nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2010‒08‒06
eight papers chosen by
Karl Petrick
University of the West Indies

  1. "Changes in Central Bank Procedures during the Subprime Crisis and Their Repercussions on Monetary Theory" By Marc Lavoie
  2. "Endgame for the Euro? Without Major Restructuring, the Eurozone is Doomed" By Dimitri B. Papadimitriou; L. Randall Wray; Yeva Nersisyan
  3. "Global Central Bank Focus: Facts on the Ground" By Paul McCulley
  4. Post Crisis Policy: Some Reflections of a Keynesian Economist By Karl Aiginger
  5. Can Darwinism Be "Generalized" and of What Use Would This Be? By Georgy S. Levit; Uwe Hossfeld; Ulrich Witt
  6. Economics for the Masses : The Visual Display of Economic Knoledge in the United Staes (1921-1945) By Giraud Yann; Charles Loic
  8. Social Policy in the Post-crisis Context of Small Island Developing States: a Synthesis By Leisa Perch; Rathin Roy

  1. By: Marc Lavoie
    Abstract: The subprime financial crisis has forced several North American and European central banks to take extraordinary measures and to modify some of their operational procedures. These changes have made even clearer the deficiencies and lack of realism in mainstream monetary theory, as can be found in both undergraduate textbooks and most macroeconomic models. They have also forced monetary authorities to reject publicly some of the assumptions and key features of mainstream monetary theory, fearing that, on that mistaken basis, actors in the financial markets would misrepresent and misjudge the consequences of the actions taken by the monetary authorities. These changes in operational procedures also have some implications for heterodox monetary theory; in particular, for post-Keynesian theory. The objective of this paper is to analyze the implications of these changes in operational procedures for our understanding of monetary theory. The evolution of the operating procedures of the Federal Reserve since August 2007 is taken as an exemplar. The American case is particularly interesting, both because it was at the center of the financial crisis and because the U.S. monetary system and its federal funds rate market are the main sources of theorizing in monetary economics.
    Keywords: Federal Funds Rate; Corridor System; Interest on Bank Reserves; Money Multiplier
    JEL: E42 E43 E58
    Date: 2010–08
  2. By: Dimitri B. Papadimitriou; L. Randall Wray; Yeva Nersisyan
    Abstract: Critics argue that the current crisis has exposed the profligacy of the Greek government and its citizens, who are stubbornly fighting proposed social spending cuts and refusing to live within their means. Yet Greece has one of the lowest per capita incomes in the European Union (EU), and its social safety net is modest compared to the rest of Europe. Since implementing its austerity program in January, it has reduced its budget deficit by 40 percent, largely through spending cuts. But slower growth is causing revenues to come in below targets, and fuel-tax increases have contributed to growing inflation. As the larger troubled economies like Spain and Italy also adopt austerity measures, the entire continent could find government revenues collapsing. No rescue plan can address the central problem: that countries with very different economies are yoked to the same currency. Lacking a sovereign currency and unable to devalue their way out of trouble, they are left with few viable options—and voters in Germany and France will soon tire of paying the bill. A more far-reaching solution is needed.
    Date: 2010–07
  3. By: Paul McCulley
    Abstract: The developed world faces a cyclical deficiency of aggregate demand, the product of a liquidity trap and the paradox of thrift, in the context of headwinds born of ongoing structural realignments. According to Paul McCulley, PIMCO, front-loaded fiscal austerity would only add to that deflationary cocktail. This is why the market vigilantes are fleeing risk assets, which depend on growth for valuation support, rather than the sovereign debt of fiat-currency countries. McCulley bases his outlook on the financial balances approach (double-entry bookkeeping) pioneered by the late Wynne Godley, who was a distinguished scholar at the Levy Institute. Godley’s analytical framework, says McCulley, should be the workhorse of discussions on global rebalancing.
    Date: 2010–07
  4. By: Karl Aiginger (WIFO)
    Abstract: This paper compares the depth and length of the recent crisis with the Great Depression in the 1930s. It claims that economic policy played a crucial role in shortening and curtailing the recent crisis. We analyse which policies were applied during the recent crisis and which measures worked. We know that policies relying on large infrastructure projects inherently involve an implementation lag. These lags have been very high in the recent crisis and some expenditure planned will maybe never be spent. We therefore suggest implementing a leakage rate for government expenditure programs which represents the part of intended public expenditures not spent in the first twelve months after the program is set into action. It might be higher than the savings rate out of a tax cut. Furthermore, exit strategies should ideally cut expenditure to the same extent as the increase in government spending during the crisis had been, so that sooner or later tax rates and debt rates may return to pre crisis levels. The core of the Keynesian policy recommendation is to raise expenditure in the crisis but to achieve a balanced budget over a full cycle. If expenditure is not cut after the crisis tax and/or debt rates will increase after each downturn and the basis for any Keynesian policy in the next crisis will be eroded. This does not preclude that it might be useful in the exit phase to change the tax structure in order to lower taxes on labour, specifically for low wages, while increasing taxes on financial transactions, carbon dioxide emissions, capital gains or property. This would lower unemployment and boost demand in economies with tendencies to underconsume.
    Keywords: financial crisis, business cycle, stabilisation policy, resilience
    Date: 2010–05–11
  5. By: Georgy S. Levit; Uwe Hossfeld; Ulrich Witt
    Abstract: It has been suggested that, by generalizing Darwinian principles, a common foundation can be derived for all scientific disciplines dealing with evolutionary processes, especially for evolutionary economics. In this paper we show, however, that the principles of such a "Generalized Darwinism" are not those that in the development of evolutionary biology have been crucial for distinguishing Darwinian from non-Darwinian approaches and, hence, cannot be considered genuinely Darwinian. Moreover, we wonder how "Generalized Darwinism" can be made fruitful for evolutionary economics given that its principles are but an abstract hull that does not suffice to explain actual evolutionary processes in the economy. To that end specific hypotheses are required which neither follow from, nor are necessarily compatible with, the suggested abstract principles. Accordingly, we find little evidence in the literature for the claim that Generalized Darwinism can enhance the explanatory power of an evolutionary approach to economics.
    Keywords: Darwinism, evolution, evolutionary economics, Generalized Darwinism, variation, selection, retention Length 17 pages
    JEL: B25 B40 B52
    Date: 2010–07
  6. By: Giraud Yann; Charles Loic (THEMA, Universite de Cergy-Pontoise; EconomiX, Universite de Reims and INED)
    Abstract: The rise of visual representation in economics textbooks after WWII is one of the main features of contemporary economics. In this paper, we argue that this development has been preceded by a no less significant rise of visual representation in the larger literature devoted to social and scientific issues, including economic textbooks for non-economists as well as newspapers and magazines. During the interwar era, editors, propagandists and social scientists altogether encouraged the use of visual language as the main vehicle to spread information and opinions about the economy to a larger audience. These new ways of visualizing social facts, which most notably helped shape the understanding of economic issues by various audiences during the years of the Great Depression, were also conceived by their inventors as alternative ways of practicing economics: in opposition to the abstraction of “neoclassical” economics, these authors wanted to use visual representation as a way to emphasize the human character of the discipline and did not accept the strict distinction between the creation and the diffusion of economic knowledge. We explore different yet related aspects of these developments by studying the use of visual language in economics textbooks intended for non-specialists, in periodicals such as the Survey, a monthly magazine intended for an audience of social workers, the Americanization of Otto Neurath's pictorial statistics and finally the use of those visual representations by various state departments and administrations under Roosevelt's legislature (including the much-commented Historical Section of the Farm Security Administration). We show how visualizations that have been created in opposition to neoclassical economics have lost most of their theoretical content when used widely for policy purposes while being simultaneously integrated into the larger American culture. It is our claim that those issues, which are familiar to those involved in cultural and visual studies, are also of crucial importance to apprehend the later developments of modern economics.
    Keywords: Visualization, economocs, American Economy, Otto Neurath, Rexford Tugwell, Roosevelt, Roy Stryker, Photographs, Pictorial Statistics
    JEL: B20 A14
    Date: 2010
  7. By: David F Hendry (Economics Department, University of Oxford)
    Date: 2010
  8. By: Leisa Perch (International Policy Centre for Inclusive Growth); Rathin Roy (International Policy Centre for Inclusive Growth)
    Abstract: This paper provides a synthesis of the multifaceted impact of the global economic crisis on Small Island Developing States (SIDS), focusing on the Pacific and Caribbean regions. It shows that the social investment agenda, which has underpinned so much of the development progress of SIDS, has been particularly challenged by the global economic crisis and will require innovations and policy changes by SIDS in order to sustain and advance beyond current achievements. Global action will be required to enhance the available fiscal space for these actions. Additionally, in the SIDS, particular attention needs to be paid to the design and implementation of social policies that reduce vulnerability, improve resilience to exogenous shocks, and thus lower the human and productivity costs of exposure to repeated shocks. These include high unemployment and underemployment, rising crime and persistent inequalities across income groups and between rural and urban communities. The transitive effects of such exogenous shocks on the incomes, food security and access to basic public goods of poor and vulnerable households demonstrate the need for a new policy approach, one that is better placed than current approaches to increase SIDS? resilience to future shocks. The synthesis, based largely on experiences of and lessons learned from five countries in the Pacific and five in the Caribbean, seeks to advocate a ?paradigm shift? in global and national-level approaches to the development challenges facing SIDS.
    Keywords: Social Policy in the Post-crisis Context of Small Island Developing States: a Synthesis
    Date: 2010–07

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