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on Post Keynesian Economics |
| By: | Dimitri B. Papadimitriou; Greg Hannsgen; Gennaro Zezza |
| Abstract: | In its November 2007 Strategic Analysis, the Levy Institute's Macro-Modeling Team called for an immediate, sustained fiscal stimulus of 2 percent of GDP, as well as a plan for a much larger additional fiscal stimulus should the economic slowdown continue over the next two to three years. Since then, conditions have significantly worsened. Foreclosures reached an all-time high late last year, and home prices have continued to fall. According to Federal Reserve flow-of-funds data, household net worth declined by over $500 billion in the fourth quarter alone. In response, Congress approved a $168 billion stimulus package earlier this year, one made up largely of tax rebates that will begin arriving in May. While the authorities have not declared a recession in progress, many economists have begun to speculate how steep a possible downturn might be. In this latest Strategic Analysis, President Dimitri B. Papadimitriou and Senior Scholars Greg Hannsgen and Gennaro Zezza explore the possibility of an additional fiscal stimulus of about $450 billion spread over three quarters, challenging the notion that a larger and more prolonged additional stimulus will be unnecessary and generate inflationary pressures. They find that, given a projection of even a moderate recession, an additional $600 billion stimulus would not be too much. They also find that a temporary stimulus—even one lasting four quarters—will have only a temporary effect. An enduring recovery will depend on a prolonged increase in exports, the authors say, due to the weak dollar, a modest increase in imports, and the closing of the current account gap. |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levysa:sa_apr_08&r=pke |
| By: | Robert Pollin |
| Abstract: | <p>To honor the life work of Professor Sumner Rosen, this lecture examines approaches to promoting full employment at decent jobs within our contemporary era of globalization.<span> </span>The lecture briefly summarizes the theories of unemployment of Marx, Friedman, Keynes and Kalecki.<span> </span>It then addresses the meaning of full employment within the alternative theories and under different historical and country settings.<span> </span>It next considers the issue of the inflation/unemployment trade-off, and the Meidner-Rehn Swedish approach to inflation control under full employment.<span> </span>It concludes by presenting a sketch of something approximating a full employment program for the contemporary <st1:country-region w:st="on">U.S.</st1:country-region> economy, focusing on ending the <st1:country-region w:st="on"><st1:place w:st="on">Iraq</st1:place></st1:country-region> war and reallocation public spending toward health care, education, and green growth.<span> </span></p><span></span> |
| Keywords: | full employment, globalization, theories of unemployment, inflation |
| JEL: | E24 E61 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp141&r=pke |
| By: | Thomas I Palley |
| Abstract: | This paper extends Tobin’s (1975) Keynesian analysis of deflation to include a range of additional channels through which deflation exacerbates Keynesian unemployment. The paper provides further theoretical reasons why downward price level adjustment may not solve the Keynesian problem. These arguments challenge the received wisdom that Keynes’ <i>General Theory</i> is a special case resting on downwardly rigid prices and nominal wages. This conventional wisdom has led many economists to recommend policies promoting downward flexibility. These policies have created an environment in which deflation is more likely, giving new relevance to Keynesian analysis of deflation.<p></p> |
| Keywords: | deflation, liquidity trap, Fisher debt effect, price flexibility |
| JEL: | E30 E31 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp169&r=pke |
| By: | Engelbert Stockhammer |
| Abstract: | While there is an agreement that the Fordist accumulation regime has come to an end in the course of the 1970s, there is no agreement on how to characterize the post-Fordist regime (or if a such is already in place). The paper seeks put together various arguments related to financialization (in the broad sense) from a macroeconomic point of view and investigate the relevance of these arguments by means of an analysis stylized facts for EU countries. The paper discusses changes in investment behaviour, consumption behaviour and government expenditures, investigating to what extent changes are related to financialization. Households experience higher debt levels. Rising profits of businesses come with only moderate investment. The notion of a “finance-dominated” accumulation regime is proposed to highlight that financial developments crucially shape the pattern and the pace of accumulation. The finance dominated accumulation regime is characterized by a mediocre growth performance and by higher volatility. However, so far deregulated financial markets have not lead to major financial crises in advanced capitalist economies. A possible reason for this is that the size of the state sector has not been substantially reduced despite neoliberal attempts to do so. |
| Keywords: | financialization, finance-dominated accumulation regime, macroeconomics consumption, investment, financial system, financial stability |
| JEL: | B50 E20 E21 E E44 E60 P17 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp142&r=pke |
| By: | Thomas R. Michl |
| Abstract: | This paper evaluates Nordhaus’s neoclassical complaints about the Stern Review from the vantage point of classical growth theory. Nordhaus argues that the Stern Review exaggerates the effects of global warming because it uses a discount rate that is well below the market rate of return on capital. From the perspective of classical growth theory, Nordhaus’s belief in choosing preference parameters for the social planner based on observed market rates of return filtered through the Ramsey equation is equivalent to assigning the preferences of the capitalist agents to the social planner. This equivalence is an implication of the Cambridge Theorem, which interprets the Ramsey equation as the saving function of the capitalist agents. The classical theory of growth interprets the market return to capital as a reflection of the property relations of capitalist society that does not offer the social planner any information that would be useful in resolving the problem of global warming. Contrary to the viewpoint of neoclassical economic theory, the market return to capital offers no information about preferences for the social welfare function or about the putative “marginal product” of conventional capital. |
| Keywords: | Global warming, Stern Review, Discounting, Ramsey equation, Cambridge equation, Cambridge Theorem |
| JEL: | Q5 E6 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp158&r=pke |
| By: | Thomas I Palley |
| Abstract: | This paper develops a simple macroeconomic model of the backward bending Phillips curve that allows easy comparison with the neo-Keynesian and new classical models of the Phillips curve. There are two separate explanations of the backward bending Phillips curve and the model incorporates both. One explanation focuses on near-rational inflation expectations and aggregation of expectations across workers. The other explanation focuses on nominal wage setting behavior and aggregation of nominal wage behavior across sectors. The paper concludes with some observations about the implications of the backward bending Phillips curve for monetary policy. |
| Keywords: | Backward bending Phillips curve, minimum unemployment rate of inflation |
| JEL: | E00 E31 E52 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp168&r=pke |
| By: | Engelbert Stockhammer |
| Abstract: | <span>Wage shares have fallen substantially in Europe since the early 1980s. To some extent this is due to a macroeconomic policy package that encourages wage flexibility and wage competition. A system of wage coordination in the Euro area would facility a return to a productivity-oriented wage policy by reducing wage competition. In a recent study on the demand effects of changes in functional income distribution Stockhammer, Onaran und Ederer (2007) find that the Euro area is in a wage-led demand regime. According to their results a reduction of the wage share by 1%-point leads to a reduction of demand by around 0.2%-points of GDP. This finding has far reaching implications for economic policy. A stable wage share would help stabilize demand. The paper aims, first, at clarifying some conceptual issues in the design of a European system of productivity-oriented wage coordination and, second, it discusses the economic policy implications of wage coordination. The present policy package assigns wages the role of a shock absorber. However, as wage reductions do have negative demand effects in a wage-led demand regime, this policy has a deflationary bias. A system of wage coordination will thus have to be complemented by a more active nation fiscal policies and more fiscal redistribution within the EU. If so a regime of productivity oriented wage coordination will help to stabilize demand and it is consistent with price stability. </span><p class="MsoNormal"><span> </span></p> |
| Keywords: | macroeconomics, economic policy, policy mix, wage coordination, European Union |
| JEL: | E20 E24 E50 E60 J30 J50 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp160&r=pke |
| By: | Thomas I Palley |
| Abstract: | This paper presents a theoretical model of consumption behavior that synthesizes the seminal contributions of Keynes (1936), Friedman (1956) and Duesenberry (1948). The model is labeled a “relative permanent income” theory of consumption. The key feature is that the share of permanent income devoted to consumption is a negative function of household relative permanent income. The model generates patterns of consumption spending consistent with both long-run time series data and modern empirical findings that high-income households have a higher propensity to save. It also explains why consumption inequality is less than income inequality. |
| Keywords: | Consumption, permanent income, relative income, Keynes, Duesenberry, Friedman |
| JEL: | E3 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp170&r=pke |
| By: | Elizabeth Stanton |
| Abstract: | This article recounts the intellectual history of the UNDP’s Human Development Index. It begins with the early history of welfare economics and follows this field through three successive revolutions in thought, culminating in the theory of human development. The first section traces this history from the origins of economic “utility” theory to Amartya Sen’s human capabilities approach. The second section chronicles past and present measures of social welfare used in the fields of economics and development, including national income and a variety of composite measures, up to and including HDI. |
| Keywords: | human development; well-being; human development index; economic history of thought; social welfare measurement |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp127&r=pke |