nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2008‒09‒13
five papers chosen by
Karl Petrick
University of the West Indies

  1. Capital Account Liberalization and Poverty: How Close is the Link? By Philip Arestis; Asena Caner
  2. Minsky’s Upward Instability: the Not-Too-Keynesian Optimism of a Financial Cassandra By Elisabetta De Antoni
  3. "Macroeconomics Meets Hyman P. Minsky The Financial Theory of Investment" By L. Randall Wray; Eric Tymoigne
  4. "Keynes's Approach to Full Employment Aggregate or Targeted Demand?" By Pavlina R. Tcherneva
  5. Social Classes, Inequality and Redistributive Policies in Canada By Abdelkrim Araar

  1. By: Philip Arestis; Asena Caner
    Date: 2008–09
  2. By: Elisabetta De Antoni
    Abstract: According to this work, the ‘financial instability hypothesis’ is not an interpretation of The General Theory as Minsky (1975, 1986) thought. Keynes and Minsky undoubtedly have much in common. Specifically, both of them recognize the limits of individual and collective rationality. Minsky, however, introduced an upward instability that seems totally foreign to The General Theory. Living in different historical periods, the two authors focused on different realities. Keynes looked at a depressed economy that, as a consequence of its low profit expectations, is dominated by the downswings (by the excess of saving over investment). Minsky looked at a vibrant economy that, as a consequence of its high profit expectations, is dominated by the upswings (by the excess of investment over saving). As a consequence, while a stagnant economy à la Keynes tends to chronic underinvestment and to high and long-lasting unemployment, a vibrant economy à la Minsky is naturally inclined to over-investment and over-indebtedness. In the last decades, useful examples might be the European economy on the one hand and the U.S.A. and U.K. economies on the other. Under this perspective, Minsky might be considered as an author who has extended the economics of Keynes to a vibrant economy, making it more general and modern. The recent sub prime crisis confirms the validity of Minsky’s insights.
    Keywords: Minsky, bounded rationality, business cycles, financial instability
    JEL: B22 E12 E32 G11
    Date: 2008
  3. By: L. Randall Wray; Eric Tymoigne
    Abstract: Expanding on an approach developed by financial economist Hyman Minsky, the authors of this new working paper present an alternative to the standard "efficient markets hypothesis"--the relevance of which Minsky vehemently denied. Minsky recognized that, in a modern capitalist economy with complex, expensive, and long-lived assets, the method used to finance asset positions is of critical importance, both for theory and for real-world outcomes—one reason his alternate approach has been embraced by Post Keynesian economists and Wall Street practitioners alike. Coauthors L. Randall Wray and Eric Tymoigne argue that the current financial crisis, which began with the collapse of the U.S. subprime mortgage market in 2007, provides a compelling reason to show how Minsky's approach offers us a solid grounding in the workings of financial capitalism. They examine Minsky's extension to Keynes's investment theory of the business cycle, which allowed Minsky to analyze the evolution, over time, of the modern capitalist economy toward fragility--what is well known as his financial instability hypothesis. They then update Minsky's approach to finance with a more detailed examination of asset pricing and the evolution of the banking sector, and conclude with a brief review of the insights that such an approach can provide for analysis of the current global financial crisis.
    Date: 2008–09
  4. By: Pavlina R. Tcherneva
    Abstract: This paper argues that John Maynard Keynes had a targeted (as contrasted with aggregate) demand approach to full employment. Modern policies, which aim to "close the demand gap," are inconsistent with the Keynesian approach on both theoretical and methodological grounds. Aggregate demand tends to increase inflation and erode income distribution near full employment, which is why true full employment is not possible via traditional pro-growth, pro-investment aggregate demand stimuli. This was well understood by Keynes, who preferred targeted job creation during expansions. But even in recessions, he did not campaign for wide-ranging aggregate demand stimuli; this is because different policies have different employment creation effects, which for Keynes was the primary measure of their effectiveness. There is considerable evidence to argue that Keynes had an "on the spot" approach to full employment, where the problem of unemployment is solved via direct job creation, irrespective of the phase of the business cycle.
    Date: 2008–08
  5. By: Abdelkrim Araar
    Abstract: The social performance of fiscal redistributive mechanisms in Canada continues to receive a growing interest from politicians and research scientists. The aim of this paper is to assess the evolution of social classes in Canada and to check whether the market and governmental redistribution factors have affected their evolution during the last decade. We focus on the dynamic of inequality, polarization and progressivity of the fiscal system. The results of this study confirm the effectiveness of governmental redistributive mechanism to decrease inequality and polarization significantly and to maintain the middle social class at the detriment of the poorest one. The other evidence concerns the chronic increase in population share and wellbeing of the rich class. Finally, the progressivity of fiscal sytem has registered a significant increase during the last few years.
    Keywords: Social classes, poverty, inequality, redistribution
    JEL: D11 H31 I31 J13
    Date: 2008

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