nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2019‒06‒24
eleven papers chosen by
Erik Thomson
University of Manitoba

  1. Keynes's Investment Theory as a Micro-foundation for his Grandchildren By Sergio Nisticò
  2. What's Wrong With Modern Money Theory (MMT): A Critical Primer By Thomas I. Palley
  3. Economic Theory ten years after the crisis: Just tweaking around the edges? and/or A bit of repair at the seams? By Vassilis Droucopoulos
  4. Inequality and Stagnation by Policy Design By Thomas I. Palley
  5. Sorting out Guidelines for the Good Evaluation of Research Practices By Cinzia Daraio; Alessio Vaccari
  6. The Relationship Between Theology and Economics: The Role of The Jansenism Movement By Maxime Menuet
  7. The Past’s Long Shadow. A Systematic Review and Network Analysis of Cliometrics or the New Economic History By Gregori Galofré-Vilà
  8. Individual Sense of Justice and Harsanyi’s Impartial Observer By Abhinash Borah
  9. The Fair Reward Problem: The Illusion of Success and How to Solve It By Didier Sornette; Spencer Wheatley; Peter Cauwels
  10. Tolerance for inequality: Hirschman’s tunnel effect revisited By Wannaphong Durongkaveroj
  11. Why and how the western economists should reorient their thinking? By Jakhotiya, Girish

  1. By: Sergio Nisticò (University of Cassino and Lazio Meridionale)
    Abstract: In contrast with the ‘missing micro-foundations’ argument against Keynes’s macroeconomics, the paper argues that it is the present state of microeconomics that needs more solid ‘Keynesian foundations’. It is in particular Keynes’s understanding of investors’ behaviour that can be fruitfully extended to consumption theory, in a context in which consumers are considered as entrepreneurs, buying goods and services to engage in time-consuming activities. The paper emphasizes that the outcome in terms of enjoyment is particularly uncertain for those innovative and path-breaking activities, which Keynes discussed in his 1930 prophetic essay about us, the grandchildren of his contemporaries. Moreover, the Keynes-inspired microeconomics suggested in the paper provides an explanation of why Keynes’s prophecy about his grandchildren possibly expanding leisure did not materialize yet. The paper finally points at the need for appropriate economic policies supporting consumers’ propensity to enforce innovative forms of time use.
    JEL: B41 D11 D81
    Date: 2019–06
  2. By: Thomas I. Palley
    Abstract: Recently, there has been a burst of interest in modern money theory (MMT). The essential claim of MMT is sovereign currency issuing governments do not need taxes or bonds to finance government spending and are financially unconstrained. MMT rests on a triad of arguments concerning: (i) the macroeconomics of money financed budget deficits, (ii) the employer of last resort or job guarantee program, and (iii) the history of money. This primer analyzes that triad and shows each element involves suspect economic arguments. That leads MMT to underestimate the economic costs and exaggerate the capabilities of money financed fiscal policy. MMT's analytic shortcomings render it poor economics. However, its simplistic printing press economics is proving a popular political polemic, countering the equally simplistic and wrong-headed household economics of neoliberal austerity polemic.
    Keywords: Modern money theory (MMT), budget deficits, job guarantee program
    JEL: E00 E12 E40 E58 E60
    Date: 2019
  3. By: Vassilis Droucopoulos (Emeritus Professor of the Department of Economics of the University of Athens.)
    Abstract: It is my intention to address, primarily within the scope of mainstream macroeconomic theory, three of the questions making up the main theme of the conference, namely: How a very problematic theory continues to survive and dominate both the policy and the academic scene. What are the processes in the economy and the society that sustain its dominance? What is the condition of the economic Orthodoxy (particularly under its current form of the New Macroeconomic Consensus, that is the hybrid of mild neoliberalism with conservative New Keynesianism)? A good many orthodox economists hold the view that there is no necessity for a paradigm shift. On the contrary, a mere evolution towards a more pluralistic discipline would suffice. Hence the title of my talk.
    Keywords: Economic Pluralism, Macroeconomic Theory
    JEL: A20 B40 B50
    Date: 2018–12
  4. By: Thomas I. Palley
    Abstract: This paper argues the mainstream economics profession is threatened by theories of the financial crisis and ensuing stagnation that attribute those events to the policies recommended and justified by the profession. Such theories are existentially threatening to the dominant point of view. Consequently, mainstream economists resist engaging them as doing so would legitimize those theories. That resistance has contributed to blocking the politics and policies needed to address stagnation, thereby contributing to a political vacuum which is being filled by odious forces. Those ugly political consequences are unintended, but they are still there and show the dangerous consequences of the death of pluralism in economics. The critique of mainstream economists is not about "values" or lack of "change": it is about academic practice that suppresses ideas which are existentially threatening.
    Keywords: Income inequality, stagnation, neoliberalism, Keynesianism, pluralism
    JEL: A0 A11 B50 E00 E12
    Date: 2019
  5. By: Cinzia Daraio (Department of Computer, Control and Management Engineering Antonio Ruberti (DIAG), University of Rome La Sapienza, Rome, Italy); Alessio Vaccari (Department of Computer, Control and Management Engineering Antonio Ruberti (DIAG), University of Rome La Sapienza, Rome, Italy)
    Abstract: In this paper, we propose the adoption of moral philosophy and in particular normative ethics, to clarify the concept of “good†evaluation of “research practices†. Our perspective is based on the idea that research is a form of social practice according to MacIntyre (1985)’s conceptualization. From MacIntyre’s notion, we elaborate three typologies of researcher: the leader, the good researcher and the honest researcher. Reflecting on what is a “good†research practice and on what is the role of researchers in it provides insight into some aspects of both the selfassessment process and how this promotes individual improvement. Moreover, this kind of reflection helps us to describe the functions (missions) of the research practices. A “good†evaluation should take into account all the building constituents of a “good†research practice and should be able to discriminate between good and bad research practices, while enforcing the functions of good research practices. These reflections may be the starting point for a paradigm shift in the evaluation of research practices which replaces an evaluation centred on products with an evaluation focused on the functions of these practices.
    Keywords: research evaluation ; virtue ethics ; social practices
    Date: 2019
  6. By: Maxime Menuet (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This article reassesses the links between the origins of the political economy and the Christian theology during the seventeenth and eighteenth centuries. I focus on the Jansenism movement-the most powerful Christian protest current in the pre-Revolution period. I reveal that the influence of this movement on economic ideas can be roughly divided into three issues. During the pre-Unigenitus (1713) period (first jansenism), (i) the original vision of labor that contrasts with the Protestant's approach and the Catholic doctrine, and (ii) the idea that self-interest can produce a social optimum were major contributions of the jansenism on economic debates. During the post-Unigenitus period (second jansenism), (iii) the confrontation between two parties-the "liberal" vs the "resistant" jansenism currents-on the interest-bearing loans issue led to the development of new economic arguments for or against the credit, while making reference to the Holy Writings.
    Keywords: Jansenism,theology,social optimum,labor,interest-bearing loans
    Date: 2019–06–12
  7. By: Gregori Galofré-Vilà (University of Bocconi)
    Abstract: During the interwar years, Japanese industrialisation accelerated alongside the expansion of industrial exports to regional markets. Trade blocs in the interwar years were used as an instrument of imperial power to foster exports and as a substitute for productivity to encourage industrial production. The historiography on Japanese industrialisation in the interwar years describes heavy industries’ interests in obtaining access to wider markets to increase economies of scale and reduce unit costs. However, this literature provides no quantitative evidence that proves the success of those mechanisms in expanding exports. In this paper we scrutinise how Japan—a relatively poor country—used colonial as well as informal power interventions to expand regional markets for its exports, especially for the most intensive human capital sector of the industrializing economy.
    Keywords: Cliometrics, Economic History, Systematic Review, Network Analysis
    JEL: A14 N00 N01
    Date: 2019–05
  8. By: Abhinash Borah (Department of Economics, Ashoka University)
    Abstract: We revisit, within Harsanyi’s impartial observer setting, the question of foundations underlying procedural fairness concerns in welfare judgments. In our setup—that of allocating an indivisible good using a lottery—such concerns, presumably, matter. We draw from the social preferences literature and relax a typical assumption made while addressing this question, namely, that individuals in society do not care about procedural fairness and such concerns arise exclusively at a societal level, which are captured by non-linear social welfare functions (SWFs). In our model, individual attitudes towards procedural fairness are identified and factored into welfare judgments. Specifically, we provide an axiomatic basis within Harsanyi’s (1955) framework to represent procedural fairness sensitive individual preferences by the representation in Karni and Safra (2002). We then show, in terms of underlying axioms, how such individual assessments incorporating both risk and procedural fairness attitudes can be aggregated by means of utilitarian and generalized utilitarian SWFs.
    Keywords: Procedural fairness, Harsanyi’s impartial observer, Karni-Safra (“individual sense of justice†) preferences, social preferences under risk, utilitarianism, generalized utilitarianism
    Date: 2019–06
  9. By: Didier Sornette (ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Swiss Finance Institute); Spencer Wheatley (ETH Zurich); Peter Cauwels (ETH Zurich; Director Quaerens CommV)
    Abstract: Humanity has been fascinated by the pursuit of fortune since time immemorial, and many successful outcomes benefit from strokes of luck. But success is subject to complexity, uncertainty, and change – and at times becoming increasingly unequally distributed. This leads to tension and confusion over to what extent people actually get what they deserve (i.e., fairness/meritocracy). Moreover, in many fields, humans are over-confident and pervasively confuse luck for skill (I win, it’s skill; I lose, it’s bad luck). In some fields, there is too much risk-taking; in others, not enough. Where success derives in large part from luck – and especially where bailouts skew the incentives (heads, I win; tails, you lose) – it follows that luck is rewarded too much. This incentivizes a culture of gambling, while downplaying the importance of productive effort. And, short term success is often rewarded, irrespective, and potentially at the detriment, of the long-term system fitness. However, much success is truly meritocratic, and the problem is to discern and reward based on merit. We call this the fair reward problem. To address this, we propose three different measures to assess merit: (i) raw outcome; (ii) risk-adjusted outcome, and (iii) prospective. We emphasize the need, in many cases, for the deductive prospective approach, which considers the potential of a system to adapt and mutate in novel futures. This is formalized within an evolutionary system, comprised of five processes, inter alia handling the exploration-exploitation trade-off. Several human endeavors – including finance, politics, and science – are analyzed through these lenses, and concrete solutions are proposed to support a prosperous and meritocratic society.
    Keywords: success, reward, luck, merit, measurement, scenario analysis, Darwinian, evolutionary learning, equality
    JEL: A13 C12 C18 D39 D63 D8 G10 H30
    Date: 2019–04
  10. By: Wannaphong Durongkaveroj
    Abstract: Along the path of economic development, advancement of some groups naturally generates economic disparity in a society. The concurrent presence of winners and losers invariably gives rise to the psychological economic question of how the losers perceive, and respond to, the benefits of development. The ‘tunnel effect’ proposed by Hirschman (1973) provides valuable insights for understanding the changing tolerance for economic inequality among the losers in the process of economic growth. This paper critically discusses this proposition, reviews the related literature, and provides possible extensions.
    Keywords: Income Inequality, Tunnel Effect, Development
    JEL: D63 O10
    Date: 2018
  11. By: Jakhotiya, Girish
    Abstract: Most of the good and bad economic events of last three decades have proven that the western economists some where have lost a macro-logic essential for resolving the critical socio-economic issues. This was partly due to excessive attempt of quantifying the subjective elements of economic analysis. The other reason for their collective failure is a simple negligence of the bigger canvas that presents an integrated view of many complex and interdependent economic factors. Especially after the global economy started impacting the western countries, the western economists lost their way and started focusing on only oversimplified reasons of the economic debacle of western economies. They also underemphasised the need of horizontal and qualitative economic analysis to support the vertical and quantitative dissection of economic facts. The third world countries (and especially China) complicated the global exercise of economic activism. Western economists need to look at the present socio-economic and geo-political uncertainties with a fresh and revised perspective. They should also realize and admit that some of the old western economic doctrines are no more workable in a new global economy. Therefore, they need to reorient their economic thinking.
    Keywords: Development Index, Qualitative analysis, Economic Modelling, Economic Equilibrium
    JEL: E6
    Date: 2019–06–04

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