nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2011‒01‒30
eleven papers chosen by
Karl Petrick
University of the West Indies

  1. "Fiscal Policy Effectiveness: Lessons from the Great Recession" By Pavlina R. Tcherneva
  2. "Fiscal Policy: Why Aggregate Demand Management Fails and What to Do about It" By Pavlina R. Tcherneva
  3. Property Rights and Externalities: The Uneasy Case of Knowledge By Giovanni B. Ramello
  4. Economics for Human Rights By Manuel Couret Branco
  5. Wake up economists! - Currency-issuing central governments have no budget constraint By Lawn, Philip
  6. The internationalisation of financial crises: Banking and currency crises 1883-2008 By Lestano; Jacobs, Jan; Dungey, Mardi
  7. Keynesian and Austrian Perspective on Crisis, Shock Adjustment, Exchange Rate Regime and (Long-Term) Growth. By Mathilde Maurel; Gunther Schnabl
  8. Finance and Growth in Africa: The Broken Link By Panicos O. Demetriades; Gregory A. James
  9. E pluribus unum? Varieties and commonalities of capitalism By Streeck, Wolfgang
  10. Taking capitalism seriously: Toward an institutionalist approach to contemporary political economy By Streeck, Wolfgang
  11. Inequality in Developing Economies: The Role of Institutional Development By AMENDOLA, Adalgiso; EASAW, Joshy; SAVOIA, Antonio

  1. By: Pavlina R. Tcherneva
    Abstract: This paper reconsiders fiscal policy effectiveness in light of the recent economic crisis. It examines the fiscal policy approach advocated by the economics profession today and the specific policy actions undertaken by the Bush and Obama administrations. An examination of the labor market renders the contemporary aggregate demand–management approach wholly inadequate for achieving certain macroeconomic objectives, such as the stabilization of investment and investor expectations, the generation and maintenance of full employment, and the equitable distribution of incomes. The paper reconsiders the policy effectiveness of alternative fiscal policy approaches, and argues that a policy that directly targets the labor demand gap (as opposed to the output gap) is far more effective in stabilizing employment, incomes, investment, and balance sheets.
    Keywords: The Great Recession; Fiscal Policy; Macroeconomic Stabilization; Employment
    JEL: E24 E25 E65 J08 J6
    Date: 2011–01
  2. By: Pavlina R. Tcherneva
    Abstract: This paper argues for a fundamental reorientation of fiscal policy, from the current aggregate demand management model to a model that explicitly and directly targets the unemployed. Even though aggregate demand management has several important benefits in stabilizing an unstable economy, it also has a number of serious drawbacks that merit its reconsideration. The paper identifies the shortcomings that can be observed during both recessions and economic recoveries, and builds the case for a targeted demand-management approach that can deliver economic stabilization through full employment and better income distribution. This approach is consistent with Keynes's original policy recommendations, largely neglected or forgotten by economists across the theoretical spectrum, and offers a reinterpretation of his proposal for the modern context that draws on the work of Hyman Minsky.
    Keywords: Labor Demand Targeting; Aggregate Demand Management; Full Employment; Income Inequality; Poverty
    JEL: E25 J2 J45 I38
    Date: 2011–01
  3. By: Giovanni B. Ramello
    Abstract: Drawing from Coase’s methodological lesson, this article discusses the specific case of knowledge, which was for a long time chiefly governed by exchange mechanisms lying outside the market, and has only recently been brought into the market. Its recent, heavy “colonization” by the property paradigm has progressively elicited criticism from commentators who, for various reasons, believe that the market can play only a limited role in pursuing efficiency in the knowledge domain. The article agrees with the enounced thesis and tries to provide an explanation of it that relates to the fact that in specific circumstances property-rights can produce distinct market failures that affect the social cost and can consequently prevent attainment of social welfare. In particular, the arguments set forth here concern three distinct externalities that arise when enforcing a property rights system over knowledge. First, the existence of a property right may itself alter individual preferences and social norms, thus causing specific changes in individuals' behaviour. Second, the idiosyncratic nature of knowledge, as a collective and inherently indivisible entity, means that its full propertization can be expected to produce significant harm. Third, property rights can cause endogenous drifts in the market structure arising from the exclusive power granted to the right holder: though generally intended as a necessary mechanism for extracting a price from the consumer, in the knowledge domain property rights can become a device for extracting rents from the market.
    Keywords: property rights, knowledge, invention, indivisibility, externalities, efficiency
    JEL: D23 K11 O31 D62 O34
    Date: 2011–01
  4. By: Manuel Couret Branco (NICPRI and CEFAGE - University of Évora)
    Abstract: The Subprime Crash that started capitalism’s latest crisis was mainly a proxy for an inexistent housing policy which would benefit many impoverished middle class families. Housing being clearly recognized as a human right, the behaviour of markets and its critical consequences could lead us to say that the Subprime Crash is above all the dramatic and global expression of the incapacity of markets to meet human rights. More than that, it could also be the demonstration of the counterproductive effects of the neglect of human rights by the market and by economics itself, the crisis being a result of this neglect. Human rights are assuredly one of the most influential and fruitful concepts of modern times in the human quest for dignity. Economics has developed a considerable amount of tools especially designed to overcome, or at least mitigate, scarcity, probably the most tormenting spectre that haunts the deprived. Human rights and economics, thus, have contributed immensely to free human kind, human rights from fear and economics from want. Despite this convergence it seems that economics regards human rights as competing rather than as completing. I have argued that mainstream economics discourse is often contradictory with promoting human rights. What are the changes economics must undergo in order to promote human rights? These changes will be examined in four aspects concerning specific economic, social and cultural human rights. First, on the right to work, second on the right to social security, third on cultural freedom, and finally on substantive democracy.
    Keywords: Economics; Human Rights; Work; Cultural Freedom; Democracy.
    JEL: A13 H42 H55 I00 J00 K00 P16
    Date: 2011
  5. By: Lawn, Philip
    Abstract: Abstract: Despite what mainstream economists preach, currency-issuing central governments have no budget constraint. It is therefore incumbent upon them to use their unique spending and taxing powers to achieve the broader goal of sustainable development. Their failure to do so has meant that nations have fallen well short of realising their full potential. Rather than accept the neo-liberal myth that ‘small government is best’, the citizens of a nation should welcome the central-government’s responsible use of their unique spending and taxing powers to provide sufficient public goods and critical infrastructure, achieve and maintain full employment, resolve critical social and environmental concerns, and meet the requirements of an aging population. Should central governments fail in their responsibility to prudently use their unique powers, public disapproval is best registered through the ballot box, not through degenerative debates that distort the facts about the operation of a modern, fiat-currency economy.
    Keywords: Keywords: Central governments; government budgets; fiscal and monetary policy; sustainable development
    JEL: E62 B50
    Date: 2011–01–05
  6. By: Lestano; Jacobs, Jan; Dungey, Mardi (Groningen University)
    Abstract: Financial crises are high cost events which can transmit across international borders. Using data from 1883 to 2008 this paper develops a means of mapping changes in the degree of international synchronisation of banking and currency crises through a formal concordance index. This index speci cally accounts for the typically low incidence and potential serial correlation of crisis data. The results show that banking crises were highly internationalised at the beginning of the 20th century, and became far less so in the strong regulatory environment prevailing after the Depression until the 1980s. A strong increase in the synchronicity of international banking crises is revealed during the late 20th and early 21st century. Currency crises began the century as more idioysncratic, but have tended to become more synchronised over the 115 year sample.
    Date: 2010
  7. By: Mathilde Maurel (Centre d'Economie de la Sorbonne); Gunther Schnabl (Université de Leipzig)
    Abstract: The 2010 European debt crisis has revived the discussion concerning the optimum adjustment strategy in the face of asymmetric shocks. Whereas Mundell's (1961) seminal theory on optimum currency areas suggests depreciation in the face of crisis, the most recent emergence of competitive depreciations, competitive interest rate cuts or currency wars questions the exchange rate as an adjustment tool to asymmetric economic development. This paper approaches the question from a theoretical perspective by confronting exchange rate based adjustment with crisis adjustment via price and wage cuts. Econometric estimations yield a negative impact of exchange rate flexibility/ volatility on growth, which is found to be particularly strong for countries with asymmetric business cycles and during recessions. Based on these findings we support a further enlargement of the European Monetary Union and recommend more exchange rate stability for the rest of the world.
    Keywords: Exchange rate regime, crisis, shock adjustment, theory of optimum currency areas, Mundell, Schumpeter, Hayek, competitive depreciations, currency war.
    JEL: F31 F32
    Date: 2011–01
  8. By: Panicos O. Demetriades; Gregory A. James
    Abstract: Utilizing the latest panel cointegration methods we provide new empirical evidence from 18 countries that suggests that the link between finance and growth in Sub-Saharan Africa is ‘broken’. Specifically, our findings suggest that banking system development in this region follows economic growth. They also indicate that there is no link between bank credit and economic growth.
    Keywords: Panel cointegration; cross-sectional dependence; African financial under-development; African credit markets
    JEL: G21 O16
    Date: 2011–01
  9. By: Streeck, Wolfgang
    Abstract: The paper reviews the origins of the comparative study of capitalism and of the diverse approaches applied to it in contemporary political economy. It distinguishes four models accounting for differences in the institutional make-up of national capitalist economies, which it refers to as the social embeddedness, power resource, historicalinstitutionalist, and rationalist-functionalist model, respectively. Special attention is given to the rationalist-functionalist account of capitalist variety and its reception in the research literature. The paper concludes with remarks on the likely effect of the global financial crisis after 2007 on theories of political economy in general and of 'varieties of capitalism' in particular. It argues that in future the commonalities and interdependencies of national capitalisms deserve and are likely to receive more attention than their differences. -- Der Aufsatz beschreibt die Ursprünge der vergleichenden Kapitalismusforschung und deren unterschiedliche Ansätze in der gegenwärtigen politischen Ökonomie. Vier Modelle zur Erklärung der Unterschiede in der institutionellen Verfassung nationaler kapitalistischer Systeme, die als Einbettungs-, Machtressourcen-, historisch-institutionalistisches und rationalistisch-funktionalistisches Modell bezeichnet werden, werden miteinander verglichen. Besondere Aufmerksamkeit gilt dem rationalistisch-funktionalistischen Modell und seiner Rezeption in der Forschungsliteratur. Der Aufsatz schließt mit Bemerkungen zum wahrscheinlichen Einfluss der globalen Finanzkrise nach 2007 auf die Theoriebildung in der politischen Ökonomie und insbesondere die 'Varieties of Capitalism'-Debatte. Vermutet wird, dass in Zukunft die Gemeinsamkeiten und Interdependenzen zwischen den nationalen kapitalistischen Systemen mehr Aufmerksamkeit erfordern und erhalten werden als die Unterschiede.
    Date: 2010
  10. By: Streeck, Wolfgang
    Abstract: This paper outlines an institutionalist political economy approach to capitalism as a specific type of social order. Social science institutionalism considers social systems to be structured by sanctioned rules of obligatory behavior. Its perspective is one of collective ordering, or governance, through regularization and normalization of social action, either by public authority or by private contract. Political economy looks at the interrelations between collective action in general and collective rule-making in particular, and the economy; it extends from economic and social policy-making to the way in which economic interests and constraints influence policy, politics and social life as a whole. The approach proposed in this article looks at society and economy as densely intertwined and closely interdependent, which is what traditional concepts of capitalism stood for. Proceeding from an institutionalist perspective, it elaborates a concept of capitalism not as a self-driven mechanism of surplus extraction and accumulation governed by objective laws, but as a set of interrelated social institutions, and as a historically specific system of structured as well as structuring social interaction within and in relation to an institutionalized social order. -- Das Papier entwickelt den Ansatz einer institutionalistischen politischen Ökonomie des Kapitalismus als einer spezifischen Form sozialer Ordnung. Sozialwissenschaftlicher Institutionalismus betrachtet soziale Systeme als durch sanktionierte Regeln obligatorischen Handelns strukturiert. Seine Perspektive ist die der Produktion kollektiver Ordnung ('governance') durch Regulierung und Normalisierung sozialen Handelns, vermittels öffentlicher Autorität oder durch private Verträge. Politische Ökonomie betrachtet das Wechselspiel zwischen kollektivem Handeln im Allgemeinen und kollektiver Regelsetzung im Besonderen auf der einen Seite und der Wirtschaft auf der anderen; ihr Gebiet schließt wirtschafts- und sozialpolitische Entscheidungen ebenso ein wie die Beeinflussung des politischen und sozialen Leben durch wirtschaftliche Interessen und Zwänge. Der vorgeschlagene Ansatz behandelt Gesellschaft und Wirtschaft, in Einklang mit traditionellen Theorien des Kapitalismus, als eng ineinander verschränkt und hoch interdependent. Ausgehend von einer institutionalistischen Perspektive wird ein Konzept des Kapitalismus als System aufeinander bezogener Institutionen entwickelt - als historisch spezifisches System strukturierter und strukturierender sozialer Interaktion innerhalb und gegenüber einer institutionalisierten sozialen Ordnung.
    Date: 2010
  11. By: AMENDOLA, Adalgiso (CELPE (Centre of Labour Economics and Economic Policy), University of Salerno, Italy); EASAW, Joshy (Department of Economics, University of Bath); SAVOIA, Antonio (University of Exeter Business School)
    Abstract: This paper studies the distributive impact of institutional change in developing countries. In such economies, economic institutions, such as property rights systems, may act to preserve the interests of an influential minority, but this depends crucially on the level of political equality. For example, dominant classes can control key-markets, access to assets and investment opportunities, especially if they enjoy disproportionate political power. We test this hypothesis using cross-section and panel data methods on a sample of low- and middle-income economies from Africa, Asia and Latin America. Results suggest that: (a) increasing the protection of property rights increases income inequality; (b) such an effect is larger in low-democracy environments; (c) a minority of countries have developed a set political institutions capable of counterbalancing this effect.
    Keywords: inequality; developing economies; institutions; property rights; democracy
    JEL: D70 O15 O17
    Date: 2011–01–18

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