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on History and Philosophy of Economics |
| By: | Ole Peters; Alexander Adamou |
| Abstract: | Decision theory is the model of individual human behavior employed by neoclassical economics. Built on this model of individual behavior are models of aggregate behavior that feed into models of macroeconomics and inform economic policy. Neoclassical economics has been fiercely criticized for failing to make meaningful predictions of individual and aggregate behavior, and as a consequence has been accused of misguiding economic policy. We identify as the Achilles heel of the formalism its least constrained component, namely the concept of utility. This concept was introduced as an additional degree of freedom in the 18th century when it was noticed that previous models of decision-making failed in many realistic situations. At the time, only pre-18th century mathematics was available, and a fundamental solution of the problems was impossible. We re-visit the basic problem and resolve it using modern techniques, developed in the late 19th and throughout the 20th century. From this perspective utility functions do not appear as (irrational) psychological re- weightings of monetary amounts but as non-linear transformations that define ergodic observables on non-ergodic growth processes. As a consequence we are able to interpret different utility functions as encoding different non-ergodic dynamics and remove the element of human irrationality from the explanation of basic economic behavior. Special cases were treated in [1]. Here we develop the theory for general utility functions. |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1801.03680&r=hpe |
| By: | Eric Rahim (Department of Economics, University of Strathclyde) |
| Abstract: | In The Economic and Philosophical Manuscripts of 1844 (completed in August 1844) Marx takes two crucial steps in the formation of his worldview. The first relates to his rejection of all ‘old’ materialism, including Feuerbach’s, and the adoption of his own version, which he called ‘communist’, ‘practical’. This view was later presented definitively in the first Thesis on Feuerbach (spring of 1845), and elaborated in The German Ideology (1845-46). The second step relates to Marx’s synthesising of the philosophical standpoint that he had developed up to this point (around the spring of 1844) with political economy. Up to this point he had spoken of alienation in largely philosophical terms; now it is rooted in the process of production. On both counts Adam Smith was an important influence. This claim provides the focus of this paper. To make this point successfully I have found it necessary to briefly trace the development of Marx’s philosophical standpoint up to the writing of the Manuscripts, and to distinguish between the two methodologically distinct aspects of Adam Smith’s thought, the one that Marx accepted and the other that he rejected. |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:1712&r=hpe |
| By: | L. Randall Wray |
| Abstract: | This paper examines the views of Hyman Minsky and Abba Lerner on the functional finance approach to fiscal policy. It argues that the main principles of functional finance were relatively widely held in the immediate postwar period. However, with the rise of the Phillips curve, the return of the Quantity Theory, the development of the notion of a government budget constraint, and accelerating inflation at the end of the 1960s, functional finance fell out of favor. The paper compares and contrasts the evolution of the views of Minsky and Lerner over the postwar period, arguing that Lerner’s transition went further, as he embraced a version of Monetarism that emphasized the use of monetary policy over fiscal policy. Minsky’s views of functional finance became more nuanced, in line with his Institutionalist approach to the economy. However, Minsky never rejected his early beliefs that countercyclical government budgets must play a significant role in stabilizing the economy. Thus, in spite of some claims that Minsky should not be counted as one of the “forefathers†of Modern Money Theory (MMT), this paper argues that it is Minsky, not Lerner, whose work remains essential for the further development of MMT. |
| Keywords: | Functional Finance; Hyman Minsky; Abba Lerner; Deficit Owl; Budget Deficits; Government Budget Constraint; Phillips Curve; Sovereign Currency; Modern Money Theory |
| JEL: | B10 B15 B22 B25 B31 B5 E12 E32 E62 H62 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_900&r=hpe |
| By: | Russo, Alberto |
| Abstract: | This paper presents a brief discussion on the evolution of macroeconomics and economic policy after Keynes. Particularly, we describe the emergence of a new standard of economic research, after the «stagflation» of the 1970s, which resurrects the (pre-Keynesian) confidence in the self-correcting properties of the market economy. It also considers economic policy as a potential obstacle for the economic system in reaching the «natural» equilibrium. Finally, some perspectives for macroeconomics in the aftermath of the Great Recession are discussed. |
| Keywords: | John Maynard Keynes; NAIRU; New Classical Macroeconomics; Great Recession; Financialization. |
| JEL: | B22 E60 |
| Date: | 2017–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:83346&r=hpe |
| By: | Michael D. Bordo; Robert N. McCauley |
| Abstract: | Triffin gained enormous influence by reviving the interwar story that gold scarcity threatened deflation. In particular, he held that central banks needed to accumulate claims on the United States to back money growth. But the claims would eventually surpass the US gold stock and then central banks would inevitably stage a run on it. He feared that the resulting high US interest rates would cause global deflation. However, we show that the US gold position after WWII was no worse than the UK position in 1900. Yet it took WWI to break sterling’s gold link. And better and feasible US policies could have kept Bretton Woods going. This history serves as a backdrop to our critical review of two later extensions of Triffin. One holds that the dollar’s reserve role required US current account deficits. This current account Triffin is popular, but anachronistic, and flawed in logic and fact. Nevertheless, it pops up in debates over the euro’s and the renminbi’s reserve roles. A fiscal Triffin holds that global demand for safe assets will either remain dangerously unsatisfied, or force excessive US fiscal debt. Less flawed, this story posits implausibly inflexible demand for and supply of safe assets. Thus, these stories do not convince in their own terms. Moreover, each lacks Triffin’s clear cross-over point from a stable system to an unstable one. Triffin’s seeming predictive success leads economists to wrap his brand around dissimilar stories. Yet Triffin’s dilemma in its most general form correctly points to the conflicts and difficulties that arise when a national currency plays a role as an international public good. |
| JEL: | F32 F33 F34 F41 H63 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24195&r=hpe |
| By: | Luca Fiorito; Massimiliano Vatiero |
| Abstract: | This paper deals with the analysis on adventitious utility—that contains many aspects that are connected to the contemporary debate on positional goods—of the early twentieth century American economist, largely forgotten today, George Pendleton Watkins. According to the author, adventitious utility emerges from a process of social exclusion which can create negative externalities, in the sense that positive consumption of one individual implies negative consumption by another individual. Interestingly, a similar notion of positional competition as a zero-sum game has gained some consensus among contemporary authors (Pagano 1999; Hopkins and Kornienko 2004). In addition, for Watkins striving for adventitious utility does undermine social welfare. Not only it worsens both individual and social well-being by generating social waste, but it also disrupts the integrity of the social fabric. In discussing possible remedies, Watkins pointed out the necessity of a more egalitarian distribution of income and postulated a dichotomy between goods and services possessing adventitious utility and those possessing what he defined as multiple utility. In the latter group Watkins included public goods as well as those dimensions in human consumption that depend on social interaction and can be enjoyed only if shared in community. |
| JEL: | A14 B15 B41 D01 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:772&r=hpe |
| By: | Ugo Pagano; Massimiliano Vatiero |
| Abstract: | People consume because others consume, maintained Veblen in 1899. More recently, theoretical, empirical and experimental articles have argued that people constantly compare themselves to their environments and care greatly about their relative positions. Given that competition for positions may produce social costs, we adopt a Law and Economics approach (i) to suggest legal remedies for positional competition, and (ii) to argue that, because legal relations are characterized in turn by positional characteristics, such legal remedies do not represent ‘free lunches’ |
| JEL: | B41 D01 D62 K00 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:773&r=hpe |
| By: | Ryo Kawasaki; Hideo Konishi (Boston College); Junki Yukawa |
| Abstract: | This paper introduces a bottleneck game with finite sets of commuters and departing time slots as an extension of congestion games by Milchtaich (1996). After characterizing Nash equilibrium of the game, we provide sufficient conditions for which the equivalence between Nash and strong equilibria holds. Somewhat surprisingly, unlike in congestion games, a Nash equilibrium in pure strategies may often fail to exist, even when players are homogeneous. In contrast, when there is a continuum of atomless players, the existence of a Nash equilibrium and the equivalence between the set of Nash and strong equilibria hold as in congestion games (Konishi, Le Breton, and Weber, 1997a). |
| Keywords: | congestion game, bottleneck model, Nash equlibrium, strong equilibrium, equivalence, existence |
| JEL: | C72 R41 |
| Date: | 2018–01–20 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:945&r=hpe |
| By: | Sylvie Thoron (LIPHA - Laboratoire Interdisciplinaire d'Etude du Politique Hannah Arendt Paris-Est - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12 - UPEM - Université Paris-Est Marne-la-Vallée) |
| Abstract: | Behavioral economics sought to draw inspiration from research on empathy to modify the interactive model of homo oeconomicus. However, it was faced with the impossibility of considering emotions, and emotional empathy in particular, in the framework of a theory of social preferences anchored in the rationality of the interactionist and individualistic model of game theory. This impossibility is due to the fact that game theory first, then behavioral economics, did not want to question the fundamental motives of the individual when he interacts with others. Yet, the question of emotions, and emotional empathy in particular, should lead to questioning the sources of behavior. Indeed, what do the other behavioral sciences tell us? While the survival of the organism is undoubtedly a fundamental objective common to all living things, human beings derive their specificity from the fact that they also have fundamental and pre-wired mechanisms that specialize them for life in interaction with their fellows. It is thanks to these fundamental mechanisms that the human species has been able to develop productive and societal modes of cooperation on a large scale. We propose, therefore, a change of perspective in behavioral economics that would allow to consider that the ultimate objective of the individual in society is not to ensure her survival and needs but rather to create and maintain the links with others. |
| Abstract: | -Lorsque l’économie comportementale a voulu s’inspirer des recherches sur l’empathie pour modifier le modèle de l’homo oeconomicus en interaction, elle s’est heurtée à l’impossibilité de penser les émotions dans le cadre d’une théorie des préférences sociales toujours ancrée dans la rationalité du modèle individualiste interactionniste de la théorie des jeux. Cette impossibilité est due au fait que la théorie des jeux tout d’abord, puis l’économie comportementale ensuite, n’ont pas voulu remettre en question l’objectif fondamental de l’individu lorsqu’il agit en interaction avec les autres. Or, se pencher sur la question des émotions et de l’empathie émotionnelle en particulier devait amener à remettre en question les ressorts du comportement. Que nous disent en effet les autres sciences du comportement ? Que si la survie de l’organisme est sans doute un objectif fondamental et commun à tous les êtres vivants, ce dernier tire par ailleurs sa spécificité de mécanismes fondamentaux et pré-câblés qui le spécialisent pour la vie en interaction avec ses semblables. Grâce à ces mécanismes fondamentaux l’espèce humaine a pu élaborer des modes de coopération productifs et sociétaux à grande échelle. Nous proposons en conséquence un changement de perspective en économie comportementale qui permettrait de considérer que l’objectif ultime de l’individu en société n’est pas d’assurer sa survie et ses besoins, mais de créer et d’entretenir le lien aux autres. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01645082&r=hpe |
| By: | Roger Sandilands (Department of Economics, University of Strathclyde) |
| Abstract: | This paper introduces a hitherto unpublished 1970 paper written by the distinguished development economist Lauchlin Currie (1902-93) on Paul Rosenstein Rodan’s famous 1943 paper on the “Big Push†which led to the balanced-unbalanced growth debate to which Albert Hirschman (1915-2012) was an important contributor. Both Currie and Hirschman had been key economic advisers to the Colombian government and their respective views on development planning are contrasted. In particular, it is shown how Currie’s 1970 paper illuminates the theory behind the 1971-74 national plan for Colombia that he prepared and helped deliver; and how the related institutional innovations have had an enduring impact on Colombia’s recent economic history. |
| Keywords: | 'linkages theory', 'big push' |
| JEL: | B31 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:1717&r=hpe |
| By: | Chia-Lin Chang (National Chung Hsing University, Taiwan); Michael McAleer (Asia University, Taiwan; University of Sydney Business School, Australia; Erasmus University Rotterdam, The Netherlands); Wing-Keung Wong (Asia University, Taiwan; Hang Seng Management College, China; Lingnan University, China) |
| Abstract: | The paper provides a brief review of the connecting literature in management information, decision sciences, and financial economics, and discusses some research that is related to the three cognate 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 related disciplines. |
| Keywords: | Management information; decision sciences; financial economics; theoretical models; econometric models. |
| JEL: | A10 G00 G31 O32 |
| Date: | 2018–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20180004&r=hpe |
| By: | Kanbur, Ravi |
| Abstract: | This paper attempts to understand Asian Drama in the context of the development debates of its time, and in terms of the sensibilities that Gunnar Myrdal-the brilliant economic theorist and philosopher of knowledge, and the Swedish politician-brought to the conceptualization of the problems and prospects of development. The paper covers: (i) what Gunnar Myrdal brought to the analysis of development from his long, varied and distinguished academic and practitioner career; (ii) the development terrain in the mid-twentieth century; and (iii) how Asian Drama lay on that terrain and in the remaining years of Gunnar Myrdal's continued eventful life. The two central questions posed in the paper are: (i) How did Gunnar Myrdal's broad experience and perspective influence Asian Drama? (ii) How did Asian Drama influence the development debate? |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12590&r=hpe |
| By: | Alp Atakan (Koc University, QueenMary Univ. of London); Levent Kockesen (Koc University); Elif Kubilay (Institute for Social and Economic Research, University of Essex) |
| Abstract: | We analyze a repeated cheap-talk game in which the receiver is privately informed about the conflict of interest between herself and the sender and either the sender or the receiver controls the stakes involved in their relationship. We focus on payoff-dominant equilibria that satisfy a Markovian property and show that if the potential conflict of interest is large, then the stakes increase over time, i.e., “starting small” is the unique equilibrium arrangement. In each period, the receiver plays the sender’s ideal action with positive probability and the sender provides full information as long as he has always observed his ideal actions in the past. We also show that as the potential conflict of interest increases, the extent to which the stakes are back-loaded increases, i.e., stakes are initially smaller but grow faster. |
| Keywords: | Communication, Cheap Talk, Reputation, Repeated Games, Career Path, Gradualism, Starting Small. |
| JEL: | D82 D83 D23 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1805&r=hpe |
| By: | Tsoulfidis, Lefteris; Papageorgiou, Aris |
| Abstract: | Basic innovations and their diffusion, the expansion or contraction of the level of economic activity and the volume of international trade, rising sovereign debts and their defaults, conflicts and the outbreak of wars, are some of the major phenomena appearing during the downswing or upswing phases of long cycles. In this article, we examine the extent to which these phenomena constitute stylized facts of the different phases of long cycles which recur quite regularly in the turbulent economic history of capitalism. The main argument of this paper is that the evolution of long cycles is a result of the long-run movement of profitability. During the downswing of a long cycle, falling profitability induces innovation investment and the associated with it 'creative destruction' of the capital stock that eventually set the stage for the upswing phase of a new long cycle. |
| Keywords: | Long Cycles Innovations Profit rate Logistic regression Stagnation Kondratiev Schumpeter |
| JEL: | B14 B25 E11 E3 E32 N0 N1 N10 O3 O31 |
| Date: | 2017–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82853&r=hpe |
| By: | Martin T. Bohl; Pierre L. Siklos |
| Abstract: | In an important sense the present survey reaches a conclusion similar to the one highlighted by Laidler and Parkin (1975) over forty years ago. Inflation, if fully anticipated, produces modest social costs. We are no closer to knowing what is ‘optimal’ inflation except that low and stable inflation come closest to reducing the loss of purchasing power of money. Because prices of goods and services incorporate elements that are difficult to measure precisely we cannot even be sure what the actual level of inflation really is. Hence, what is deemed low may well differ across countries and across time. Nevertheless, avoiding inflation is not only desirable because it represents a form of taxation without representation but, in theory at least, low and stable inflation ought to be more easily forecasted thereby reducing the likelihood of large and persistent forecast errors. |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2018-08&r=hpe |
| By: | Hegadekatti, Kartik; S G, Yatish |
| Abstract: | Since the dawn of the concept of nation-states, many nations have been planning their economies to increase people’s prosperity and standard of living. All economies have a centralized feature where decisions are taken. But data collection and plan implementation has been cumbersome because of the manual nature of economic planning. Centralized systems, even when digitized, are prone to single point failures. Controlled Blockchains allow for an economic system to be decentralized, yet having central supervision i.e. quasi-decentralization. This paper deals with shifting a national economy to a network of Blockchains and creating a Programmable Economy (P.E) where the whole economic system behaves like a single computer, taking in certain inputs and providing the desired outputs. We discuss the various factors that are needed to bring about such a transformation. We also analyse the impact this will have on various aspects of the economy and people’s lives. Finally the paper concludes by summarizing the purpose, methodology and impact of a Programmable Economy (P.E). |
| Keywords: | blockchain, K-Y Protocol, planned economy, bitcoin |
| JEL: | C53 C63 C81 C82 C87 D04 D72 D78 D81 E27 E37 E47 E61 F17 F37 F47 |
| Date: | 2017–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82831&r=hpe |
| By: | In Do Hwang (Economic Research Institute, The Bank of Korea) |
| Abstract: | Although an increasing number of studies demonstrate the importance of trust in economic growth, they only focus on interpersonal trust. This paper considers various types of trust including interpersonal trust (i.e., trust in people), institutional trust (e.g., trust in the fair administration of justice, or trust in the protection of property rights), and political trust (e.g., trust in government or political parties), and investigates their impacts on growth. Using novel cross-country survey data, this paper finds that institutional trust is most robustly related to the economic growth in a cross-section of 46 countries. This paper also shows that there is a causal relationship between institutional trust and growth using panel data from those 46 countries. Hence, in contrast with the previous trust literature which focuses on trust in "people" as a "time-invariant cultural feature," this paper stresses trust in "social system" as an "institutions- dependent feature." |
| Keywords: | Institutions and economic growth, Trust, Social capital |
| JEL: | O17 P16 Z13 |
| Date: | 2017–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:bok:wpaper:1715&r=hpe |
| By: | Bok, Brandyn; Caratelli, Daniele; Giannone, Domenico; Sbordone, Argia; Tambalotti, Andrea |
| Abstract: | Data, data, data ... Economists know their importance well, especially when it comes to monitoring macroeconomic conditions -- the basis for making informed economic and policy decisions. Handling large and complex data sets was a challenge that macroeconomists engaged in real-time analysis faced long before "big data" became pervasive in other disciplines. We review how methods for tracking economic conditions using big data have evolved over time and explain how econometric techniques have advanced to mimic and automate best practices of forecasters on trading desks, at central banks, and in other market-monitoring roles. We present in detail the methodology underlying the New York Fed Staff Nowcast, which employs these innovative techniques to produce early estimates of GDP growth, synthesizing a wide range of macroeconomic data as they become available. |
| Keywords: | business cycle analysis; high-dimensional data; monitoring economic conditions; real-time data flow |
| JEL: | C32 C53 E3 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12589&r=hpe |
| By: | Hegadekatti, Kartik |
| Abstract: | Man has not only evolved biologically and culturally but also economically. Human economy has grown over many centuries through continuous addition of value. This value addition has been an evolutionary factor as it has influenced the formation of the main economic sectors-namely Primary, Secondary and Tertiary. Recently after the advent of Blockchain technology, Bitcoin achieved Gold parity. This paper analyses whether such an event will have any impact on the evolution of our economies. First, I discuss the various sectors of the economy. Then I evaluate how Bitcoin (BTC) achieving Gold Parity (GP) may influence the outcome of future economic scenarios. The paper concludes by summarizing the importance of technology in our economic systems and how technology affects its evolution. |
| Keywords: | blockchain, economic evolution, bitcoin, K-Y protocol |
| JEL: | B52 O32 O33 Q55 |
| Date: | 2017–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82852&r=hpe |
| By: | Ennio Bilancini; Leonardo Boncinelli; Luigi Luini |
| Abstract: | We conduct a laboratory experiment to study how the mode of reasoning affects pure coordination in problems with and without an exogenous anchor that can serve as a focal point. The mode of reasoning is manipulated in the lab by requiring subjects to decide quickly (time pressure treatment) and, alternatively, by requiring subjects to motivate their decisions in a few lines of text (motivation treatment). This is meant to induce, respectively, a fast and intuitive mode of reasoning as opposed to a slow and deliberative one. Experimental data suggest that: (i) subjects take to the lab preexisting focalities that may have a common cultural root; (ii) the anchor is strongly focal and crowds out pre-existing focalities; (iii) such crowding out only happens for deliberative subjects. As a result, the anchor has an ambiguous effect on the overall ability of subjects to coordinate, making its desirability heavily dependent on the likelihood that subjects follow a slow and deliberative mode of reasoning. |
| Keywords: | focal points, intuition, deliberation, time pressure, motivation |
| JEL: | C91 D01 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:771&r=hpe |
| By: | Engelmann, Dirk (Humboldt University Berlin); Friedrichsen, Jana (Humboldt University Berlin and DIW); Kübler, Dorothea (WZB and TU Berlin) |
| Abstract: | Whether pro-social preferences identified in economic laboratories survive in natural market contexts is an important and contested issue. We investigate how fairness in a laboratory experiment framed explicitly as a market exchange relates to preferences for fair trade products before and after the market experiment. We find that the willingness to buy at a higher price when higher wages are paid to the worker correlates both with the choice for a fair trade product before the laboratory experiment and with whether the participants are willing to pay a positive fair trade premium, elicited at the end of the experiment. These results support the notion that fairness preferences as assessed in laboratory experiments capture preferences for fair behavior in comparable situations outside the laboratory. |
| Keywords: | fairness; market experiments; external validity; fair trade; |
| JEL: | C91 D01 D91 |
| Date: | 2018–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:64&r=hpe |
| By: | Monnet, Eric |
| Abstract: | The macroeconomic policy "trilemma" is widely used as a framework to discuss the rationale for capital controls and monetary policy autonomy under the Bretton Woods system (1944-1971). Without denying its usefulness, I highlight two facts at odds with assumptions underlying the "trilemma" argument. First, conflicts between internal and external objectives were uncommon. Second, using quantitative credit controls allowed central banks to disconnect their interest rate from the domestic monetary policy stance. They assigned the interest rate to the external side while managing domestic credit expansion with direct quantitative controls. This paper documents that such mechanism was explicitly considered by contemporary economists and central bankers as a way to escape international financial constraints. In such an environment, capital controls were used to complement credit controls. Interest rate spreads were neither a good measure of capital controls nor of central bank autonomy. |
| Keywords: | Bretton Woods; capital controls; central banking; credit controls; macroprudential policies; reserve requirements; trilemma |
| JEL: | E58 F32 N20 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12535&r=hpe |