nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2012‒06‒05
six papers chosen by
Karl Petrick
University of the West Indies

  1. "The Mediterranean Conundrum: The Link between the State and the Macroeconomy, and the Disastrous Effects of the European Policy of Austerity" By C. J. Polychroniou
  2. Why recession and depression policies differ By Stravelakis, Nikos
  3. Islamic finance revisited: conceptual and analytical issues from the perspective of conventional economics By Singh, Ajit; Sheng, Andrew
  4. Analyzing top US income shares: earned or extracted? By Lambert, Thomas; Kwon, Eundak
  5. Brave new world: global development goals after 2015 By David Hulme; Rorden Wilkinson
  6. In brief: Can industrial policy boost jobs? By Chiara Criscuolo; Ralf Martin; Henry Overman; John Van Reenen

  1. By: C. J. Polychroniou
    Abstract: Conventional wisdom has calcified around the belief that the countries in the eurozone periphery are in trouble primarily because of their governments' allegedly profligate ways. For most of these nations, however, the facts suggest otherwise. Apart from the case of Greece, the outbreak of the eurozone crisis largely preceded dramatic increases in public debt ratios, and as has been emphasized in previous Levy Institute publications, the roots of the crisis lie far more in the flawed design of the European Monetary Union and the imbalances it has generated. But as Research Associate and Policy Fellow C. J. Polychroniou demonstrates in this policy brief, domestic political developments should not be written out of the recent history of the eurozone's stumbles toward crisis and possible dissolution. However, the part in this tale played by southern European political regimes is quite the opposite of that which is commonly claimed or implied in the press. Instead of out-of-control, overly generous progressive agendas, the countries at the core of the crisis in southern Europe-Greece, Spain, and Portugal-have seen their macroeconomic environments shaped by the dominance of regressive political regimes and an embrace of neoliberal policies; an embrace, says Polychroniou, that helped contribute to the unenviable position their economies find themselves in today.
    Date: 2012–05
  2. By: Stravelakis, Nikos
    Abstract: This draft presents a model of internally generated growth and effective demand. It is constructed with the rationale of separating fast and slow variables. Slow variables appear as parameters. We show the reaction of profit growth to different rates of profit (slow variable) through the variation of the rate of interest and the price level (fast variables). The model is within the classical / Marxist tradition in the sense that profitability is the driving force of capital accumulation and the Marxist / post Keynesian tradition in the sense that the rate of interest is a purely monetary phenomenon depending on the competition between borrowers and lenders. Although we let prices and the rate of savings adjust to the rate of capital accumulation and the rate of interest respectively the prevailing rate of profit is the dominant force of accumulation giving insights on the characteristics of depressions and the effectiveness of various policies in that context. More specifically, the model shows the difference between fluctuations in profitability and production which characterize a recession to a standstill in profit growth which is the mark of a depression. As we will show savings adjustments are sufficient to bring an economy out of recession but are totally ineffective in depressions. Therefore, recession and depression policies should differ significantly not only quantitatively but also qualitatively. In a depression increasing, bank liquidity, trough governments and central banks, will not drive the system out of stagnation because profits are too low and outstanding debt is too high for banks to extend credit and corporations to invest. Furthermore, major restructuring involving real wage reductions, mergers and acquisitions of corporations and banks, includes the impairment of the weaker capital which will take a long undefined period of time with persistent high unemployment. Direct state investment, on the other hand, will reduce unemployment and create adequate demand to eventually drive the economy out of stagnation.
    Keywords: profitability; capital accumulation; profit of enterprise; depression
    JEL: B14 C02 B22
    Date: 2012–05–15
  3. By: Singh, Ajit; Sheng, Andrew
    Abstract: After a brief recent empirical sketch of Islamic finance, the paper turns to its main theoretical and conceptual purpose. It seeks to relate the concepts of Islamic and conventional finance, and to examine certain important questions which arise from the interaction between these systems. The paper is written from the perspective of conventional modern economics, as the authors are students of the latter. The paper discusses the main tenets of Islamic finance, as well as those of modern economics, including the implications of zero interest rates and those of Modigliani and Miller theorems. The most notable finding of this paper is that John Maynard Keynes’ analysis of employment, interest and money provides, inadvertently, the best rationale for some of the basic precepts of Islamic finance. The paper concludes that there is no inevitable conflict between the two systems and cooperation between them is eminently desirable and feasible.
    Keywords: Islamic Finance; Moral Hazard; Keynes; Zero Interest Rates; Usuary
    JEL: A13 E40 B41
    Date: 2011–11–14
  4. By: Lambert, Thomas; Kwon, Eundak
    Abstract: With the current Occupy Movement occurring on Wall Street and other parts of the globe, a lot of attention has recently been given to growing inequality and how much the top 1 percent of households have in terms of income versus the other 99 percent in the United States. Mainstream economists and other social scientists point to greater trade liberalization, lower union membership, smaller government, greater GDP growth, a greater presence of the financial services industry in the economy, and lower marginal tax rates on upper income households as making significant contributions to growing income inequality and greater income shares for those at the top of the income scale in the United States. Additionally, some mention that gains to upper income households have been made possible by a growing pay gap between skilled and unskilled or educated versus less educated workers, in which upper income households are made up disproportionately of college educated and highly trained individuals. Finally, declines in the number of high paying jobs in manufacturing are also blamed for rising inequality and greater gains in income to top income households relative to those in other income groups. All of these factors affecting inequality have been found to be statistically significant in one study or another. This research note does not dispute the findings of other research efforts but explores the use of three other concepts to explain income inequality. The use of 1) the profitability of the private sector, 2) the decline in the wages and salaries of most workers, and 3) the Marxian concept of rate of exploitation are offered as additional explanations of inequality and the income shares of top income households. Since the Great Depression, it appears that the income shares of the top strata are due just as much to the income losses and “exploitation” of other groups and to governmental policies as they are due to the performance of the general US economy or to the performance of private sector profitability and returns on education. These findings which offer support to both sides of the arguments over greater accumulation of income by those at the top of the income scale.
    Keywords: income inequality; profitability; rate of exploitation; surplus value; top income shares; trade unions
    JEL: B5
    Date: 2012–05–02
  5. By: David Hulme; Rorden Wilkinson
    Abstract: Abstract This paper evaluates the major options for reformulating the Millennium Development Goals (MDGs). Our purpose is to add weight and direction to emerging thinking on MDG reformulation in a way that: (i) reaffirms the importance of global efforts to reduce extreme poverty; (ii) overcomes the problems endemic in the existing MDGs; (iii) accelerates the reduction of extreme poverty globally; (iv) builds the foundations of a more comprehensive global development programme; (v) tailors poverty reduction efforts to local conditions and strengthens national-level poverty eradication policies; and (iv) offers a realizable prospect for maintaining momentum in UN development efforts.
    Date: 2012
  6. By: Chiara Criscuolo; Ralf Martin; Henry Overman; John Van Reenen
    Abstract: Business support policies designed to raise productivity and employment are common worldwide, but rigorous micro-econometric evaluation of their causal effects is rare. We exploit multiple changes in the area-specific eligibility criteria for a major program to support manufacturing jobs ("Regional Selective Assistance"). Area eligibility is governed by pan-European state aid rules which change every seven years and we use these rule changes to construct instrumental variables for program participation. We match two decades of UK panel data on the population of firms to all program participants. IV estimates find positive program treatment effect on employment, investment and net entry but not on TFP. OLS underestimates program effects because the policy targets underperforming plants and areas. The treatment effect is confined to smaller firms with no effect for larger firms (e.g. over 150 employees). We also find the policy raises area level manufacturing employment mainly through significantly reducing unemployment. The positive program effect is not due to substitution between plants in the same area or between eligible and ineligible areas nearby. We estimate that "cost per job" of the program was only $6,300 suggesting that in some respects investment subsidies can be cost effective.
    Keywords: industrial policy, regional policy, employment, investment, productivity
    JEL: H25 L52 L53 O47
    Date: 2012–05

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