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Records of the First Lady's Office (Clinton Administration)
Shirley Sagawa's Files
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Clinton Presidential Records
Digital Records Marker
This is not a presidential record. This is used as an administrative
marker by the William J. Clinton Presidential Library Staff.
This marker identifies the place of a publication.
Publications have not been scanned in their entirety for the purpose
of digitization. To see the full publication please search online or
visit the Clinton Presidential Library's Research Room.
"
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The Jerome Levy Economics Institute of Bard College
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o The Jerome Levy o
Economics Institute
of Bard College
Report
4
En
The Jerome Levy
o
Economics Institute
EconomicsInstitute
of Bard College
H.FARBER
E.N.
WOLFF
M.I
Scholars gather at a Levy Institute symposium to discuss the persistence of poverty in the United States
and policies to reduce it (see page 3). From left to right: Vernon M. Briggs Jr., Cornell University;
Henry Farber, Princeton University; Edward N. Wolff, New York University and the Levy Institute;
and Mathew Forstater, the Levy Institute.
Leon Levy talks about weaknesses in the American economy that make it-
and the stock market-vulnerable to downturns (see page 7).
James K. Galbraith and George Purcell trace the chain of worldwide events
that followed from the Fed's failure to pursue interest rate cuts (see page
12).
Researchers and policymakers looking for the causes of the Asian financial
crisis should take a closer look at the role played by derivatives, argues Jan
A. Kregel (see page 15).
Poverty is commonly defined in terms of income, but Robert Haveman and
Andrew Bershadker propose a new definition, based on the capacity to be
self-reliant (see page 15).
Clinton Presidential Records
Digital Records Marker
This is not a presidential record. This is used as an administrative
marker by the William J. Clinton Presidential Library Staff.
This marker identifies the place of a publication.
Publications have not been scanned in their entirety for the purpose
of digitization. To see the full publication please search online or
visit the Clinton Presidential Library's Research Room.
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00
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Policy Notes
1998/6
The Jerome Levy o
Economics Institute
of Bard College
What to Do with the
Surplus: Fiscal Policy
and the Coming Recession
Dimitri B. Papadimitriou and L. Randall Wray
Neither Congress nor the president is on the right track. Rather than protecting
the surplus, we should be increasing spending and cutting taxes to contain
the looming world recession.
The United States has enjoyed a Goldilocks economy since the early 1990s: robust growth,
low unemployment, and low inflation. After much debate, many resolutions, historic budget
agreements, and a strong equity market, the federal government finally managed to balance
its fiscal 1998 budget (indeed, ran a surplus) for the first time in more than a generation.
Predictably, a new debate-over "what to do with the surplus"-has emerged. Some policy-
makers favor tax cuts, others prefer debt reduction, and the president has advocated the res-
cue of Social Security. We argue that the budget surplus will be short-lived as the coming
worldwide recession slows growth in the United States and lowers tax revenues. In our judg-
ment the deficit reduction during the 1990s played a significant role in depressing aggregate
demand, which was offset only by unsustainable private sector borrowing. As the private sec-
tor in the United States becomes cognizant of declining equity markets, the spread of finan-
cial crises from Asia to Russia and Latin America, and falling world demand, it will be forced
to reduce borrowing and repay loans. This will cause an economic downturn in the United
States. While we applaud the Federal Reserve's recent timid moves to lower interest rates, we
do not believe that monetary policy alone can stabilize the U.S. economy. Rather, substantial
fiscal stimulus will be required. Although well-targeted tax cuts may do some good and
should be considered, the stimulus should be supplied mainly in the form of an increase in
the federal government's budget.
Dimitri B. Papadimitriou is executive director of The Jerome Levy Economics Institute and Jerome
Levy Professor of Economics at Bard College. L. Randall Wray is a senior scholar at The Jerome Levy
Economics Institute. The Levy Institute's Marc-André Pigeon provided valuable research assistance.