nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2010‒03‒20
eight papers chosen by
Karl Petrick
University of the West Indies

  1. Finance-dominated capitalism in crisis – the case for a Global Keynesian New Deal By Hein, Eckhard; Truger, Achim
  2. The Budget Deficit Scare Story and the Great Recession By Dean Baker
  3. "The Trouble with Pensions-- Toward an Alternative Public Policy to Support Retirement" By Yeva Nersisyan; L. Randall Wray
  4. The World Bank’s approach to increasing the vulnerability of small coffee producers. By Sasha C. Breger Bush
  5. "Recent Trends in Household Wealth in the United States-- Rising Debt and the Middle-Class Squeeze--An Update to 2007" By Edward N. Wolff
  6. The empirical relevance of Goodwin’s business cycle model for the US economy By Tarassow, Artur
  7. The Political Economy of the MDGs: Retrospect and Prospect for the World's Biggest Promise By David Hulme; James Scott
  8. Commerce in Braudel and the Marxists By McCloskey, Deirdre Nansen

  1. By: Hein, Eckhard; Truger, Achim
    Abstract: We analyse the long-run imbalances of finance-dominated capitalism underlying the present crisis – which began in 2007 – with a focus on developments in the US and Germany. We argue that beyond inefficient regulation of the financial sector, the severeness of the present crisis has been mainly caused by increasing inequalities of income distribution and rising imbalances in the world economy associated with finance-dominated capitalism. From this it follows that in the near and not so near future, the US will no longer be able to act as the driving force for world demand. In order to avoid a period of deflationary stagnation in major parts of the world economy, we finally propose the policy package of a Global Keynesian New Deal which should consist of: 1. re-regulation of the financial sector, 2. re-orientation of macroeconomic policies along (Post-)Keynesian lines, and 3. re-construction of international macroeconomic policy co-ordination, in particular on the European level, and a new world financial order.
    Keywords: Finance-dominated capitalism; financial crisis; macroeconomic policies; Global Keynesian New Deal
    JEL: E32 E65 E63 E44 E61
    Date: 2010–02
  2. By: Dean Baker
    Abstract: The Great Recession has left tens of millions of families facing unemployment, underemployment and the threat of losing their home. However, concerns over the deficit threaten to derail efforts to turn around the economy and spur employment. This report attempts to correct many of the misperceptions about the deficit that have brought the issue to the center of national debate. In a time when cogent, effective policies are needed to address the suffering stemming from the economic downturn, the tactics of the deficit hawks distract the public and policy makers from the policies necessary to bring the economy back to full employment.
    Keywords: budget deficit, deficit, healthcare, health care, fiscal responsibility, unemployment, deficit spending
    JEL: E E6 E60 E61 E62 E63 E64 E65 E66 H H2 H5 H6 H60 H61 H62 H63 H68 I I1 I11 I18
    Date: 2010–02
  3. By: Yeva Nersisyan; L. Randall Wray
    Abstract: Pension funds have taken a big hit during the current financial crisis, with losses in the trillions of dollars. In addition, both private and public pensions are experiencing significant funding shortfalls, as is the government-run Pension Benefit Guaranty Corporation, which insures the defined-benefit pension plans of private American companies. Yeva Nersisyan and Senior Scholar L. Randall Wray argue that the employment-based pension system is highly problematic, since the strategy for managing pension funds leads to excessive cost and risk in an effort to achieve above-average returns. The average fund manager, however, will only achieve the risk-free return. The authors therefore advocate expanding Social Security and encouraging private and public pensions to invest only in safe (risk-free) Treasury bonds--which, on average, will beat the net returns on risky assets.
    Date: 2010–01
  4. By: Sasha C. Breger Bush
    Abstract: This paper critically engages the World Bank’s recent experiments in providing marketbased price risk management for coffee farmers. Using the case of Mexico and the recent 1998–2002 coffee crisis, I argue that such advocacy of farm-level use of derivatives markets entails large direct and indirect costs for coffee farmer wellbeing. This is especially so for smallholders. Not only might hedging with derivatives further destabilise and reduce producer incomes, but the opportunity cost of the Bank’s advocacy, in terms of foregone risk management alternatives, is also problematic. I conclude with a discussion of several risk management alternatives that may better support small coffee producers facing volatile commodity prices.
    Date: 2010
  5. By: Edward N. Wolff
    Abstract: I find here that the early and mid-aughts (2001 to 2007) witnessed both exploding debt and a consequent "middle-class squeeze." Median wealth grew briskly in the late 1990s. It grew even faster in the aughts, while the inequality of net worth was up slightly. Indebtedness, which fell substantially during the late 1990s, skyrocketed in the early and mid-aughts; among the middle class, the debt-to-income ratio reached its highest level in 24 years. The concentration of investment-type assets generally remained as high in 2007 as during the previous two decades. The racial and ethnic disparity in wealth holdings, after stabilizing throughout most of the 1990s, widened in the years between 1998 and 2001, but then narrowed during the early and mid-aughts. Wealth also shifted in relative terms, away from young households (particularly those under age 45) and toward those in the 55–74 age group. Projections to July 2009, made on the basis of changes in stock and housing prices, indicate that median wealth plunged by 36 percent and there was a fairly steep rise in wealth inequality, with the Gini coefficient advancing from 0.834 to 0.865.
    Keywords: Household Wealth; Inequality; Racial Inequality; Portfolio Composition
    JEL: D31 J15
    Date: 2010–03
  6. By: Tarassow, Artur
    Abstract: The paper attempts to verify Richard Goodwin's (1967) endogenous business cycle theory which states that the driving forces behind fluctuations are class struggles between capitalists and workers about income distribution. Based on a Marxian profit-led model, non-linear differential equations lead to endogenous cycles in the wage-share-employment-space which can be observed empirically. Applying a bivariate vector autoregressive model we analyze the relationship between real unit labor costs and the employment rate for the US economy over a period from 1948:1 to 2006:4. Granger-causality tests, orthogonalized impulse response functions and forecast error variance decomposition are conducted for the raw data as well as the cyclical components of the Hodrick-Prescott and Baxter-King filter methods. We verify the profit-led character of the US goods market and find that income distribution is driven by labor market dynamics.
    Keywords: Business cycle; Goodwin; Econometrics; Marxian Economics; Post Keynesian Economics; Functional income distribution
    JEL: E12 E32 E25 E24 E11
    Date: 2010–02–26
  7. By: David Hulme; James Scott
    Abstract: In September 2010 world leaders will meet in New York to discuss progress in meeting the UN Millennium Development Goals (MDGs), which include the promise of halving ‘extreme poverty’ between 1990 and 2015. The paper begins with a brief history of how the MDGs came into being (See Table 1 for a list and other details), noting that they were primarily a product of the rich world, before looking at the progress made in achieving them and the degree to which the rich countries have lived up to the promises they made as part of Goal 8. The final section draws lessons from the MDG process to feed into the debate concerning what will take their place in 2015 when they come to an end.
    Date: 2010
  8. By: McCloskey, Deirdre Nansen
    Abstract: “Commercialization” and “monetization” dance with stage theories from Smith to modern growth theory. The sheer growth of traded or the sheer growth of money, though, do not an Industrial Revolution make. The ill-named “Price Revolution,” for example, came from American gold, not from population increases, and did not inspire innovation. Commercialization comes from falling transaction costs, which should be directly studied. Fernand Braudel, however, argued for commercialization as a force transforming “capitalism.” He distinguished “capitalism” from local trade, which no economist would, and assigned blame to the capitalists. Though hardly a Marxist, he---like a brilliant group of leftish economists such as Marglin and Lazonick---puts emphasis on the struggle over the spoils. But it was not such struggles that made the modern world. It was the positive sum arising from innovation.
    Keywords: commercialization; innovation; monetarization; transaction costs; braudel; marglin; lazonick
    JEL: N00
    Date: 2009–07

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