nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2010‒05‒02
six papers chosen by
Karl Petrick
University of the West Indies

  1. A Modern Framework for Measuring Poverty and Basic Economic Security By Shawn Fremstad
  2. Profits on Citigroup Stock: Can They Be the Basis for Financing Stimulus? By Dean Baker
  3. The Global Crisis: Why Regulators Resist Reforms By Leo F. Goodstadt
  4. The Global Crisis: Fatal Decisions - Four Case Studies in Financial Regulation By Leo F. Goodstadt
  5. Exploitation and the class struggle By Juan Carlos Cuestas; Bruce Philp
  6. Are earthquakes needed to shake economics? By Ronald Schettkat

  1. By: Shawn Fremstad
    Abstract: This report details how the dominant framework for understanding and measuring poverty in the United States has become a conservative one. The current U.S. approach to measuring poverty views poverty only in terms of having an extremely low level of annual income, and utilizes poverty thresholds that are adjusted only for inflation rather than for changes in overall living standards. As a result, the official poverty measure has effectively defined deprivation down over the last four decades, moving it further and further away from mainstream living standards over time, as well as from majority public opinion of the minimum amount needed to “get along” at a basic level. A new Supplemental Income Poverty Measure (SIPM) proposed by the Obama administration makes some important improvements to the current poverty measure. However, the SIPM remains a conservative approach that appears likely to lock in the poverty line at an extremely low level. This report proposes a new framework for measuring poverty and basic economic security in the United States. Instead of being limited to the “extremely-low-income-only” approach the current poverty line and administration’s proposed Supplemental Income Poverty Measure (SIPM) represent, this framework should utilize measures of low income and other forms of economic hardship related to low income.
    Keywords: poverty, disability, poverty level, poverty measure
    JEL: I I3 I32 I38 J J1 J14 J18
    Date: 2010–04
  2. By: Dean Baker
    Abstract: Last month the government announced plans to sell the stock it obtained in November of 2008 as part of its bailout package of Citigroup. The media jumped on the fact that, at the stock’s current market value, the government stands to earn an $8 billion profit on this stock. This profit was widely touted as evidence of the success of the bailout. In reality, the government’s profit on Citigroup stock was primarily the result of its own willingness to back up Citigroup. The increase in Citigroup’s stock price was largely driven by investors’ realization that the government would not let Citigroup fail.
    Keywords: Citigroup, bailout, stimulus
    JEL: E E5 E58 E6
    Date: 2010–04
  3. By: Leo F. Goodstadt (Hong Kong Institute for Monetary Research, Trinity College, University of Dublin, The University of Hong Kong)
    Abstract: An Anglo-American regulatory ¡¥culture¡¦ became associated with 30 years of worldwide economic reforms, global growth and monetary stability. American and British officials identified major sources of instability in their own financial markets before 2007 but remained non-interventionist, invoking the concepts of virtuous markets and moral hazard. They also ignored the policy defects revealed by past crises. Despite record banking losses and fiscal imbalances during the global crisis, their current resistance to regulatory reforms is supported by a powerful political and business consensus.
    Keywords: Non-Interventionism, Basel, Virtuous Markets, Moral Hazard, Regulatory Culture
    Date: 2009–11
  4. By: Leo F. Goodstadt (Hong Kong Institute for Monetary Research, Trinity College, University of Dublin, The University of Hong Kong)
    Abstract: This paper uses four case studies to review the performance of the Anglo-American regulatory ¡¥culture¡¦. In the decade before the global financial crisis, American and British officials were almost identical in their analysis of and non-interventionist responses to identified threats from changing financial conditions in Asia; dependence of new financial products on the insurance industry; shortcomings of the rating agencies; and excesses in their property markets. They now acknowledge these past policy errors but continue to resist consumer protection and other reform initiatives.
    Keywords: Asia, China, Derivatives, Insurance, Credit Ratings, Property, Consumer Protection
    Date: 2009–11
  5. By: Juan Carlos Cuestas; Bruce Philp
    Abstract: This paper contributes to our understanding of the determinants and dynamics of Marxian exploitation using quarterly UK data, 1955-2008. Initially a simple model is introduced for the purpose of defining exploitation and its component parts, before elaborating on theoretical issues which are important in estimating the rate of exploitation. In the empirical analysis we seek to explain the effect of class struggle, for the UK economy, using quarterly data. Attention is paid to three forces which are traditionally seen as drivers of power in the class struggle: (i) political party; (ii) the size of the “reserve army” of the unemployed; (iii) working class militancy. Our results suggest a positive impact of unemployment on the rate of exploitation, and that growing working class militancy tends to diminish the rate. Changes in political party affect the rate of exploitation in a counter-intuitive way, with a positive short-run relationship between the rate and movements to left-wing government.
    Keywords: quantitative Marxism, exploitation, class conflict
    JEL: B51 D33 E11 J20
    Date: 2010–04
  6. By: Ronald Schettkat (Schumpeter School University of Wuppertal)
    Abstract: The current crisis is like an earthquake for the theoretical foundations of economic policies, which have guided governments and central banks for the last few decades. The efficient market hypothesis and its application to labor markets –“natural rate theory”- dominated interpretations of economic trends and policy prescriptions since the 1970s. Public policy, public institutions, and regulations were generally regarded as distortions of the otherwise well functioning markets. Economic trends were filtered through the lens of the “natural rate theory,” focusing on labor market institutions only and putting blinds on macroeconomic influences. Therefore, the recipe was a reshaping of institutional arrangements intended to allow markets to operate more freely, i.e. to bring the real world closer to the idealized theoretical model. This paper confronts the economic trends with the interpretations of the “natural rate theory” and argues that they hardly fitting the facts. The paper argues that monetary policy gained importance in the 1970s and enforced deflationary policies – which, in turn reduced growth, especially in upswings – and allowed employment to recover to its initial pre-recession levels. Deflationary bias was also guiding the design of major EU institutions, reducing potential and actual growth.</FONT>
    Keywords: Economic crisis, efficient market hypothesis, natural rate theory, deflationary bias
    JEL: E00 E24 E58 E6 J3
    Date: 2010–04

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