nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2016‒05‒28
ten papers chosen by
Erik Thomson
University of Manitoba

  1. Luigi Pasinetti and the Political Economy of Growth and Distribution By Joseph Halevi
  2. When economics met antitrust: The second Chicago School and the economization of antitrust law By Patrice Bougette; Marc Deschamps; Frédéric Marty
  3. Economics, Neuroeconomics, and the Problem of Identity By Davis, John B.
  4. Top incomes and human well-being around the world By Richard V. Burkhauser; Jan-Emmanuel De Neve; Nattavudh Powdthavee
  5. Innovative Enterprise or Sweatshop Economics? In Search of Foundations of Economic Analysis By William Lazonick
  6. Full Employment, Open Economy Macroeconomics, and Keynes’ General Theory: Does the Swan Diagram Suffice? By Paul Davidson
  7. The Great Recession in the Shadow of the Great Depression: A Review Essay on “Hall of Mirrors: The Great Depression, The Great Recession and the Uses and Misuses Of History” By Lee E. Ohanian
  8. Preferences and Social Influence By Chaim Fershtman; Uzi Segal
  9. Management Science, Economics and Finance: A Connection By Chia-Lin Chang; Michael McAleer; Wing-Keung Wong
  10. Le retour de l'économie keynesienne By Xavier Ragot

  1. By: Joseph Halevi (International University College of Turin)
    Abstract: Luigi Pasinetti’s work has deeply affected modern economic theory. His papers on the Cambridge Capital Controversy are world renowned. But he has made many other contributions to the economic debates of the last half century, offering not only detailed criticisms of mainstream economic theory, but also the elaboration of an alternative, more complete, and coherent framework for understanding growth and income distribution, structural change, and trade relations. He has also made notable contributions to discussions of economic policy. Pasinetti’s papers are very clearly written, but many are formidably technical and often build cumulatively on his previous work. This paper provides a careful and synthetic overview of his contributions as well as a reconstruction of Pasinetti’s philosophical approach to economics as a science meant to serve humanity.
    Keywords: Luigi Pasinetti, Capital Controversy, Piero Sraffa, Classical Economics, Vertical Integration, Theory of Value and Prices, Structural Dynamics, Trade, Growth, Crises, Maastricht Criteria.
    JEL: B31 B4 B5 C6 E1 F1
  2. By: Patrice Bougette (Université Nice Sophia Antipolis (UNS)); Marc Deschamps (Université de Lorraine (UL)); Frédéric Marty (OFCE)
    Abstract: In this article, the authors interrogate legal and economic history to analyze the process by which the Chicago School of Antitrust emerged in the 1950s and became dominant in the United States. They show that the extent to which economic objectives and theoretical views shaped the inception of antitrust law. After establishing the minor influence of economics in the promulgation of U.S. competition law, they highlight U.S. economists’ caution toward antitrust until the Second New Deal and analyze the process by which the Chicago School developed a general and coherent framework for competition policy. They rely mainly on the seminal and programmatic work of Director and Levi (1956) and trace how this theoretical paradigm became collective—that is, the “economization” process in U.S. antitrust. Finally, the authors discuss the implications and possible pitfalls of such a conversion to economics-led antitrust enforcement.
    Keywords: Chicago School of Antitrust; Antitrust law
    Date: 2015–06
  3. By: Davis, John B. (Department of Economics Marquette University)
    Abstract: This paper reviews the debate in economics over neuroeconomics’ contribution to economics. It distinguishes majority and minority views, argues that this debate has been framed by mainstream economics’ conception of itself as an isolated science, and argues that this framing has put off the agenda in economics issues such as individual identity that are increasingly important in connection with the social and historical context of economic explanations in a changing complex world. The paper first discusses how the debate over neuroeconomics has been limited to the question of what information from other sciences might be employed in economics. It then goes on to the individual identity issue, and discusses how economics’ top-down, closed character generates a circular individual identity conception, while bottom-up, open character of psychology and neuroscience, and their continual concern with the changing relation between theory and evidence, has produced four competing individual identity conceptions in neuroeconomic research.
    Keywords: neuroeconomics, mainstream economics, isolated science, identity, revealed preference, circularity, MRI, distributed cognition
    JEL: A12 B41 D03 D87
    Date: 2016–04
  4. By: Richard V. Burkhauser; Jan-Emmanuel De Neve; Nattavudh Powdthavee
    Abstract: The share of income held by the top 1 percent in many countries around the world has been rising persistently over the last 30 years. But we continue to know little about how the rising top income shares affect human well-being. This study combines the latest data to examine the relationship between top income share and different dimensions of subjective well-being. We find top income shares to be significantly correlated with lower life evaluation and higher levels of negative emotional well-being, but not positive emotional well-being. The results are robust to household income, individual’s socio-economic status, and macroeconomic environment controls.
    Keywords: Top income; life evaluation; well-being; income inequality; World top income database; Gallup World Poll
    JEL: J1
    Date: 2016–01
  5. By: William Lazonick (University of Massachusetts Lowell and The Academic-Industry Research Network.)
    Abstract: In Capitalism, Socialism, and Democracy, Joseph Schumpeter asserts: “perfect competition is not only impossible but inferior, and has no title to being set up as a model of ideal efficiency.†For neoclassical economists, the large corporation is a “market imperfection†that, compared with “perfect competition,†should result in higher product prices and lower industry output. Yet business history reveals the capability of the most productive enterprises to generate massive quantities of output at low costs to attain large market shares with buyers benefiting from low prices even as employees receive higher pay and shareholders ample dividends. By integrating the history of industrial development in Britain and the United States with the ideas of leading economic thinkers, this essay demonstrates the absurdity of perfect competition as the ideal of economic efficiency. Indeed, I show that, in their desire to make the market rather than the firm the main arbiter of resource allocation, neoclassical economists have enshrined the sweatshop as the foundation of their analysis, with profoundly negative consequences for understanding how a modern economy actually operates and performs. In doing so, neoclassical economists ignore not only the economic history of capitalism but also the intellectual history of their own discipline. I conduct a journey through two hundred years of economic thought – from Adam Smith’s The Wealth of Nations (1776) to Alfred Chandler’s The Visible Hand (1977) – to derive analytical foundations for a theory of innovative enterprise that can explain and explore firm-level sources of productivity growth in the economy. What then do more sophisticated theories of the firm rooted in the neoclassical tradition have to offer? In a section of this essay that I call (borrowing a phrase from Adolf Berle and Gardiner Means) “Economic Theory for ‘an Era of Corporate Plundering’,†I outline the shortcomings of Williamsonian transaction-cost theory and Jensenian agency theory for analyzing the role of the business corporation in the operation and performance of the economy. From the perspective of the theory of innovative enterprise, I demonstrate how the methodology of constrained optimization trivializes the business enterprise while the ideology that companies should be run to maximize shareholder value legitimizes financial predators, many senior corporate executives among them, in the looting of the industrial corporation. The “era of corporate plundering†since the mid-1980s has contributed to extreme concentration of income among the richest households and the erosion of middle-class employment opportunities. Finally, I call for a transformation of economic thinking so that the innovative enterprise is at the center of economic analysis. The theory of innovative enterprise exposes as costly intellectual failures “perfect competition†as the ideal of economic efficiency, “constrained-optimization†as the prime tool of economic analysis, and “maximizing shareholder value†as the ideology of superior corporate governance. The theory of innovative enterprise provides, moreover, a clear and compelling rationale for sharing the gains of business enterprise among stakeholders in the broader community, in conjunction with government policies that seek to support sustainable prosperity, characterized by stable and equitable economic growth.
    JEL: B10 B20 B41 D01 D23 D40 L2 O30
    Date: 2015–10
  6. By: Paul Davidson (University of Tennessee.)
    Abstract: This paper provides critical comments on the Peter Temin - David Vines promotion of the basic Swan Diagram as (1) a policy tool to encourage any individual debtor nation experiencing balance of payment deficits to reduce its exchange rate in order to expand exports and reduce imports and (2) the Swan Diagram as a simple model for understanding Keynes's General Theory for an Open Economy. This paper explains that the Swan Diagram is completely incompatible with Keynes's analysis. Instead Keynes advocated that the onus should be placed on creditor nations to correct international payments imbalances and thereby promote economic expansion internationally. Keynes warned against any deficit nation adopting a policy that tries to achieve a balance in its international payments by following any policy designed to reduce imports and increase exports. Such a policy sends a contractionary force onto the international economy and tends to injure all trading partners.
    Keywords: Swan Diagram, balance of payments, fiscal policy, neoclassical Synthesis Keynesianism, Post Keynesianism.
    JEL: B3 E12 E42 E61 F33 F41
  7. By: Lee E. Ohanian
    Abstract: This essay reviews Barry Eichengreen's recent book that compares the Great Depression and the Great Recession. Eichengreen focuses on deficient aggregate demand as the key reason for why both downturns were so deep and why they lasted so long. I assess the book's arguments regarding the causes and consequences of these episodes from a neoclassical perspective. I provide an alternative framework for analyzing these episodes, and argue that a key difference between the 1930s and today reflects the factors that continued to depress both economies after their respective troughs. The post-Depression economy featured rapid productivity growth, whereas today's economy is plagued by low productivity growth. I discuss how the post-Great Depression economy recovered to trend quickly once policies that depressed competition were removed. I also argue that returning today's economy to trend may be considerably more challenging.
    JEL: E13 E6 N0
    Date: 2016–05
  8. By: Chaim Fershtman (Tel Aviv University); Uzi Segal (Boston College)
    Abstract: Interaction between decision makers may affect their preferences. We consider a setup in which each individual is characterized by two sets of preferences: his unchanged core preferences and his behavioral preferences. Each individual has a social influence function that determines his behavioral preferences given his core preferences and the behavioral preferences of other individuals in his group. Decisions are made according to behavioral preferences. The paper considers different properties of these social influence functions and their effect on equilibrium behavior. We illustrate the applicability of our model by considering decision making by a committee that has a deliberation stage prior to voting.
    Keywords: Risk aversion, social influence, behavioral preferences
    JEL: D81
    Date: 2016–05–20
  9. By: Chia-Lin Chang (National Chung Hsing University Taiwan); Michael McAleer (National Tsing Hua University, Taiwan; Erasmus University Rotterdam, the Netherlands; Complutense University of Madrid, Spain); Wing-Keung Wong (Hong Kong Baptist University, Hong Kong, PR China; Asia University, Taiwan)
    Abstract: This paper provides a brief review of the connecting literature in management science, economics and finance, and discusses some research that is related to the three disciplines. Academics could develop theoretical models and subsequent econometric models to estimate the parameters in the associated models, and analyze some interesting issues in the three disciplines.
    Keywords: Management science; economics; finance; theoretical models; econometric models
    JEL: A10 G00 G31 O32
    Date: 2016–05–23
  10. By: Xavier Ragot (OFCE (Sciences Po) et PSE (CNRS))
    Abstract: La crise économique a généré une profusion de nouvelles recherches en macroéconomie, qui sont peu connues du grand public. La rationalité limitée, l'utilisation des données historiques et des études de cas sont maintenant des outils reconnus. Derrière cette diversification de la profession, la question des rigidités nominales sur le marché des biens et du travail retrouve une place centrale pour comprendre la dynamique européenne et américaine. Les thèmes de la stagnation séculaire, des taux d'intérêt faibles, de la volatilité excessive sur le marché financier, des effets des politiques fiscales et monétaires reposent sur ces rigidités. Si ces travaux retrouvent certaines des intuitions des modèles à prix-fixes du début des années 1980 (Bénassy-Younes-Malinvaud), les modèles récents sont plus complexes pour être confrontés rigoureusement aux donnés. Le retour de l'économie keynésienne indiqué par le titre de cet article est le retour de la question des rigidités nominales sur plusieurs marchés en équilibre général. Classification-JEL: B22,B40,E12
    Keywords: rigidités nominales, équilibre macroéconomique, méthode de la macroéconomie
    Date: 2016–05

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