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on Post Keynesian Economics |
| By: | Greg Hannsgen |
| Abstract: | Recently, some have wondered whether a fiscal stimulus plan could reduce the government's budget deficit. Many also worry that fiscal austerity plans will only bring higher deficits. Issues of this kind involve endogenous changes in tax revenues that occur when output, real wages, and other variables are affected by changes in policy. Few would disagree that various paradoxes of austerity or stimulus might be relevant, but such issues can be clarified a great deal with the help of a complete heterodox model. In light of recent world events, this paper seeks to improve our understanding of the dynamics of fiscal policy and financial crises within the context of two-dimensional (2D) and five-dimensional heterodox models. The nonlinear version of the 2D model incorporates curvilinear functions for investment and consumption out of unearned income. To bring in fiscal policy, I make use of a rule with either (1) dual targets of capacity utilization and public production, or (2) a balanced-budget target. Next, I add discrete jumps and policy-regime switches to the model in order to tell a story of a financial crisis followed by a move to fiscal austerity. Then, I return to the earlier model and add three more variables and equations: (1) I model the size of the private- and public-sector labor forces using a constant growth rate and account for their social reproduction by introducing an unemployment-insurance scheme; and (2) I make the markup endogenous, allowing its rate of change to depend, in a possibly nonlinear way, on capacity utilization, the real wage relative to a fixed norm, the employment rate, profitability, and the business sector’s desired capital-stock growth rate. In the conclusion, I comment on the implications of my results for various policy issues. |
| Keywords: | Financial Crisis; Post-Keynesian Economics; Fiscal-policy Rule; Dynamical System; Markup Dynamics; Kalecki-Steindl Model of Effective Demand; Hyman Minsky; Automatic Stabilizers; Growth Cycles; Budget Deficit; Capacity-utilization Targeting Rule; Historical Time; Policy Regime Switches; Keynesian Kaleidics; Chartalism; Distributive Curve |
| JEL: | E12 E32 E62 J65 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_723&r=pke |
| By: | Carlo Zappia |
| Abstract: | The recent financial crisis has renewed the interest in Keynes's thought and his analysis of the role played by individual agents in financial markets. George Akerlof and Robert Shiller, in particular, have drawn on the growing interest in behavioural interpretations of financial markets to hold that Keynes’s insistence on “the spontaneous urge to action” of individuals is the most relevant message conveyed by the General Theory. This paper starts off from a brief summary of Akerlof and Shiller’s influential stance and aims to provide an historically motivated assessment of their claim. The paper mostly concentrates on Keynes’s Treatise on Probability and discusses how Keynes applied his philosophy of probability to decision-making. It is argued that a fresh reading of this part of Keynes’s work can contribute to an understanding of how individual agents behave under uncertainty, and that the violations of the Bayesian creed scrutinized in behavioural finance, and in some current proposals to amend mainstream decision theory, were already implicitly discussed by Keynes in his critique of frequency probability |
| Keywords: | uncertainty, probability, decision theory |
| JEL: | B21 D81 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:646&r=pke |
| By: | Jean-Paul Fitoussi (Observatoire Francais des Conjonctures Economiques); Francesco Saraceno (Observatoire Francais des Conjonctures Economiques) |
| Abstract: | This paper argues that the European Union has gone farther than any other country or institution in internalizing the prescriptions of the Washington Consensus.Embedding neo-liberal principles in the treaties defining its governance,the EU has enshrined a peculiar doctrine within its constitution. We further argue that this "Berlin-Washinghton Consensus" has serious empirical and theoretical flaws, as its reliance on Pareto optimality leads to neglect the crucial links between current and potential growth. We show by means of a simple model that the call for structural reforms as an engine for growth may be controversial, once current and potential output are related. We claim that adherence to the Consensus may go a long way in explaining the poor growth performance of the European economy in the past two decades, because of the constraints that it imposed on fiscal and monetary policies. The same constraints have deepened the eurozone crisis that started in 2007,putting unwarranted emphasis on austerity and reform. Challenging the Consensus becomes a precondition for avoiding the implosion of the euro,and recovering growth. |
| Keywords: | Washington consensus, Neoclassical theory, Austerity, Structural reforms, Fiscal policy, Monetary policy, EU governance, ECB, Stability and growth pact, Fiscal compact |
| JEL: | E02 E32 E58 E62 E63 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1220&r=pke |
| By: | Thomas Masterson |
| Abstract: | The method for simulation of labor market participation used in the LIMTIP models for Argentina, Chile, and Mexico is described. In each case, all eligible adults not working full-time were assigned full-time jobs. In all households that included job recipients, the time spent on household production was imputed for everyone included in the time-use survey. The feasibility of assessing the quality of the simulations is discussed. For each simulation, the recipient group is compared to the donor group, both in terms of demographic similarity and in terms of the imputed usual hours, earnings, and household production produced in the simulation. In each case, the simulations are of reasonable quality, given the nature of the challenges in assessing their quality. |
| Keywords: | Labor Force Simulation; Time Use; Household Production; Poverty; LIMTIP; Argentina; Chile; Mexico |
| JEL: | C14 C40 D31 J22 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_727&r=pke |