Cassandra Across the Atlantic

Abstract

When the ‘Wise Men’ of the Chancellor’s panel are dispersed, Godley’s intellectual base becomes the Levy Institute, his family moving to the New York for extended periods as he engages with the followers of Minsky who are re-thinking the macroeconomy around a fuller understanding of endogenous money. He works on developing their forecasting model, introducing stock-flow-consistent treatment in time to detect that the lauded budget surpluses built up by President Clinton are the counterpart of rising private-sector deficits. Calculating that these will lead to sharp downturn when the debt-to-income ratio goes too far above sustainable norms, Godley and his Levy team accurately anticipate the turn-of-the-century stock market downturn. When fiscal and monetary expansion keep the ensuing recession much shallower than expected, they focus on the emerging combination of public and private-sector deficits, which seem to point the way to an even bigger crash. The Godleys also find in New York life a cultural and social dimension that was lacking in Cambridge, with Kitty finally realising her own artistic talent.