nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2008‒09‒29
five papers chosen by
Karl Petrick
University of the West Indies

  1. Keynes, Keynesians and contemporary monetary theory and policy: an assessment By Colin Rogers
  2. Structural Causes of the Global Financial Crisis: A Critical Assessment of the ‘New Financial Architecture’ By James Crotty
  3. Fighting Through Britain. The “Gift Dimension” of Keynes's Quest for a New Global Order By Mario A. Cedrini;
  4. Getting out of the car: an institutional/evolutionary approach to sustainable transport policies By Gerardo Marletto
  5. The housing meltdown: Why did it happen in the United States? By Luci Ellis

  1. By: Colin Rogers (School of Economics, University of Adelaide)
    Abstract: There has been no Keynesian Revolution in economic theory but there has been an unacknowledged Keynes's Revolution in economic policy. Keynes's theoretical revolution rested on the adoption of monetary analysis and the application of the principle of effective demand to demonstrate the existence of multiple long-period equilibria. Keynes's policies –creating a role for `Big Government' and the ‘Big Bank'- follow from his theory and have changed the structure of the laissez faire economy. Many Keynesians fail to acknowledge either of these issues and continue the classical tradition of real analysis and the assumption of unique long-period equilibrium. Real analysis, as a special case of Keynes's monetary analysis, provides a distorted perspective of the responsibilities of monetary policy which largely accounts for the increasing fragility and volatility exhibited by financial markets over the past two decades.
    Date: 2008–09
  2. By: James Crotty (University of Massachusetts Amherst)
    Abstract: The main thesis of this paper is that the ultimate cause of the current global financial crisis is to be found in the deeply flawed institutions and practices of what is often referred to as the New Financial Architecture (NFA) – a globally integrated system of giant bank conglomerates and the so-called ‘shadow banking system’ of investment banks, hedge funds and bank-created Special Investment Vehicles. The institutions are either lightly and badly regulated or not regulated at all, an arrangement defended by and celebrated in the dominant financial economics theoretical paradigm – the theory of efficient capital markets. The NFA has generated a series of ever-bigger financial crises that have been met by larger and larger government bailouts. After a brief review of the historical evolution of the NFA, the paper analyses its structural flaws. The problems discussed in order are: 1) the theoretical foundation of the NFA – the theory of efficient capital markets – is very weak and the celebratory narrative of the NFA accepted by regulators is seriously misleading; 2) widespread perverse incentives embedded in the NFA generated excessive risk-taking throughout financial markets; 3) mortgage-backed securities central to the boom were so complex and nontransparent that they could not possibly be priced correctly; their prices were bound to collapse once the excessive optimism of the boom faded; 4) contrary to the narrative, excessive risk built up in giant banks during the boom; and 5) the NFA generated high leverage and high systemic risk, with channels of contagion that transmitted problems in the US subprime mortgage market around the world. Understanding the profound problems of the NFA is a necessary step toward the creation of a new and improved set of financial institutions and practices likely to achieve core policy objectives such as faster real sector growth with lower inequality. JEL Categories:
    Date: 2008–09
  3. By: Mario A. Cedrini; (SEMEQ Department - Faculty of Economics - University of Eastern Piedmont)
    Abstract: Dissatisfied with both Skidelsky's “Fighting for Britain” approach to Keynes's quest for a new global order and its specular competitor, the “Figthing despite Britain” view, we explore the possibility of a “Fighting through Britain” approach to the issue. We claim that though Keynes was fighting for the whole world rather than for Britain only, his (unsuccessful) fighting for Britain was a major component of his overall reform project and the true telltale sign of his defeat. As a consequence, the paper focuses in particular on the American Gift asked for by Keynes in 1945. The Gift is regarded as the last and a relevant episode of the economist's lifelong search for a global system efficiently coping with the dilemmas it necessarily gives life to. With the help of the anthropological and sociological literature on gift-giving, we move beyond the strategic dimension of Keynes's diplomacy to show that the request for an American Gift to revive multilateralism at the end of WWII embodies in full - and helps to understand - Keynes's attempt to construct a new system happily combining international discipline and national freedom to choose, the former being the instrument to promote the latter.
    Keywords: Keynes, International economic relations, Gift-giving
    JEL: B31 F02 F5 Z13
    Date: 2008–07
  4. By: Gerardo Marletto
    Abstract: Orthodox economics sees transport as a market which can be made more sustainable by improving its self-regulating capacity. To date this static approach has not been able to limit the growing demand for transport and its increasing environmental impact. Better results might be obtained by using evolutionary and institutional economics. Starting from these theories, a sustainable transport policy should be based on three fundamental considerations. First, transport is not a market, but a sum of systems affected by path-dependence and lock-in phenomena. Second, transport is not sustainable because it is locked in environmentally sub-optimal systems. Third, structural changes in technologies and organisations, institutions, and values are needed to establish more sustainable transport systems. We give an example of the use of an institutional/evolutionary approach to sustainable transport policies in the transition from the system of mass motorisation to the new urban mobility system.
    Keywords: Sustainable transportation; Transport policy; Environmental economics; Institutional economics; Evolutionary economics
    JEL: B52 Q58 R40
    Date: 2008
  5. By: Luci Ellis
    Abstract: The crisis enveloping global financial markets since August 2007 was triggered by actual and prospective credit losses on US mortgages. Was the United States just unlucky to have been the first to experience a housing crisis? Or was it inherently more susceptible to one? I examine the limited international evidence available, to ask how the boom-bust cycle in the US housing market differed from elsewhere and what the underlying institutional drivers of these differences were. Compared with other countries, the United States seems to have: built up a larger overhang of excess housing supply; experienced a greater easing in mortgage lending standards; and ended up with a household sector more vulnerable to falling housing prices. Some of these outcomes seem to have been driven by tax, legal and regulatory systems that encouraged households to increase their leverage and permitted lenders to enable that development. Given the institutional background, it may have been that the US housing boom was always more likely to end badly than the booms elsewhere.
    Keywords: housing construction, housing prices, mortgage delinquencies, mortgage markets, subprime
    Date: 2008–09

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