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on History and Philosophy of Economics |
| By: | Peter H. Lindert |
| Abstract: | Thomas Piketty’s monumental Capital in the Twenty-First Century has transported us to a higher understanding of historical movements in inequality. This essay ranks the promise of different paths that scholars can usefully follow from the point to which his book has guided us. The main path to follow is the income inequality history so well paved by Piketty and his team, supported by the book’s history of twentieth-century shocks and political responses. Less promising is the book’s emphasis on wealth, capital, and the rate of return. Following the income route to better inequality predictions requires merging his team’s history of top income shares with the history of inequality movements within the lower 90 percent. It also invites a merger with other scholarship that has shown positive growth effects of the kind of democracy Piketty calls for. |
| JEL: | D31 D63 E01 H20 N10 N30 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20232&r=hpe |
| By: | Claudia M. Buch; Oliver Holtemöller |
| Abstract: | The economic and financial crisis that emerged in 2008 also initiated an intense discussion on macroeconomic research and the role of economists in society. The debate focuses on three main issues. Firstly, it is argued that economists failed to predict the crisis and to design early warning systems. Secondly, it is claimed that economists use models of the macroeconomy which fail to integrate financial markets and which are inadequate to model large economic crises. Thirdly, the issue has been raised that economists invoke unrealistic assumptions concerning human behaviour by assuming that all agents are self-centred, rationally optimizing individuals. In this paper, we focus on the first two issues. Overall, our thrust is that the above statements are a caricature of modern economic theory and empirics. A rich field of research developed already before the crisis and picked up shortcomings of previous models. |
| Keywords: | financial crisis, economic forecasting and early warning systems, macroeconomic modelling |
| JEL: | B4 C5 E1 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:8-14&r=hpe |
| By: | Christoph Kuzmics (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | Motivated by trying to better understand the norms that govern pedestrian traffic, I study symmetric two-player coordination games with independent private values. The strategies of "always pass on the left" and "always pass on the right" are always equilibria of this game. Some such games, however, also have other (pure strategy) equilibria with a positive likelihood of mis-coordination. Perhaps surprisingly, in some such games, these Pareto-inefficient equilibria, with a positive likelihood of mis-coordination, are the only evolutionarily stable equilibria of the game. |
| Keywords: | incomplete information, continuously stable strategy, CSS, evolutionary stability, best-response dynamics |
| JEL: | C72 C73 D82 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:bie:wpaper:501&r=hpe |
| By: | Mariolis, Theodore |
| Abstract: | This paper argues that Marx’s theory of economic crises constitutes a system of three discrete ‘sub-theories’ on: (i) distributive growth cycles; (ii) effective demand; and (iii) the tendency of the average profit rate to fall. The paper explores the relationships between these sub-theories and concludes that the third sub-theory overdetermines the other two. Finally, it evaluates the Marxian system of crises on the basis of modern economic science findings. |
| Keywords: | Bhaduri-Marglin accumulation function; Goodwin’s growth cycle models; Law of the tendency of the average profit rate to fall; Marx’s system of eco-nomic crises; Sraffian theory; Total factor productivity |
| JEL: | E11 E22 E32 O33 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:56831&r=hpe |
| By: | Stephan Schulmeister (WIFO) |
| Abstract: | The economic policy of Roosevelt's New Deal stays in sharp contrast to the course followed by European policy since 2009. At first, Roosevelt focussed on fighting the desperate feelings of people and the generally pessimistic mood of the public, on strictly regulating the financial sector and on setting up investment and employment programs. After that, structural reforms were carried out in order to strengthen confidence and social coherence. The most important measures were the introduction of unemployment insurance and of a public pension scheme as well as regulations to ensure "fair" labour conditions. The New Deal policy was successful: GDP expanded in the USA between 1933 and 1937 by 43 percent, mainly due to a boom in investments (+140 percent). By fighting the social-psychological depression and "speculation with other people's money", Roosevelt anticipated those two main messages of Keynes' "General Theory" (1936) which were later forgotten: first, the importance of uncertainty and the "state of confidence" and, second, the necessity to radically restrict financial speculation. |
| Keywords: | Makroökonomische Politik, Depressionen, New Deal |
| Date: | 2014–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2014:i:473&r=hpe |
| By: | Frédéric TEULON; Bruno FISCHER |
| Abstract: | Jacques Léon Rueff (1896-1978) is one of the great French economists of the twentieth century, yet today it is largely unknown. The recurrence of financial crises around the world is an opportunity to rediscover the originality of thought of that great liberal writer who was an advisor to Raymond Poincaré in 1926 during the crisis of the franc, and actor of recovery of the French economy in 1958. Fascinated by the system of the gold standard, Rueff denounces U.S. monetary hegemony and international monetary disorder for years 1960/1970. |
| Keywords: | History of Economic Thought, International Monetary system, Monetary history. |
| Date: | 2014–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-335&r=hpe |
| By: | Venkat Venkatasubramanian; Yu Luo; Jay Sethuraman |
| Abstract: | The widening inequality in income distribution in recent years, and the associated excessive pay packages of CEOs in the U.S. and elsewhere, is of growing concern among policy makers as well as the common person. However, there seems to be no satisfactory answer, in conventional economic theories and models, to the fundamental question of what kind of pay distribution we ought to see in a free market environment, at least under ideal conditions. We propose a novel game theoretic framework that addresses this question and shows that the lognormal distribution is the fairest inequality of pay in an organization, achieved at equilibrium, under ideal free market conditions. Our theory also shows the deep and direct connection between potential game theory and statistical mechanics through entropy, which is a measure of fairness in a distribution. This leads us to propose the fair market hypothesis, that the self-organizing dynamics of the ideal free market, i.e., Adam Smith's "invisible hand", not only promotes efficiency but also maximizes fairness under the given constraints. |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1406.6620&r=hpe |
| By: | Peter Kriesler (School of Economics, Australian School of Business, the University of New South Wales); John Nevile (School of Economics, Australian School of Business, the University of New South Wales) |
| Abstract: | The two books reviewed in this article are very different in style, quite different in content, but completely united in their purpose and major conclusions. Both books analyse the events from 2007 to 2010 to ascertain why the disaster happened and what must be done to put the United States economy (on which both books focus) on a more secure footing and prevent any recurrence of the extended crisis of those years. Both target the increasing influence of market liberalism over the last thirty years, and the institutions of capitalist economies which they have encouraged. Taylor focusses more on the participants in, and those responsible for, regulating the international financial sector, while Palley places more blame on the shoulders of those responsible for labour market policy. Both agree that each of these played a part in precipitating the events of 2007 to 2010 and need to be dealt with if the United States economy is to be restored to health. Both argue strongly that the growing income inequality in the United States must be reversed before the US economy can significantly improve. Finally, they stress the interrelationship between political ideology and economic explanation, and argue that value free positive economics is a myth. |
| Keywords: | global financial crisis, neoliberalism, Keynesian economics, macroeconomic policy, income inequality |
| JEL: | E32 E60 E24 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2014-27&r=hpe |
| By: | Hannu Salonen (Department of Economics, University of Turku) |
| Abstract: | We study non-cooperative link formation games in which players have to decide how much to invest in relationships with other players. The relationship between equilibrium strategies and network centrality measures are investigated in games where there is a common valuation of players as friends. If the utility from relationships with other players is bilinear, then indegree, eigenvector centrality, and the Katz-Bonacich centrality measure put the players in opposite order than the common valuation. If the utility from relationships is strictly concave, then these measures order the players in the same way as the common valuation. |
| Keywords: | link formation games, centrality measures, complete network |
| JEL: | C72 D43 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:tkk:dpaper:dp92&r=hpe |
| By: | Thorvald Grung Moe (Norges Bank) |
| Abstract: | The 1951 Treasury–Federal Reserve Accord is an important milestone in central bank history. It led to a lasting separation between monetary policy and the Treasury's debtmanagement powers and established an independent central bank focused on price and macroeconomic stability. This paper revisits the history of the Accord and elaborates on the role played by Marriner Eccles in the events leading up to the Accord. As chairman of the Board of Governors since 1934, Eccles was also instrumental in drafting key banking legislation that enabled the Federal Reserve System to assume a more independent role following the Accord. The global financial crisis has generated renewed interest in the Accord and its lessons for central bank independence. This paper shows that Eccles' support for the Accord—and central bank independence—was clearly linked to the strong inflationary pressures in the US economy at the time, and that he was equally supportive of deficit financing in the 1930s. This broader interpretation of the Accord holds the key to a more balanced view of Eccles's role at the Federal Reserve, where his contributions from the mid-1930s up to the Accord are seen as equally important. Accordingly, the Accord should not be viewed as the final triumph of central bank independence, but rather as an enlightened vision for a more symmetric policy role for central banks, with equal weight given to fighting inflation and preventing depressions. |
| Keywords: | Marriner Eccles; Central Banking; Monetary Policy; Fiscal Policy |
| JEL: | B31 E52 E58 E63 N12 |
| Date: | 2014–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2014_06&r=hpe |
| By: | Igor Mouraviev (Center for Mathematical Economics, Bielefeld University); Frank Riedel (Center for Mathematical Economics, Bielefeld University); Linda Sass (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | The paper generalizes Kuhn's Theorem to extensive form games in which players condition their play on the realization of ambiguous randomization devices and use a maxmin decision rule to evaluate the consequences of their decisions. It proves that ambiguous behavioral and ambiguous mixed strategies are payoff- and outcome equivalent only if the latter strategies satisfy a rectangularity condition. The paper also discusses dynamic consistency. In particular, it shows that not only the profile of ambiguous strategies must be appropriately chosen but also the extensive form must satisfy further restrictions beyond those implied by perfect recall in order to ensure that each player respects her ex ante contingent choice with the evolution of play. |
| Keywords: | Kuhn's Theorem, Strategic Ambiguity, Maxmin Utility, Ellsberg Games |
| JEL: | C72 D81 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:bie:wpaper:510&r=hpe |
| By: | Tristan BOYER |
| Abstract: | The object of this contribution is to address the question of the ownership of the firm. Both law and economics shape representations of the world: law focuses on rules and justice; economics focuses on efficiency and allocation. They describe common situations and "objects'' such as firms and their functioning, both with positive (analytical) and normative perspectives. However, their descriptions and remedies for the issues which they tackle are very different due to the differences in their philosophical and sociological goals. The Law & Economics perspective can be described as the use of the economics theoretical framework upon issues of law. In this perspective, law issues are addressed as any other economic phenomenon through the prism of efficiency. From this perspective, law is contingent upon normative conditions of economic theory and the best solution arises after a standard process of optimisation. This paper will set out a reversal of that epistemological position: instead of using economic representations to improve the state of law, representations of law will be aimed at testing and improving the economic analytical framework. Since corporate governance issues are structured by domestic laws as well as by economic regulations, legal representations will be discussed in light of economic corporate governance analysis. |
| Keywords: | corporate governance, agency theory, law & economics, property rights, stakeholder approach |
| JEL: | K0 K11 G30 M14 M52 |
| Date: | 2014–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-341&r=hpe |
| By: | Pierre de Gioia-Carabellese (School of Management and Languages, Heriot-Watt University) |
| Abstract: | A jurisdiction such as the Scottish one, reputedly with solid Roman roots, is practically bereft of the fundamental concept of a deposit in the concluding passage of the missives. Alternatively, the relevant "ancestor" (Roman law) has been profoundly permeated, throughout the course of its history, by the notion of an arrha (the earnest) in the conclusion of a contract annexed to the transfer of heritable properties. Moreover, in contemporary times and outwith Scotland, a Continental jurisdiction (the Italian one) is resolutely lingering on the Roman caparra penitenziale while, ironically, the English system (comprehensively "un-Roman" in its formation) has expressly adopted the "deposit" as part of the closing particulars. These asymmetries and crossovers, brim-full with inviting legal ingredients, seem, in the present work, to conjure up an intriguing and captivating plot worthy of an Indiana Jones' film, where the lost treasure can be deemed replaceable, for the distracted reader, by the ancient Roman notion of an arrha, so evidently not inherited by the contemporary Scottish jurisprudence. Ultimately, the contribution engenders the usual unsettling query: in the light of the phenomenology of the arrha so neglected in Scotland in contemporary times, is Scottish law still a mixed legal system or, conversely, a jurisdiction progressively getting closer to the English common law counterpart? |
| Keywords: | Missives, Scots law, Sale of heritable properties, Italian Law, English Law, Comparison, historical development of the concept of arrha |
| JEL: | K |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:vnm:wpdman:81&r=hpe |
| By: | Ariely, Dan; Garcia-Rada, Ximena; Hornuf, Lars; Mann, Heather |
| Abstract: | By running an experiment among Germans collecting their passports or ID cards in the citizen centers of Berlin, we find that individuals with an East German family background cheat significantly more on an abstract task than those with a West German family background. The longer individuals were exposed to socialism, the more likely they were to cheat on our task. While it was recently argued that markets decay morals (Falk and Szech, 2013), we provide evidence that other political and economic regimes such as socialism might have an even more detrimental effect on individuals’ behavior. |
| Keywords: | Experimental economics; cheating; cross-culture study |
| JEL: | C93 D63 P51 |
| Date: | 2014–06–19 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:20974&r=hpe |
| By: | Naomi R. Lamoreaux |
| Abstract: | The legal rules governing businesses’ organizational choices have varied across nations along two main dimensions: the number of different forms that businesses can adopt; and the extent to which businesses have the contractual freedom to modify the available forms to suit their needs. Until the last quarter of the twentieth century, businesses in the U.S. had a narrower range of forms from which to choose than their counterparts in these other countries and also much less ability to modify the basic forms contractually. This article uses the case of Pennsylvania to argue that the sources of this “American exceptionalism” reside in the interplay between the early achievement of universal (white) manhood suffrage and elite efforts to safeguard property rights. |
| JEL: | K2 N41 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20231&r=hpe |
| By: | Buiter, Willem H. |
| Abstract: | The authors provides a rigorous analysis of Milton Friedman's parable of the 'helicopter' drop of money - a permanent/irreversible increase in the nominal stock of fiat base money which respects the intertemporal budget constraint of the consolidated Central Bank and Treasury - the State. Examples are a temporary fiscal stimulus funded permanently through an increase in the stock of base money and permanent QE - an irreversible, monetised open market purchase by the Central Bank of non-monetary sovereign debt. Three conditions must be satisfied for helicopter money always to boost aggregate demand. First, there must be benefits from holding fiat base money other than its pecuniary rate of return. Second, fiat base money is irredeemable - viewed as an asset by the holder but not as a liability by the issuer. Third, the price of money is positive. Given these three conditions, there always exists a combined monetary and fiscal policy action that boosts private demand - in principle without limit. Deflation, 'lowflation' and secular stagnation are therefore unnecessary. They are policy choices. -- |
| Keywords: | helicopter money,liquidity trap,seigniorage,secular stagnation,central bank,quantitative easing |
| JEL: | E2 E4 E5 E6 H6 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201424&r=hpe |
| By: | Smets, Lodewijk; Knack, Stephen |
| Abstract: | This study investigates the impact of World Bank development policy lending on the quality of economic policy. It finds that the quality of policy increases, but at a diminishing rate, with the cumulative number of policy loans. Similar results hold for the cumulative number of conditions attached to policy loans, although quadratic specifications indicate that additional conditions may even reduce the quality of policy beyond some point. The paper measures the quality of economic policy using the World Bank's Country Policy and Institutional Assessments of macro, debt, fiscal and structural policies, and considers only policy loans targeted at improvements in those areas. Previous studies finding weaker effects of policy lending on macro stability have failed to distinguish loans primarily intended to improve economic policy from other loans targeted at improvements in sector policies or in public management. The paper also shows that investing in economic policy does not"crowd out"policy improvements in other areas such as public sector governance or human development. The results are robust to using alternative indicators of policy quality, and correcting for endogeneity with system generalized methods of moments and cross-sectional two-stage least squares. The more positive results in the study relative to some previous studies based on earlier loans are consistent with claims by the World Bank that it has learned from its mistakes with traditional adjustment lending. |
| Keywords: | Banks&Banking Reform,Economic Adjustment and Lending,Economic Theory&Research,Debt Markets,Public Sector Corruption&Anticorruption Measures |
| Date: | 2014–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6924&r=hpe |