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on Post Keynesian Economics |
| By: | L. Randall Wray |
| Abstract: | The Queen of England famously asked her economic advisers why none of them had seen "it" (the global financial crisis) coming. Obviously, the answer is complex, but it must include reference to the evolution of macroeconomic theory over the postwar period—from the "Age of Keynes," through the Friedmanian era and the return of Neoclassical economics in a particularly extreme form, and, finally, on to the New Monetary Consensus, with a new version of fine-tuning. The story cannot leave out the parallel developments in finance theory-with its efficient markets hypothesis-and in approaches to regulation and supervision of financial institutions. This paper critically examines these developments and returns to the earlier Keynesian tradition to see what was left out of postwar macro. For example, the synthesis version of Keynes never incorporated true uncertainty or "unknowledge," and thus deviated substantially from Keynes's treatment of expectations in chapters 12 and 17 of the General Theory. It essentially reduced Keynes to sticky wages and prices, with nonneutral money only in the case of fooling. The stagflation of the 1970s ended the great debate between "Keynesians" and "Monetarists" in favor of Milton Friedman's rules, and set the stage for the rise of a succession of increasingly silly theories rooted in pre-Keynesian thought. As Lord Robert Skidelsky (Keynes's biographer) argues, "Rarely in history can such powerful minds have devoted themselves to such strange ideas." By returning to Keynes, this paper attempts to provide a new direction forward. |
| Keywords: | Efficient Markets Hypothesis, Keynesian Economics, Orthodoxy, Heterodox Economics, Minsky, Uncertainty, Rational Expectations, New Classical, New Monetary Consensus, Monetary Theory of Production, Effective Demand, Special Properties of Money, the End of Laissez-Faire, Financial Instability Hypothesis |
| JEL: | A2 B15 B22 B50 E11 E12 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_652&r=pke |
| By: | Micheal Hudson |
| Abstract: | In this paper I want to discuss the financial sector’s tendency to dominate, deflate and polarize economies, thwarting economic potential. Understanding these financial dynamics is essential to explain why all nations are not operating up to the technological potential toward which classical liberalism aimed, and why the world economy is polarizing, as are domestic economies even in the most advanced industrial nations. |
| Date: | 2011–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:col:000418:008010&r=pke |
| By: | L. Randall Wray |
| Abstract: | In the aftermath of the global financial collapse that began in 2007, governments around the world have responded with reform. The outlines of Basel III have been announced, although some have already dismissed its reform agenda as being too little (and too late!). Like the proposed reforms in the United States, it is argued, Basel III would not have prevented the financial crisis even if it had been in place. The problem is that the architects of reform are working around the edges, taking current bank activities as somehow appropriate and trying to eliminate only the worst excesses of the 2000s. Hyman Minsky would not be impressed. Before we can reform the financial system, we need to understand what the financial system does—or, better, what it should do. To put it as simply as possible, Minsky always insisted that the proper role of the financial system is to promote the "capital development" of the economy. By this he did not simply mean that banks should finance investment in physical capital. Rather, he was concerned with creating a financial structure that would be conducive to economic development to improve living standards, broadly defined. In this paper, we first examine Minsky's general proposals for reform of the economy—how to restore stable growth that promotes job creation and rising living standards. We then turn to his proposals for financial reform. We will focus on his writing in the early 1990s, when he was engaged in a project at the Levy Economics Institute on reconstituting the financial system (Minsky 1992a, 1992b, 1993, 1996). As part of that project, he offered his insights on the fundamental functions of a financial system. These thoughts lead quite naturally to a critique of the financial practices that precipitated the global financial crisis, and offer a path toward thorough-going reform. |
| Keywords: | Global Financial Crisis; Hyman Minsky; Financial Reform; Basel III; Capital Development; Banks |
| JEL: | B22 B25 B52 E11 E12 E44 G18 G20 G21 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_655&r=pke |
| By: | Éric Tymoigne |
| Abstract: | With the Great Recession and the regulatory reform that followed, the search for reliable means to capture systemic risk and to detect macrofinancial problems has become a central concern. In the United States, this concern has been institutionalized through the Financial Stability Oversight Council, which has been put in charge of detecting threats to the financial stability of the nation. Based on Hyman Minsky's financial instability hypothesis, the paper develops macroeconomic indexes for three major economic sectors. The index provides a means to detect the speed with which financial fragility accrues, and its duration; and serves as a complement to the microprudential policies of regulators and supervisors. The paper notably shows, notably, that periods of economic stability during which default rates are low, profitability is high, and net worth is accumulating are fertile grounds for the growth of financial fragility. |
| Keywords: | Financial Fragility; Financial Regulation; Financial Crises; Macroprudential Risk; Debt-Deflation Process; Ponzi Finance |
| JEL: | E32 G18 G28 G38 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_654&r=pke |
| By: | L. Randall Wray |
| Abstract: | In this paper I will follow Hyman Minsky in arguing that the postwar period has seen a slow transformation of the economy from a structure that could be characterized as "robust" to one that is "fragile." While many economists and policymakers have argued that "no one saw it coming," Minsky and his followers certainly did! While some of the details might have surprised Minsky, certainly the general contours of this crisis were foreseen by him a half century ago. I will focus on two main points: first, the past four decades have seen the return of "finance capitalism"; and second, the collapse that began two years ago is a classic "Fisher-Minsky" debt deflation. The appropriate way to analyze this transformation and collapse is from the perspective of what Minsky called "financial Keynesianism"—a label he preferred over Post Keynesian because it emphasized the financial nature of the capitalist economy he analyzed. |
| Keywords: | Hyman Minsky, Fisher-Minsky Debt Deflation, Hilferding, Finance Capitalism, Money Manager Capitalism, Financial Keynesian |
| JEL: | B22 B25 B52 E11 E12 E44 G18 G20 G21 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_653&r=pke |
| By: | Smith, Matthew |
| Abstract: | This paper develops upon the Keynesian theory of demand-led growth in order to provide an analytical framework conducive to explaining economic growth and development in concrete terms consistent with the fundamental idea that growth in output and employment is determined by the growth in aggregate demand. The framework employs an historical approach to identify the main factors and their role in explaining demand-led growth and the accumulation process. The theoretical model developed abandons steady-state conditions by proposing that capacity utilization varies in the long run as well as in the short run to ensure output has the elasticity to accommodate levels of autonomous demand free of any capacity saving constraint. On the basis of our analytical framework, the paper considers the main factors which explain the growth in aggregate demand: first, by examining the variables that determine the ‘super-multiplier' and what social, institutional and technical conditions can cause its value to change over time; second, by identifying the components of autonomous demand and the main forces explaining their growth; and third, by considering the manner in which technical progress promotes demand-led growth. |
| Keywords: | economic history; classical economics; Keynesian demand-led growth; growth theory |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:syd:wpaper:2123/7214&r=pke |
| By: | L. Randall Wray |
| Abstract: | This paper begins by defining, and distinguishing between, money and finance, and addresses alternative ways of financing spending. We next examine the role played by financial institutions (e.g., banks) in the provision of finance. The role of government as both regulator of private institutions and provider of finance is also discussed, and related topics such as liquidity and saving are explored. We conclude with a look at some of the new innovations in finance, and at the global financial crisis, which could be blamed on excessive financialization of the economy. |
| Keywords: | Money; Money of Account; Finance; Financial Instruments; Financial Institutions; Financial Innovation; Financialization; Liquidity; Saving; State Money; Chartalism; Shadow Bank; Hyman Minsky; Securitization; Robert Clower |
| JEL: | B14 B15 B22 B52 E12 E40 E42 E50 E51 E52 G14 G21 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_656&r=pke |
| By: | Eduardo Antonelli |
| Abstract: | El presente trabajo tiene por objeto analizar las crisis económicas bajo una óptica que sigue el enfoque de Keynes y Minsky en relación con el financiamiento de la inversión de las empresas. En la economía se produce una brecha entre el producto y la demanda efectiva, siendo ésta generada principalmente debido a que la preferencia por la liquidez aumenta, lo cual desemboca en una crisis. Por su parte, la preferencia por la liquidez se eleva, entre otras razones, debido a que el público percibe que el producto, el empleo y las demás variables de la economía podrían deteriorarse en el futuro en relación con los niveles que exhiben en el presente. |
| Date: | 2011–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:col:000418:008020&r=pke |
| By: | Guillermo Maya Muñoz |
| Abstract: | Con la publicación de La Teoría General (TG) de John Maynard Keynes en 1936 se produce la revolución teórica más importante del siglo XX en contra de los principios del pensamiento ‘clásico’, en la acepción dada por Keynes, es decir, la doctrina que sostienen la Ley de Say y el principio de la neutralidad del dinero, y que hoy se conoce como economía neoclásica. Desde entonces, los economistas neoclásicos han comenzado un viaje de retorno a los principios de la ortodoxia ‘clásica’ pre-keynesiana. Su objetivo ha sido la destrucción o la absorción de la revolución de Keynes. Los mercados libres aseguran la más eficiente asignación de los recursos, y el pleno empleo de los mismos. El desempleo es voluntario. Este artículo es un recorrido teórico desde la TG en 1936 hasta los debates contemporáneos entre los economistas neokeynesianos, lo nuevos clásicos, los nuevos keynesianos y los monetaristas, desde la perspectiva de la relación entre el desempleo y la inflación, o la curva de Phillips. Esta relación puede localizar todas las manifestaciones contemporáneas del debate entre el activismo y la pasividad de la política económica, entre las reglas y la discreción de la política, sobre todo en lo que respecta a la política monetaria. |
| Date: | 2011–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:col:000418:008068&r=pke |