nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2011‒10‒01
five papers chosen by
Karl Petrick
University of the West Indies

  1. The Impact of Cutting Social Security Cost of Living Adjustments on the Living Standards of the Elderly By Dean Baker; David Rosnick
  2. The Role of Default in Macroeconomics By Charles A. E. Goodhart; Dimitrios P. Tsomocos
  3. Rising Wage Inequality and Postgraduate Education By Lindley, Joanne; Machin, Stephen
  4. A Decade of Editing the European Economic Review By Eckstein, Zvi; Gal-Or, Esther; Gylfason, Thorvaldur; von Hagen, Jürgen; Pfann, Gerard A.
  5. A model of the Keynesian theory for the Portuguese manufactured industry. Another analysis By Martinho, Vítor João Pereira Domingues

  1. By: Dean Baker; David Rosnick
    Abstract: During the negotiations over raising the debt ceiling, President Obama proposed cutting the annual cost of living adjustment for Social Security by switching to an index that would show a lower measured rate of inflation. This alternative index, the chained consumer price index (CCPI-U), shows an annual rate of inflation that averages approximately 0.3 percentage points less than the consumer price index (CPI-W) that is currently used to index benefits. While this change would lead to $122 billion in savings to the government over the next decade, it also means that beneficiaries would receive lower benefits. Since the vast majority of retirees rely on Social Security for the bulk of their retirement income, this cut in the cost of living adjustment would imply a substantial reduction in the standard of living of retirees, unless they offset it by saving more during their working years or retiring later in life. While we cannot know for sure how workers in future years will adjust their behavior, this paper assesses their past response to changes in the cost of living adjustment. It finds that they were not able to raise their non-Social Security income in response to cuts in Social Security benefits.
    Keywords: social security, retirement, COLA, CPI
    JEL: H H5 H55 J J1 J14
    Date: 2011–09
  2. By: Charles A. E. Goodhart (Norman Sosnow Professor of Banking and Finance, London School of Economics (email:; Dimitrios P. Tsomocos (Said Business School, University of Oxford (email:
    Abstract: What is the main limitation of much modern macro-economic theory, among the failings pointed out by William R. White at the 2010 Mayekawa Lecture? We argue that the main deficiency is a failure to incorporate the possibility of default, including that of banks, into the core of the analysis. With default assumed away, there can be no role for financial intermediaries, for financial disturbances, or even for money. Models incorporating defaults are, however, harder to construct, in part because the representative agent fiction must be abandoned. Moreover, financial crises are hard to predict and to resolve. All of the previously available alternatives for handling failing systemically important financial institutions (SIFIs) are problematical. We end by discussing a variety of current proposals for improving the resolution of failed SIFIs.
    Keywords: Default, Transversality, Money, Bankruptcy cost, Asset bubbles, Resolution mechanisms
    JEL: B40 E12 E30 E40 E44 G18 G20 G28 P10
    Date: 2011–09
  3. By: Lindley, Joanne (University of Surrey); Machin, Stephen (University College London)
    Abstract: This paper considers what has hitherto been a relatively neglected subject in the wage inequality literature, albeit one that has been becoming more important over time, namely the role played by increases in postgraduate education. We document increases in the number of workers with a postgraduate qualification in the United States and Great Britain. We also show their relative wages have risen over time as compared to all workers and more specifically to graduates with only a college degree. Consideration of shifts in demand and supply shows postgraduates and college only workers to be imperfect substitutes in production and that there have been trend increases over time in the relative demand for postgraduate vis-à-vis college only workers. These relative demand shifts are significantly correlated with technical change as measured by changes in industry computer usage and investment. Moreover, the skills sets possessed by postgraduates and the occupations in which they are employed are significantly different to those of college only graduates. Over the longer term period when computers have massively diffused into workplaces, it turns out that the principal beneficiaries of this computer revolution has not been all graduates, but those more skilled workers who have a postgraduate qualification. This has been an important driver of rising wage inequality amongst graduates over time.
    Keywords: wage inequality, postgraduate education, computers
    JEL: J24 J31
    Date: 2011–09
  4. By: Eckstein, Zvi (Tel Aviv University); Gal-Or, Esther (University of Pittsburgh); Gylfason, Thorvaldur (University of Iceland); von Hagen, Jürgen (University of Bonn); Pfann, Gerard A. (Maastricht University)
    Abstract: This story describes the circumstances that led to all five of us starting as editors at the same time, the unexpected things we have found, the unanticipated reactions we have encountered, how we worked as an editorial team, the central role of the editorial office manager, how we managed to work with five different publishers in ten years, the various initiatives we have developed to involve associate editors and referees, the early electronic editing system, and the creation of the essential database of potential referees. We will also describe the difficulties we have encountered in reaching one of our early goals to reduce the median time of first response to less than four months. Along the way, we will share a few anecdotes to illustrate the work of an academic journal editor.
    Keywords: journal, editing, economics
    JEL: A11 A14
    Date: 2011–09
  5. By: Martinho, Vítor João Pereira Domingues
    Abstract: With this work we try to present a model for the Portuguese manufactured industry based on the Keynesian theory. We built the model testing the Verdoorn Law, with the alternative specifications of (1)Kaldor (1966), for the five Portuguese regions (NUTS II) and from 1995 to 1999. It is intended to test, yet in this work, the alternative interpretation of (2)Rowthorn (1975) about the Verdoorn's Law for the same regions and periods.
    Keywords: Keynesian theory; linear models; manufactured industries; Portuguese regions
    JEL: O18 C20 C50 R11
    Date: 2011

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