This paper presents a theory of consumption that synthesizes the seminal contributions of Keynes (1936), Duesenberry (1948), and Friedman (1957). The model is labeled the 'relative permanent income' theory of consumption. The key feature is that the share of permanent income devoted to...

The desirability of federal budget surpluses became the conventional wisdom in the 1990s. This economist argues that ongoing surpluses will be damaging in several important ways. He proposes that the nation have its debt grow at the same rate as the GDP.

The Bush-Cheney years have been marked by a disappointing economic performance, reflected in a business cycle expansion that is by many measures the weakest since World War II. Moreover, not only has the expansion been weak, it also appears to be ending with a severe financial crisis and the...

Outsourcing is a central element of economic globalization, representing a new form of competition. Responding to outsourcing calls for policies that enhance national competitiveness and establish rules ensuring acceptable forms of competition. Viewing outsourcing through the lens of competition...

This paper argues for developing a new system of financial regulation based upon asset-based reserve requirements (ABRRs). Such a system represents a shift in regulatory focus away from the traditional concern with the liability side of financial intermediaries' balance sheets. ABRRs have both...

This economist responds to an article on reforms to social security by Thomas Michl in our November December 2001 issue. Thomas Palley believes the best way to finance social security is to cut payroll taxes and finance the public pension system from general tax revenues. Prefunding social...

Post Keynesian (PK) growth models typically fail to model unemployment. That shows up in the absence of any equilibrium condition requiring the growth of employment equal effective labor supply growth. Consequently, the models can have an imploding or exploding unemployment rate. The underlying...

Economic theory is prone to hysteresis. Once an idea is adopted, it is difficult to change. In the 1970s, the economics profession abandoned the Keynesian Phillips curve and adopted Milton Friedman's natural rate of unemployment (NRU) hypothesis. The shift was facilitated by a series of lucky...

This paper reconstructs the income - expenditure (IE) model to include a distinction between government purchases of output versus government production. The distinction has important consequences for output and employment multipliers. The paper also extends the IE model to incorporate a...