nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2010‒01‒10
six papers chosen by
Karl Petrick
University of the West Indies

  1. Public Investment, Industrial Policy and U.S. Economic Renewal By Robert Pollin; Dean Baker
  2. The Terrible Simplifers: Common Origins of Financial Crises and Persistent Poverty in Economic Theory and the new ‘1848 Moment’ By Erik S. Reinert
  3. The Colonial and Geographic Origins of Comparative Development By Raphael Auer
  4. Economists in the PITS? By Bruno S. Frey
  5. The Two Triangles: what did Wicksell and Keynes know about macroeconomics that modern economists do not (consider)? By Ronny Mazzocchi; Roberto Tamborini; Hans-Michael Trautwein
  6. Too much right can make a wrong: Setting the stage for the financial crisis By Richard J. Rosen

  1. By: Robert Pollin; Dean Baker
    Abstract: The U.S. economy faces enormous questions and challenges as it attempts to recover from the collapse of 2008-09. Some of the most pressing questions are a series of longer-term, structural challenges: Can we establish a growth engine driven by something other than financial bubbles? Can we renew the automobile industry and, more generally, reestablish a healthy manufacturing sector? Can we accomplish these various tasks while also rebuilding the economy on a new foundation of clean energy as opposed to fossil fuel energy sources? Addressing these longer-term challenges is the overarching theme of this paper.<p></p> Following an introductory discussion, in Section 2 we consider the overall evidence on the need for public investment in the traditional areas of transportation, energy, and water management. We then address the issue of financial crowding out. To do this, we examine evidence on how much of the U.S. economy’s financial resources have been flowing into productive private investments over time, as opposed to financial speculation. In Section 3, we then examine the U.S. ad hoc industrial policy, as it has been practiced both at the level of general manufacturing policies, such as with the auto bailouts, and in terms of technology incubation through the Pentagon. We consider ways of channeling these policy tools into supporting a strong technological base on a sustained basis. In Section 4, we bring together our discussions on public investment and industrial policies to sketch a policy approach for supporting the revival of the U.S manufacturing sector, including the U.S. auto industry. In particular, we focus on the prospects for investments in public transportation: —to create an expanding market for U.S. automakers who are willing to convert part of their production lines to manufacturing buses and trains; to lower the costs of transportation for lower-income households; and to help advance the construction of a clean-energy economy in the United States.
    JEL: H4 O2 O25
    Date: 2009
  2. By: Erik S. Reinert
    Abstract: One element explaining the financial crisis is what Hyman Minsky called ‘destabilizing stability’: long periods of stability lead to increasing vulnerability. This paper argues that similar mechanisms are at work inside economics: long periods of economic progress in the core countries lead to increasingly abstract and irrelevant economic theories (‘terrible simplifications’). This leads to turning points towards more relevant economic theories, referred to as ‘1848 moments’. The paper further outlines the key variables that need to be re-introduced into economic theory in order to furnish poor countries with the type of productive structures that makes it possible to eliminate poverty.
    Keywords: Uneven economic development, production-based economics, technological change, innovations, increasing returns, synergies
    JEL: A11 B10 F10 O57
    Date: 2009–12
  3. By: Raphael Auer (Swiss National Bank)
    Abstract: While the direct impact of geographic endowments on prosperity is present in all countries, in former colonies, geography has also affected colonization policies and, therefore, institutional outcomes. Using non-colonized countries as a control group, I develop an empirical strategy that disentangles the partial effects of institutions and of endowments on income. I find that institutions are the main determinant of development, but that endowments have a sizeable direct impact, as well. Last, I apply the empirical strategy to examine the theories put forward by La Porta et al. (1999) and by Acemoglu et al. (2001), finding support for both theories, but also evidence that the authors’ estimates are biased since they mix up the effect of the historical determinants of institutions with the sizeable direct impact of access to trade and of disease environment.
    Date: 2009–06
  4. By: Bruno S. Frey
    Abstract: Academic economists today are caught in a "Publication Impossibility Theorem System" or PITS. In order to further their careers, they are required to publish in A-journals, but for the vast majority this is impossible because there are few slots open for them in such journals. Such academic competition maybe useful to generate hard work; however, there may be serious negative consequences: the wrong output may be produced in an inefficient way, the wrong people may be selected, and losers may react in a harmful way. This article suggests several ways to remedy this situation.
    Keywords: Academia; Economists; Publication; Journals; Incentives; Economic methodology
    JEL: A1 D02 I23
    Date: 2009–12
  5. By: Ronny Mazzocchi; Roberto Tamborini; Hans-Michael Trautwein
    Abstract: The current consensus in macroeconomics, as represented by the New Neoclassical Synthesis, is to work within frameworks that combine intertemporal optimization, imperfect competition and sticky prices. We contrast this “NNS triangle” with a model in the spirit of Wicksell and Keynes that sets the focus on interest-rate misalignments as problems of intertemporal coordination of consumption and production plans in imperfect capital markets. We show that, with minimal deviations from the standard perfect competition model, a model structure can be derived that looks similar to the NNS triangle, but yields substantially different conclusions with regard to the dynamics of inflation and output gaps and to the design of the appropriate rule for monetary policy.
    JEL: E20 E31 E32 E52 D84
    Date: 2009
  6. By: Richard J. Rosen
    Abstract: The financial crisis that started in 2007 exposed a number of flaws in the financial system. Many of these flaws were associated with financial instruments that were issued by the shadow banking system, especially securitized assets. The volume and complexity of securitized assets grew rapidly during runup to the financial crisis that began in 2007. The paper discusses how the financial crisis can be viewed as a possible but logical outcome of a system where investors are overconfident, busy, and investing other peoples’ money and intermediaries are set up to take advantage of investors’ tendencies. The investor-intermediary risk cycle in this crisis is common to other crises. However, there are a number of factors that may have made the 2007 crisis more severe. Among them are the length of the pre-crisis period, the shift from financial intermediaries to the shadow banking system, the increasing interconnectedness among financial firms, and the increased leverage at some financial firms.
    Date: 2009

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