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on Heterodox Microeconomics |
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Issue of 2024‒06‒10
nineteen papers chosen by Carlo D’Ippoliti, Università degli Studi di Roma “La Sapienza” |
| By: | Thomas I. Palley |
| Abstract: | Keynes' General Theory was a massive step forward relative to classical economics, but it was also a step backward in its denial of the conflictual nature of capitalism. There is need to understand Keynes' technical contributions regarding the workings of monetary economies, but also need to understand the flaws within his thinking and the consequences thereof. Keynes made a fundamental contribution elucidating the mechanism of effective demand, and he also has claim to be the preeminent monetary theorist. However, owing to his denial of conflict, he had a flawed view of capitalism which is why establishment Keynesianism struggles to explain contemporary stagnation. That flawed view also undermines the case for Social Democracy. Contrary to conventional wisdom, his view of capitalism is supportive of Neoliberalism and Keynes can be viewed as a compassionate (Third Way) Neoliberal. |
| Keywords: | Keynes, The general theory, conflict, capitalism, stagnation, bastard Keynesians |
| JEL: | B2 B22 B3 B31 E00 P1 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:88-2023&r= |
| By: | Claudius Graebner Radkowitsch (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria; Department of Pluralist Economics, Europa-University Flensburg, Germany); Jakob Kapeller (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria; Institute for Socio-Economics, University of Duisburg-Essen, Germany) |
| Abstract: | At its core, the discussion on the micro–macro link in heterodox economics is concerned with the correct treatment of aggregates and aggregation in social theory. In this chapter we survey heterodox approaches to the micro-macro link with a focus on shared understandings and convictions that apply across different schools of thought. In addition, we illuminate typical fallacies related to the treatment of aggregation and aggregates as well as the philosophical underpinnings of heterodox ontology to better understand conceptual differences between heterodox economics and competing approaches. Given that economics faces myriad problems of aggregation—as in the case of market interaction, macroeconomic aggregates, or interpersonal coordination and contracting—the quest to provide suitable conceptual tools and philosophical foundations to adequately address aggregates and aggregation should be of special interest to economists of different persuasions. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:ico:wpaper:153&r= |
| By: | Alicia Vidler; Toby Walsh |
| Abstract: | Exploring complex adaptive financial trading environments through multi-agent based simulation methods presents an innovative approach within the realm of quantitative finance. Despite the dominance of multi-agent reinforcement learning approaches in financial markets with observable data, there exists a set of systematically significant financial markets that pose challenges due to their partial or obscured data availability. We, therefore, devise a multi-agent simulation approach employing small-scale meta-heuristic methods. This approach aims to represent the opaque bilateral market for Australian government bond trading, capturing the bilateral nature of bank-to-bank trading, also referred to as "over-the-counter" (OTC) trading, and commonly occurring between "market makers". The uniqueness of the bilateral market, characterized by negotiated transactions and a limited number of agents, yields valuable insights for agent-based modelling and quantitative finance. The inherent rigidity of this market structure, which is at odds with the global proliferation of multilateral platforms and the decentralization of finance, underscores the unique insights offered by our agent-based model. We explore the implications of market rigidity on market structure and consider the element of stability, in market design. This extends the ongoing discourse on complex financial trading environments, providing an enhanced understanding of their dynamics and implications. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.02849&r= |
| By: | Marco Bardoscia (Bank of England.); Adrian Carro (Banco de España.); Marc Hinterschweiger (Bank of England.); Mauro Napoletano (Université Côte D’Azur, CNRS, GREDEG.); Lilit Popoyan (Queen Mary University of London.); Andrea Roventini (Scuola Superiore Sant’Anna.); Arzu Uluc (Bank of England) |
| Abstract: | We develop a macroeconomic agent-based model to study the joint impact of borrower- and lender-based prudential policies on the housing and credit markets and the economy more widely. We perform three experiments: (i) an increase of total capital requirements; (ii) an introduction of a loan-to-income (LTI) cap on mortgages to owner-occupiers; and (iii) a joint introduction of both experiments at the same time. Our results suggest that tightening capital requirements leads to a sharp decrease in commercial and mortgage lending, and housing transactions. When the LTI cap is in place, house prices fall sharply relative to income, and the homeownership rate decreases. When both policy instruments are combined, we find that housing transactions and prices drop. Both policies have a positive impact on real GDP and unemployment, while there is no material impact on inflation and the real interest rate. |
| Keywords: | Prudential policies; Housing market; Macroeconomy; Agent-based models. |
| JEL: | C63 D1 D31 E58 G21 G28 R2 R21 R31 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:cgs:wpaper:118&r= |
| By: | Leonardo Ciambezi; Mattia Guerini; Mauro Napoletano; Andrea Roventini |
| Abstract: | In this work, we develop a macroeconomic agent-based model to study the role of demand and supply factors in the determination of inflation dynamics. The model is characterized by local interactions of heterogeneous firms and households in the labor and goods markets. Imperfect information implies that market selection is imperfect, as it does not depend only on relative prices but also on firm size. We show that our model is able to generate realistic inflation dynamics, as well as a non-linear Phillips curve in line with the empirical evidence. We then find that the traditional demand-led explanation of inflation stemming from a tight labor market only holds when markets are competitive and efficient. Finally, we study the response of inflation to shocks impacting on consumption, labor productivity or energy costs. The results show that only demand shocks lead to wage-led inflation surges. Productivity shocks are entirely passed-through to prices without affecting the income distribution. Energy shocks, instead, induce sellers' inflation after changes in both firms' cost structure and profit margins. This is in line with the recent empirical evidence for the Euro Area. |
| Keywords: | Inflation, agent-based models, market structure, mark-up rates, sellers' inflation |
| Date: | 2024–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2024/15&r= |
| By: | Mark Setterfield |
| Abstract: | Neoliberalism eviscerated the value-sharing ethos of the post-war Golden Age (1945-73), seeking to maintain social cohesion in civil society by 'managing the discontent of the losers'. This involved reconciling working households to the realities of the neoliberal labour market by means of coercion, distraction, and debt accumulation - the latter serving to limit the growth of consumption inequality in the face of burgeoning income inequality. The global financial crisis (GFC) and Great Recession undermined the process of household debt accumulation, creating a crisis of neoliberal accumulation. Key to the institutional renewal required to address this crisis will be managing the discontent of the losers inherited from the neoliberal era. One possibility is Authoritarian Neoliberalism, based on increasingly illiberal amplification of the 'coerce and distract' elements inherited from the Neoliberal Boom (1990-2007). The only viable alternative is Social Capitalism. This involves a renewal of social democracy that manages the discontent of the losers at its source, by creating inclusive and sustainable growth that both reduces the need and desire for illiberalism in the sphere of civil society. |
| Keywords: | Social structure of accumulation, capital-citizen accord, household debt, inequality, populism |
| JEL: | E21 B51 B52 P16 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:98-2024&r= |
| By: | Schlichter, Leo |
| Abstract: | The Degrowth movement advocates a radical shift from our capitalist economic system to one based on human needs, planetary boundaries, and economic democracy. The literature, however, often neglects detailing the concrete coordination mechanisms of a Degrowth economy. This paper addresses this gap by proposing democratic economic planning as a potential solution. I delve into historical and contemporary planning debates, examining practical examples and proposals that leverage artificial intelligence and cybernetics for democratic economic planning. I argue that models such as participatory economics (Parecon) or Daniel Saros's planning model align well with Degrowth principles, forming a foundation for further exploration. Effective economic planning requires democratic participation, free information flow, and safeguards against power abuse. Still, open questions on money, trade, democratic institutions, and privacy protection require further investigation. |
| Keywords: | Degrowth, economic democracy, economic planning, participatory economics |
| JEL: | B50 O49 P11 P21 P40 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:294825&r= |
| By: | Luca Tausch; Jeffrey Althouse |
| Abstract: | The theory of ecologically unequal exchange (EUE) suggests that there exists an asymmetric transfer of biophysical resources from the periphery to the core. Despite ample evidence demonstrating this fact, the theory fails to account for the complex role of the semi-periphery, or how global (inter-country) and domestic (intra-country) environmental inequalities between regions are connected. To fill this gap, we rely on an environmentally extended multi-regional input-output (EEMRIO) model to provide empirical evidence for China's involvement in global (G-EUE) and domestic (D-EUE) ecologically unequal exchange from 1987 to 2017. While being a net exporter of energy to all income groups, we show that China is a net exporter of land, labour, and materials to the core, but a net importer of land, labour, and materials from the periphery and the semi-periphery. On the domestic level, we show that the wealthy East Coast zone is the only net importer of embodied energy and TiVA, while all other economic zones are net exporters of embodied energy to the East Coast zone. While China continues to be exploited by the core, it has fuelled its ascent in the world-system by creating its own peripheries from which it extracts natural resources, as well as by creating extractive peripheries within its borders. Our results suggest the need to move beyond a simple core-periphery dichotomy when studying the world ecological system: EUE arises through a multi-tiered hierarchy that depends on uneven biophysical flows between regions both domestically and globally. |
| Keywords: | Ecologically unequal exchange, China, Embodied trade flows, Environmentally extended multi-regional input-output analysis, Inter- and Intra-Country Inequality, International Trade, Structural Decomposition Analysis |
| JEL: | Q56 Q57 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:100-2024&r= |
| By: | Lilian Rolim (Universidade Estadual de Campinas); Laura Carvalho; Dany Lang |
| Abstract: | We explore the relationship between inequality, unemployment, and inflation by considering the evidence that low-wage workers are more exposed to business cycle fluctuations. The analysis is undertaken in an extended version of the stock-and-flow consistent agent-based model by Rolim et al. (2023), in which inflation and inequality result from the social conflict over income distribution. The inflation-unemployment-inequality nexus leads to the inequality-augmented Phillips curve relating higher levels of unemployment to lower inflation rates and more inequality. We then perform two sets of experiments to investigate the implications of this nexus further. The first experiment shows that the decrease in low-wage workers' bargaining power could explain the flattening of the Phillips curve and the increase in income and wage inequalities. The second experiment contrasts different monetary policy rules and compares the implications for inequality dynamics. In line with the inequality-augmented Phillips curve, the rules have important implications for wage and income inequalities: a monetary policy rule that prioritizes low inflation rates is associated with higher unemployment and higher inequality levels. |
| Keywords: | Phillips curve, inflation, unemployment, inequality, monetary policy, bargaining power |
| JEL: | C63 D3 E2 E3 E4 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:91-2023&r= |
| By: | Kasy, Maximilian (University of Oxford) |
| Abstract: | Most definitions of algorithmic bias and fairness encode decisionmaker interests, such as profits, rather than the interests of disadvantaged groups (e.g., racial minorities): Bias is defined as a deviation from profit maximization. Future research should instead focus on the causal effect of automated decisions on the distribution of welfare, both across and within groups. The literature emphasizes some apparent contradictions between different notions of fairness, and between fairness and profits. These contradictions vanish, however, when profits are maximized. Existing work involves conceptual slippages between statistical notions of bias and misclassification errors, economic notions of profit, and normative notions of bias and fairness. Notions of bias nonetheless carry some interest within the welfare paradigm that I advocate for, if we understand bias and discrimination as mechanisms and potential points of intervention. |
| Keywords: | AI, algorithmic bias, inequality, machine learning, discrimination |
| JEL: | J7 O3 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16944&r= |
| By: | Jan Behringer (Macroeconomic Policy Institute (IMK)); Lukas Endres (Macroeconomic Policy Institute (IMK)); Till van Treeck (University of Duisburg-Essen) |
| Abstract: | We analyse the decline of household saving rates in the bottom half of the income distribution in Germany since the 2000s, which allowed for only moderately increasing consumption inequality, despite sharply rising income inequality. We combine survey data on household consumption with our own representative survey on the visibility and status relevance of various spending categories to test for upwards directed social status comparisons as an explanation of these trends. We find that non-rich households shift their income allocations towards more visible and status relevant areas of consumption when incomes at the top rise relative to their own. Renter households offset higher status consumption by reducing expenditures on other consumption components. In contrast, homeowners maintain higher status-oriented expenditures, particularly regarding housing, by considerably reducing their saving rates. |
| Keywords: | Personal Income Distribution, Status Concerns, Household Consumption, Homeownership |
| JEL: | D1 D31 E21 R21 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:90-2023&r= |
| By: | Ranaldi, Marco |
| Abstract: | This paper investigates the relationship between national and global distributions of capital and labor income in Italy from 1989 to 2020. By combining data from the Global Capital and Labor (GCL) Database and the Italian Survey of Household Income and Wealth (SHIW), it presents five principal findings. First, between 1989 and 2016, Italians consistently declined in their global income rankings based on both capital and labor income. Second, during this period, individuals in the lower income deciles across all regions (North, Center, and South of Italy) experienced more significant declines in both types of income. Third, these trends reversed from 2016 to 2020. Fourth, labor income became a more crucial determinant of global income status for Italians compared to capital income. Fifth, transfer income can no longer elevate Italians at the bottom of the labor income distribution to global middle-class standards, unlike in the past. (Stone Center on Socio-Economic Inequality Working Paper) |
| Date: | 2024–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:72gwt&r= |
| By: | Davide Romaniello; Antonella Stirati |
| Abstract: | This study contributes to the ongoing discussion surrounding the recent upswing in inflation by presenting an analytical framework and empirically examining inflation trends in Italy. Its primary aim is to unveil the underlying causes, distributive repercussions, and mechanisms through which inflation spreads. We adopt a cost-push and distributive conflict perspective on current inflation. Within this perspective, some contributions argued for a profit-driven inflation, while others dispute this interpretation. They emphasize that increases in profit share or operating surplus, especially amid rising import costs, do not necessarily translate to heightened overall profitability. To disentangle these intricacies, the paper puts forth an analytical framework that clarifies how escalating import costs can elevate profit shares and set in motion inflationary processes, even in the absence of explicit conflicts over income distribution. Turning attention to the Italian context, the study utilizes descriptive statistics, sectoral data, and simple simulations to gain insights into the drivers of inflation and its distributive consequences. Additionally, a Structural Vector Autoregressive (SVAR) model is deployed to uncover the nature and timing of the propagation process. The paper concludes with some policy implications based on the findings. |
| Keywords: | inflation, cost-push, mark-up, distribution; Italian economy |
| JEL: | E31 E12 E2 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:96-2024&r= |
| By: | Thomas I. Palley |
| Abstract: | This paper presents a new formulation of conflict inflation labeled the "pass-through" approach, which contrasts with the existing "pressure balance" approach. The model generates Phillips styled inflation - unemployment dynamics that are a hybrid of Keynesian and NAIRU dynamics. Conflict inflation arises when economic activity rises above the consistent claims activity level, and it is subject to self-propelled conflict accelerationism. Immediately below that level, inflation holds constant at the expected rate. At low activity, accelerating disinflation can develop. Worker militancy, corporate aggressiveness, negative supply shocks, and upward commodity price shocks all contribute to conflict inflation. They do so via two channels. First, they increase the intensity of conflict by increasing the degree of income claims inconsistency. Second, they lower the activity level at which conflict inflation kicks in. Policy can affect the consistent claims economic activity threshold at which conflict inflation kicks in. However, there may be adverse interaction effects with aggregate demand. Conflict inflation is best addressed by unconventional policies, such as incomes policy. Institutional developments in the Neoliberal era have likely reduced the relevance of conflict inflation. |
| Keywords: | conflict inflation, wage share, mark-up, accelerationism, Phillips curve |
| JEL: | E12 E24 E31 E61 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:101-2024&r= |
| By: | Antonio Scala; Marco Delmastro |
| Abstract: | Networks have always played a special role for human beings in shaping social relations, forming public opinion, and driving economic equilibria. Nowadays, online networked platforms dominate digital markets and capitalization leader-boards, while social networks drive public discussion. Despite the importance of networks in many economic and social domains (economics, sociology, anthropology, psychology, ...), the knowledge about the laws that dominate their dynamics is still scarce and fragmented. Here, we analyse a wide set of online networks (those financed by advertising) by investigating their value dynamics from several perspectives: the type of service, the geographic scope, the merging between networks, and the relationship between economic and financial value. The results show that the networks are dominated by strongly nonlinear dynamics. The existence of non-linearity is often underestimated in social sciences because it involves contexts that are difficult to deal with, such as the presence of multiple equilibria -- some of which are unstable. Yet, these dynamics must be fully understood and addressed if we aim to understand the recent evolution in the economic, political and social milieus, which are precisely characterised by corner equilibria (e.g., polarization, winner-take-all solutions, increasing inequality) and nonlinear patterns. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.04813&r= |
| By: | Domenico Delli Gatti; Filippo Gusella; Giorgio Ricchiuti |
| Abstract: | Given the unobserved nature of expectations, this paper employs latent variable analysis to examine three financial instability models and assess their out-of-sample forecasting accuracy. We compare a benchmark linear random walk model, which implies exogenous instability phenomena, with a linear state-space model and a nonlinear Markov regime-switching model, both of which postulate endogenous fluctuations phenomena due to heterogeneous behavioral heuristics. Using the S&P 500 dataset from 1990 to 2019, results confirm complex endogenous dynamics and suggest that the inclusion of behavioral nonlinearities improves the model’s predictability both in the short, medium, and long run. |
| Keywords: | endogenous instability, exogenous instability, behavioral model, forecasting analysis |
| JEL: | C13 C51 E37 G10 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11082&r= |
| By: | Bernardo J. Zubillaga; Mateus F. B. Granha; Andr\'e L. M. Vilela; Chao Wang; Kenric P. Nelson; H. Eugene Stanley |
| Abstract: | This work investigates the effects of complex networks on the collective behavior of a three-state opinion formation model in economic systems. Our model considers two distinct types of investors in financial markets: noise traders and fundamentalists. Financial states evolve via probabilistic dynamics that include economic strategies with local and global influences. The local majoritarian opinion drives noise traders' market behavior, while the market index influences the financial decisions of fundamentalist agents. We introduce a level of market anxiety $q$ present in the decision-making process that influences financial action. In our investigation, nodes of a complex network represent market agents, whereas the links represent their financial interactions. We investigate the stochastic dynamics of the model on three distinct network topologies, including scale-free networks, small-world networks and Erd{\"o}s-R\'enyi random graphs. Our model mirrors various traits observed in real-world financial return series, such as heavy-tailed return distributions, volatility clustering, and short-term memory correlation of returns. The histograms of returns are fitted by coupled Gaussian distributions, quantitatively revealing transitions from a leptokurtic to a mesokurtic regime under specific economic heterogeneity. We show that the market dynamics depend mainly on the average agent connectivity, anxiety level, and market composition rather than on specific features of network topology. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.18709&r= |
| By: | Sascha Keil; Walter Paternesi Meloni |
| Abstract: | Over the past decades, models of circular and cumulative causation, based on the endogenous relations between prices, exports, and labour productivity, have lost prominence in explaining economic dynamics. We argue that, in the absence of counterbalancing mechanisms, the combination of price-sensitive exports and the triggering effect of exports on productivity can enable feedback loops and can significantly shape macroeconomic reality in the short-to-medium run. We apply an adapted export-led model of cumulative causation to 10 major countries belonging the Euro area, a region characterized by divergent wage growth trajectories reflected in divergent export competitiveness and lack of equilibrating mechanisms. Specifically, the model is tested for the period 1995–2020 employing a country-level system of equations (3SLS-ARDL). Our findings indicate that for the majority of the countries examined, this feedback mechanism – comprising price-sensitive exports and export demand affecting productivity growth – exacerbates macroeconomic disparities in terms of labour productivity. While nominal wages act as a potential trigger through their impact on price competitiveness, they also serve as a central factor that retards the feedback mechanism due to the Verdoorn effect of wage-induced demand. Overall, our results affirm the significance of price-induced and export-led theories of cumulative causation while also delineating its limitations, particularly regarding price competitiveness-oriented export-led growth strategies. |
| Keywords: | international trade, export, competitiveness, unit labour cost, wages, productivity, european imbalances |
| JEL: | F16 F41 J30 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:103-2024&r= |
| By: | Claudio Bellei; Muhua Xu; Ross Phillips; Tom Robinson; Mark Weber; Tim Kaler; Charles E. Leiserson; Arvind; Jie Chen |
| Abstract: | Subgraph representation learning is a technique for analyzing local structures (or shapes) within complex networks. Enabled by recent developments in scalable Graph Neural Networks (GNNs), this approach encodes relational information at a subgroup level (multiple connected nodes) rather than at a node level of abstraction. We posit that certain domain applications, such as anti-money laundering (AML), are inherently subgraph problems and mainstream graph techniques have been operating at a suboptimal level of abstraction. This is due in part to the scarcity of annotated datasets of real-world size and complexity, as well as the lack of software tools for managing subgraph GNN workflows at scale. To enable work in fundamental algorithms as well as domain applications in AML and beyond, we introduce Elliptic2, a large graph dataset containing 122K labeled subgraphs of Bitcoin clusters within a background graph consisting of 49M node clusters and 196M edge transactions. The dataset provides subgraphs known to be linked to illicit activity for learning the set of "shapes" that money laundering exhibits in cryptocurrency and accurately classifying new criminal activity. Along with the dataset we share our graph techniques, software tooling, promising early experimental results, and new domain insights already gleaned from this approach. Taken together, we find immediate practical value in this approach and the potential for a new standard in anti-money laundering and forensic analytics in cryptocurrencies and other financial networks. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.19109&r= |