nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2009‒11‒14
nineteen papers chosen by
Karl Petrick
University of the West Indies

  1. The Simple Analytics of Debt-Driven Business Cycles By Thomas I Palley
  2. The Economic Benefits of Investing in Clean Energy: How the Economic Stimulus Program and New Legislation Can Boost U.S. Economic Growth and Employment By Robert Pollin; James Heintz; Heidi Garrett-Peltier
  3. Rethinking the Economics of Capital Mobility and Capital Controls By Thomas I Palley
  4. The U.S. Employment Effects of Military and Domestic Spending Priorities: An Updated Analysis By Robert Pollin; Heidi Garrett-Peltier
  5. The Effectiveness of Monetary Policy Reconsidered By John Weeks
  6. How Infrastructure Investments Support the U.S. Economy By Robert Pollin; James Heintz; Heidi Garrett-Peltier
  7. On the Nature and Causes of the Collapse of the Wealth of Nations, 2007-2008: The End of a Façade Called Globalization By Erinc Yeldan
  8. Participation, Spectatorship and Media Coverage in Sport By Dawson, P.; Downward, P.
  9. Could International Labor Rights Play a Role in U.S. Trade? By Christian E. Weller
  10. Setting an Agenda for Monetary Reform By Jane D'Arista
  11. Response to “Seven Myths about Green Jobs” and “Green Jobs Myths” By Robert Pollin
  12. Socialization of Risks without Socialization of Investment: The Minsky Paradox and the Structural Contradiction of Big Government Capitalism By Minqi Li
  13. "It Isn't Working--Time for More Radical Policies" By Eric Tymoigne; L. Randall Wray
  14. The Social Construction of Successful Market Reforms By David Stuckler; Lawrence King; Greg Patton
  15. Goodwin or Kalecki in Demand? Functional Income Distribution and Aggregate Demand in the Short Run By Engelbert Stockhammer; Robert Stehrer
  16. New Critical Perspectives on the U.S. and the Post-WWII Global Economy: Brenner, Harvey, and Pollin By Merlin Chowkwanyun
  17. "Minsky Moments, Russell Chickens, and Gray Swans--The Methodological Puzzles of the Financial Instability Analysis" By Alessandro Vercelli
  18. Social Democratic and Socialist Policies By John King
  19. "Fiscal Stimulus, Job Creation, and the Economy: What Are the Lessons of the New Deal?" By Greg Hannsgen; Dimitri B. Papadimitriou

  1. By: Thomas I Palley
    Abstract: <p class="MsoNormal">This paper explores the economics of debt-driven business cycles, distinguishing between Keynesian and new Keynesian approaches. Keynesians emphasize the impact of borrowing and debt on aggregate demand (AD), whereas new Keynesians emphasize the impact on aggregate supply (AS). A unique Keynesian feature is emphasis on debtor – creditor debt-service income transfers. Business cycles result from two mechanisms. One is the multiplier – accelerator AD mechanism. The second is a predator – prey mechanism whereby increased income feeds the level of debt, but the level of debt preys on the level of income. Both the Keynesian and new Keynesian approaches are logically coherent, but the latter is at odds with the stylized facts of business cycles. </p><br /><p class="MsoNormal"><span lang="PT-BR"></span></p>
    Keywords: debt, debt service burdens, business cycle, multiplier – accelerator, predator – prey model
    JEL: E3 E5
    Date: 2009
  2. By: Robert Pollin; James Heintz; Heidi Garrett-Peltier
    Abstract: This study, commissioned by the Center for American Progress, examines  broader economic considerations—jobs, incomes, and economic growth—through the lens of two government initiatives this year by the Obama administration and Congress. The first is the set of clean-energy provisions incorporated within the American Recovery and Reinvestment Act. The second is the proposed American Clean Energy and Security Act  which is now before Congress. <p></p><p>Our analysis in this paper shows that these measures operating together can generate roughly $150 billion per year in new clean-energy investments in the United States over the next decade. This estimated $150 billion in new spending annually includes government funding but is notably dominated by private-sector investments. We estimate this sustained expansion in clean-energy investments can generate a net increase of about 1.7 million jobs. This expansion in job opportunities can continue as long as the economy maintains a commitment to clean-energy investments in the $150 billion per year range. If clean-energy investments expand still faster, overall job creation will increase correspondingly. These investment could, therefore, not only guide us out of our fossil-fuel dependent crisis, but serve as a powerful engine of economic recovery and long-term economic vigor in the U.S. </p><p>>> <a title="Opens internal link in current window" class="internal-link" href="">Read more about "The Economic Benefits of Investing in Clean Energy" and download state fact sheets</a><br />>> <a title="Initiates file download" class="download" href="">Download "The Economic Benefits of Investing in Clean Energy"<br /></a></p><p></p>
    Date: 2009
  3. By: Thomas I Palley
    Abstract: This Working Paper reexamines the issue of international financial capital mobility, which has become today’s economic orthodoxy. The policy discussion is often framed in terms of the impossible trinity. That framing distorts discussion by representing capital mobility as having equal significance with sovereign monetary policy and control over exchange rates. It also distorts discussion by ignoring possibilities for coordinated monetary policy and exchange rates, and for managed capital flows. The case for capital mobility rests on neo-classical economic efficiency arguments and neo-liberal political arguments. The case against capital mobility is based on Keynesian macroeconomic inefficiency arguments, neo-Walrasian market failure arguments, and neo-Marxian arguments regarding distortion of the social structure of accumulation. Close examination shows the case for capital mobility to be extremely flimsy. That points to the ideological dimension behind today’s policy orthodoxy.
    Keywords: capital mobility, capital controls, impossible trinity
    JEL: F00 F32 F3
    Date: 2009
  4. By: Robert Pollin; Heidi Garrett-Peltier
    Abstract: In this study, produced in collaboration with the Institute for Policy Studies, Robert Pollin and Heidi Garrett-Peltier update their earlier analysis of the relative employment impacts of public investment in military versus other priorities, expanding their analysis to include clean energy investments and induced job creation. The authors compare the effects of a $1 billion military investment military and the same investment in clean energy, health care, education, or individual tax cuts. They show that non-military investments create a much larger number of jobs across all pay ranges. With a large share of the federal budget at stake, Pollin and Garrett-Peltier make a strong case that non-military spending priorities can create significantly greater opportunities for decent employment throughout the U.S. economy than spending the same amount of funds with the military.    
    Date: 2009
  5. By: John Weeks
    Abstract: <p>In this PERI Working Paper, John Weeks inspects the standard policy rule that under a flexible exchange rate regime with perfectly elastic capital flows, monetary policy is effective, and fiscal policy is not. The logical validity of the statement requires that the effect of an exchange rate change on the domestic price level be ignored. The price level effect is noted in some textbooks, but not formally analyzed. When it is subjected to a rigorous analysis, the interaction between changes in the exchange rate and the domestic price level significantly alters the standard policy rule.</p> According to Weeks, the more accurate statement would be: under a flexible exchange rate regime with perfectly elastic capital flows <i>the effectiveness of monetary policy depends on the values of the import share and the sum of the trade elasticities.</i> Inspection of data from developing countries indicates the effectiveness of monetary policy under flexible exchange rates can be quite low, even if capital flows are perfectly elastic.   
    Date: 2009
  6. By: Robert Pollin; James Heintz; Heidi Garrett-Peltier
    Abstract: <span class="desc"><p class="bodytext">The U.S. system of public infrastructure has deteriorated badly over the past generation. The breaching of New Orleans’ water levees in 2005 and the collapse of the I-35W bridge in Minneapolis in 2007 offered tragic testimony to this long-acknowledged reality. </p> <p class="bodytext">The project of rebuilding our infrastructure now needs to be embraced as a first-tier economic policy priority, and not simply to prevent repetitions of the disasters in New Orleans and Minneapolis. Infrastructure investments—particularly core economic infrastructure in t energy, transportation, and water and sewerage—are essential for the functioning of the U.S. economy. </p> <p class="bodytext">With the deterioration of economic conditions in recent months, public investment is back on the policy agenda, as a job-creation program linked to the need to revitalize the nation’s crumbling infrastructure. In this report, Robert Pollin, James Heintz and Heidi Garrett-Peltier examine the employment impacts of an expanded infrastructure investment program and what it would take to create millions of jobs. They examine the long-run impacts of such a program on productivity and economic growth, and offer brief observations on U.S. competitiveness and environmental sustainability that emerge from the findings. </p></span>
    Date: 2009
  7. By: Erinc Yeldan
    Abstract: In this working paper, Erinç Yeldan investigates the 2007-2008 financial crisis, hailed as the most devastating (and complex) crisis of capitalism since the great depression of 1929.<span> </span>He suggests that the 2007-2008 crisis was not the end result of a series of technical errors or ad hoc developments that occurred on their own, but was instead the result of the systemic imbalances of capitalism over the last three decades.<span> </span>In order to evaluate the conditions of the global crisis more clearly, Yeldan considers it critical that its underlying structural causes are understood.<span> </span>The paper reflects the Marxian literature on crises, prominently that of Rosa Luxemburg, pointing out to the necessity of a ‘<i>corrective war</i>’ in order to break with old institutions, old technologies, and old methods of accumulation.<p></p><p class="MsoNormal" style="margin-bottom: 6pt; line-height: normal;"><span style="font-size: 12pt; font-family: "Times New Roman";"></span></p>
    Keywords: Crises of capitalism; Bretton Woods system, golden age of capital; financialization; corrective war
    JEL: E44 F01 F02 F5
    Date: 2009
  8. By: Dawson, P.; Downward, P.
    Abstract: This article considers the relationship between active participation in sport, sports spectatorship and television viewing habits using data from the 2005 DCMS Taking Part Survey. We find robust evidence that participation and sports spectatorship are symbiotically linked. In contrast, increase TV viewing per se leads to a reduction in participation.
    Keywords: sporting participation; spectator demand; count models;
    Date: 2009–09
  9. By: Christian E. Weller
    Abstract: <o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="place"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="country-region"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="address"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="PlaceType"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="PlaceName"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="City"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="Street"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="State"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="PostalCode"></o:smarttagtype><p class="MsoNormal" style="text-align: center;" align="center"><st1:place w:st="on"><st1:postalcode w:st="on"></st1:postalcode></st1:place></p>During its last complete business cycle, from 2001 to 2007, the <st1:place w:st="on"><st1:country-region w:st="on">United States</st1:country-region></st1:place> experienced unsustainably high trade deficits. Policymakers are considering a number of measures to avoid a recurrence of such large external imbalances. One such measure is the promotion of better labor rights around the world. Proponents argue that higher labor standards would boost <st1:country-region w:st="on">U.S.</st1:country-region> exports by increasing income growth abroad and reduce <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region> imports by shrinking international price differences. Opponents of such a policy move argue that it is disguised protectionism that will impede trade and harm living standards in the <st1:place w:st="on"><st1:country-region w:st="on">United States</st1:country-region></st1:place> and abroad. In this paper, Weller combines <st1:country-region w:st="on">U.S.</st1:country-region> trade data with data on international labor standards and other relevant economic variables to study if there is a link between labor rights abroad and <st1:place w:st="on"><st1:country-region w:st="on">U.S.</st1:country-region></st1:place> trade. The results suggest that the <st1:country-region w:st="on">United States</st1:country-region> would have benefited from more exports if there had been better worker rights around the world, while labor rights would not have had any measurable impact on <st1:place w:st="on"><st1:country-region w:st="on">U.S.</st1:country-region></st1:place> imports. That is, the promotion of better worker rights around the world could contribute to fewer external imbalances without impeding international trade flows. <p class="MsoNormal"></p>
    Keywords: U.S. trade deficit; labor rights; relative price differences
    JEL: F13 F16 F17
    Date: 2009
  10. By: Jane D'Arista
    Abstract: The monetary policy that culminated in the current crisis and the failure of the Federal Reserve’s efforts to end the credit freeze in 2008 are critical components of the analysis needed as a backdrop for reform. This working paper argues that the link between excess liquidity, the buildup in debt, the asset bubbles that debt created and the financial crisis that followed are outcomes of monetary as well as regulatory policy failures; that they reflect a substantial weakening in the Fed’s ability to implement countercyclical initiatives. D'Arista argues that the effectiveness of monetary policy can, and must, be restored. She proposes a new system of reserve management that assesses reserves against assets rather than deposits and applies reserve requirements to all segments of the financial sector. She concludes that a change in the current system for implementing monetary policy is needed to end the credit crunch, address the impact of the current crisis on the financial sector and the economy and ensure the success of any fiscal stimulus that will be undertaken.
    Keywords: Federal Reserve System, monetary policy, reserve requirements, financial crisis.
    Date: 2009
  11. By: Robert Pollin
    Abstract: In this working paper, Robert Pollin responds to critics who purport to debunk “myths” about recent studies on the employment effects of investments in the clean energy economy. These papers are written as a response to what they term the “rapidly gaining popularity” of four studies that attempt to show the employment gains that can emerge from investments in building a clean energy economy in the United States, including <i>Green Recovery</i>, co-published by the Center for American Progress and PERI. Overall, these papers offer no challenge to the central explanations as to how investing in the green economy will provide significant benefits throughout the U.S. economy.
    Date: 2009
  12. By: Minqi Li
    Abstract: A big government sector is indispensable for the normal operations of modern capitalist economy. However, the very success of the big government institutions encourages private investors to engage in excessive risk-taking activities, leading to growing financial fragility and frequent financial crises. The crises necessitate government interventions, forcing the government to run large deficits during recessions. These deficits, however, are not offset by surpluses during expansions. As a result, there is a tendency for the government debt to rise in relation to GDP. The government debt-GDP ratios cannot keep rising indefinitely. Beyond certain point, the debt-GDP ratio could be so high that the government’s ability to intervene with and stabilize the economy would be severely undermined. This may be characterized as the structural contradiction of big government capitalism.
    JEL: E12 E30 E60 H60
    Date: 2009
  13. By: Eric Tymoigne; L. Randall Wray
    Abstract: The Obama administration has implemented several policies to "jump-start" the American economy--efforts that have largely focused on preserving the financial interests of major banks. The authors of this new policy brief believe that maintaining the status quo is not the solution, since it overlooks the debt problems of households and nonfinancial businesses--and re-creating the financial conditions that led to disaster will simply set the stage for a recurrence of the Great Depression or a Japanese-style "lost decade." They recommend a more radical policy agenda, such as federal spending programs that directly provide jobs and sustain employment, thereby helping to restore the creditworthiness of borrowers, the profitability of firms, and the fiscal position of state and federal budgets.
    Date: 2009–10
  14. By: David Stuckler; Lawrence King; Greg Patton
    Abstract: The transition from socialism to capitalism has spawned a large literature on comparative policy reforms. While many sociologists using qualitative data have concluded that neo-liberal reforms led to negative outcomes, a large body of cross-national literature, mostly from economics and political science, claims that more neo-liberal reforms produced better economic and political outcomes. These latter studies almost all use measures of policy reform constructed by economists at the European Bank for Reconstruction and Development (EBRD). We show, using the EBRD’s own data, that their indices of progress in market reforms are biased in the direction of positive growth. That is, the EBRD’s bureaucracy over-codes the more successful countries. When one accounts for this bias, the relationship between the EBRD’s transition indicators and growth significantly weakens or disappears. These findings have implications for social scientific research using statistics constructed by <span> </span>international organizations, like the World Bank and the IMF.
    Keywords: sociology of knowledge, transition, bias
    Date: 2009
  15. By: Engelbert Stockhammer; Robert Stehrer
    Abstract: In a seminal paper on Marxian business cycle theory, Richard Goodwin (1967) presented a model which assumed that a higher wage share leads to lower investment and thus a general economic slowdown. In contrast, Michal Kalecki (1971) argued that a higher wage share would have an expansionary effect because the consumption propensity out of wage income is higher than that out of profit income. Based on a general model that allows for wage-led as well as profit-led demand regimes, this paper estimates the effects of a change in the wage share on aggregate private domestic demand with quarterly data for 12 OECD countries.<p></p>
    Keywords: functional income distribution, demand, Goodwin cycle, Kalecki, Post Keynesian economics, Marxian economics
    JEL: E11 E12 E20 E22 E25
    Date: 2009
  16. By: Merlin Chowkwanyun
    Abstract: In the current economic crisis, left and progressive political economics has enjoyed renewed attention and credibility, both inside and outside of academia. In this paper, Merlin Chowkwanyun<span style="font-weight: normal;"> surveys recent contributions to this literature by Robert Brenner, David Harvey, and Robert Pollin, summarizing key arguments and identifying  research questions and heuristics for further inquiry.<span> </span>The author considers how these contributions might help to forge more fruitful dialogue between analyses of social movements and economic structures, too often studied apart. The paper stresses the importance of retaining the robust critical power of the left critique while avoiding the fatalism, sectarianism, and “automatic” theories of social change that have bedeviled the left’s recent past.</span>
    JEL: B24 B50 N01 E61
    Date: 2009
  17. By: Alessandro Vercelli
    Abstract: The recent revival of Hyman P. Minsky's ideas among policymakers, economists, bankers, financial institutions, and the mass media, synchronized with the increasing gravity of the subprime financial crisis, demands a reappraisal of the meaning and scope of the "financial instability hypothesis" (FIH). We argue that we need a broader approach than that conventionally pursued, in order to understand not only financial crises but also the periods of financial calm between them and the transition from stability to instability. In this paper we aim to contribute to this challenging task by restating the strictly financial part of the FIH on the basis of a generalization of Minsky's taxonomy of economic units. In light of this restatement, we discuss a few methodological issues that have to be clarified in order to develop the FIH in the most promising direction.
    Keywords: Financial Instability; Financial Fragility; Financial Fluctuations; Subprime Crisis; Minsky Moments; Minsky Meltdown; Speculative Units; Hedge Units; Ponzi Units; Business Cycles
    JEL: B50 E E32 E44 G
    Date: 2009–11
  18. By: John King
    Abstract: In this Working Paper, also an entry for the<span style="font-style: italic;"> International Encyclopedia of Public Policy, </span>John King begins with a brief discussion of the meaning of ‘socialism’ and ‘social democracy,’ from their nineteenth-century origins down to the present day. He then discusses socialist economic policies under six headings: the case for public ownership; the importance of macroeconomic stability; the demands of social justice; arguments for tax reform; the need for environmental sustainability; and the obligation to exercise international responsibility. He concludes that socialist and social democratic policies offer a genuine intellectual alternative to neoliberalism.<p></p>
    Keywords: social democracy, economic policy
    JEL: B14 B24 B51 P2 P3
    Date: 2009
  19. By: Greg Hannsgen; Dimitri B. Papadimitriou
    Abstract: As the nation watches the impact of the recent stimulus bill on job creation and economic growth, a group of academics continues to dispute the notion that the fiscal and job creation programs of the New Deal helped end the Depression. The work of these revisionist scholars has led to a public discourse that has obvious implications for the controversy surrounding fiscal stimulus bills. Since we support a new stimulus package—one that emphasizes jobs for the 9.8 percent of the workforce currently unemployed—we have been concerned about this debate. With Congress, the White House, pundits, and the press riveted on the all-important health care debate, we worry that they are also distracted by skirmishes over economic theory and history, while millions wait for a new chance to do meaningful work and effective, if imperfect, policy tools are readily at hand. (See also, Public Policy Brief No. 104.)
    Date: 2009–10

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