. and Europe, reflects the continuing failure of policy to come to grips with the scale of the problem. Policy has been consistently marked by “Too little, too late” – and in some instances there have been outright blunders, as in the U.S. Treasury’s decision to let Lehman Brothers fail. Read the rest of this entry »

The Federal Reserve and U.S. Treasury continue to fail in their attempts to stabilize the U.S. financial system. That is due to failure to grasp the nature of the problem, which concerns the parallel banking system. Rescue policy remains stuck in the past, focused on the traditional banking system while ignoring the parallel unregulated system that was permitted to develop over the past twenty-five years. Read the rest of this entry »

A friend told me the economist Charles Kindelberger had two rules for a credit economy. Rule one was everybody should know that if they get over-extended they will not be bailed-out. Rule two was if everybody gets over-extended they must be bailed out. The U.S. economy has over-extended itself, triggering rule two. But that still leaves open how a bailout should be designed since designs are not all equal. Read the rest of this entry »

The U.S. financial system is caught in a destructive liquidation trap that has falling asset prices cause financial distress, in turn compelling further asset sales and price declines. If unaddressed, it risks sending the economy into deep recession – or even depression. Read the rest of this entry »

Over the last year, as the U.S. economy has slipped toward (and likely into) recession, there has been much talk of decoupling. According to this idea the global economy has decoupled from the U.S. economy and can continue growing even if the U.S. goes into recession. Read the rest of this entry »

Until a few weeks ago, while oil prices were surging, debate raged about the relative roles of economic fundamentals and speculation in boosting oil prices. Although oil prices have now fallen back from their peak, that debate must not be forgotten, for it has profound policy implications that government officials would be derelict to ignore. Read the rest of this entry »

Jamie Galbraith’s recent book describes modern (Bush-Cheney) Republicanism as creating a “predator state”. Its predatory aspects are starkly visible in the gangs of corporate lobbyists who roam Washington DC, the Halliburton Iraq war procurement scandal, and the corruption and incompetence that surrounded the Hurricane Katrina relief effort. Read the rest of this entry »