nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2012‒10‒20
eleven papers chosen by
Karl Petrick
University of the West Indies

  1. Embedding Minsky´s taxonomy of cash flows into a corporate finance framework (The microeconomic linkage between speculative and Ponzi schemes) By Rodolfo Apreda
  2. "Building Effective Regulation Requires a Theory of Financial Instability" By Jan Kregel; Dimitri B. Papadimitriou
  3. "Minsky and the Narrow Banking Proposal: No Solution for Financial Reform" By Jan Kregel
  4. "Euroland's Original Sin" By Dimitri B. Papadimitriou; L. Randall Wray
  5. "The LIBOR Scandal: The Fix Is In--the Bank of England Did It!" By Jan Kregel
  6. Income Distribution, Credit and Fiscal Policies in an Agent-Based Keynesian Model By Giovanni Dosi; Giorgio Fagiolo; Mauro Napoletano; Andrea Roventini
  7. On the Relevance of Relative Poverty for Developing Countries By Christopher Garroway; Juan Ramón de Laiglesia
  8. "Uncovering the Hidden Poor: The Importance of Time Deficits" By Rania Antonopoulos; Thomas Masterson; Ajit Zacharias
  9. Financialization and Marx: some reflections on Bryan’s, Martin’s and Rafferty’s argumentation By Sotiropoulos, Dimitris P.; Lapatsioras, Spyros
  10. "Delaying the Next Global Meltdown" By Dimitri B. Papadimitriou; L. Randall Wray
  11. "Six Lessons from the Euro Crisis" By Jan Kregel

  1. By: Rodolfo Apreda
    Abstract: When Minsky put forward his financial instability hypothesis, he resorted – among other macroeconomic tools of analysis – to categories like income, balance-sheet, and portfolio cash flows, so as to cope with the successive stages of hedging, speculative and Ponzi schemes. This paper makes two contributions to the lively debate arousing from Minsky’s ideas. Firstly, it embeds Minsky’s taxonomy into the incremental cash-flow model that has become part and parcel of the modern approach to Corporate Finance. Secondly, and by means of the referred model, we set up a microeconomic linkage to financial instability, by showing how hedging, speculative and Ponzi devices actually break off the natural mutuality that binds together so effectively cash flows from assets – which create economic value – with those to be delivered toward both creditors and stockholders.
    Keywords: Minsky’s taxonomy of cash flows; incremental cash flow model; financial instability; Ponzi scheme; speculative finance.
    JEL: G32 G34
    Date: 2012–09
  2. By: Jan Kregel; Dimitri B. Papadimitriou
    Abstract: Hyman Minsky had particular views about how the regulatory system and financial architecture should be reformulated, and one of the many lessons we can learn from his work is that there is an intimate connection between how we think about the prospect of financial market instability and how we approach financial regulation. Regulation cannot be effective if it is simply based on "piecemeal" measures produced in response to the current "moment," Minsky wrote. It needs to reformulate the structure of the financial system itself.
    Date: 2012–05
  3. By: Jan Kregel
    Abstract: Before the law has even been fully implemented, the inadequacies of the regulatory approach underlying the Dodd-Frank Act are becoming more and more apparent. Financial scandal by financial scandal, the realization is hardening that there is a pressing need to search for more robust regulatory alternatives. The real challenge for financial reform is to develop a vision for a financial structure that would simplify the system and the activities of financial institutions so that they can be regulated and supervised effectively. Some paths to such simplification, however, are not worth treading. Against the backdrop of renewed present-day interest in the Depression-era "Chicago Plan," featuring 100 percent reserve backing for deposits, Senior Scholar Jan Kregel turns to Hyman Minsky's consideration of a similar "narrow banking" proposal in the mid-1990s. For reasons that eventually led Minsky himself to abandon the proposal, as well as reasons developed here by Kregel that have even more pressing relevance in today's political climate, plans for a narrow banking system are found wanting.
    Date: 2012–08
  4. By: Dimitri B. Papadimitriou; L. Randall Wray
    Abstract: From the very start, the European Monetary Union (EMU) was set up to fail. The host of problems we are now witnessing, from the solvency crises on the periphery to the bank runs in Spain, Greece, and Italy, were built into the very structure of the EMU and its banking system. Policymakers have admittedly responded to these various emergencies with an uninspiring mix of delaying tactics and self-destructive policy blunders, but the most fundamental mistake of all occurred well before the buildup to the current crisis. What we are witnessing today are the results of a design flaw. When individual nations like Greece or Italy joined the EMU, they essentially adopted a foreign currency—the euro—but retained responsibility for their nation's fiscal policy. This attempted separation of fiscal policy from a sovereign currency is the fatal defect that is tearing the eurozone apart.
    Date: 2012–07
  5. By: Jan Kregel
    Abstract: As the results of the various official investigations spread, it becomes more and more apparent that a large majority of financial institutions engaged in fraudulent manipulation of the benchmark London Interbank Offered Rate (LIBOR) to their own advantage, and that bank management and regulators were unable to effectively monitor the activity of institutions because they were too big to manage and too big to regulate. However, instead of drawing the obvious conclusion—that structural changes are needed to reduce banks to a size that can be effectively regulated, as proposed on numerous occasions by the Levy Economics Institute—discussion in the media and political circles has turned to whether the problem was the result of the failure of central bank officials and government regulators to respond to repeated suggestions of manipulation, and to stop the fraudulent behavior. Just as the "hedging" losses at JPMorgan Chase have been characterized as the result of misbehavior on the part of some misguided individual traders, leaving top bank management without culpability, politicians and the media are now questioning whether government officials condoned, or even encouraged, manipulation of the LIBOR rate, virtually ignoring the banks' blatant abuse of principles of good banking practice. Just as in the case of JPMorgan, the only response has been to remove the responsible individuals, rather than questioning the structure and size of the financial institutions that made managing and policing this activity so difficult. Again, the rotten apples have been removed without anyone noticing that it is the barrel that is the cause of the problem. But in the current scandal, the ad hominem culpability has been extended to central bank officials in the UK and the United States.
    Date: 2012–08
  6. By: Giovanni Dosi (Sant'Anna School of Advanced Studies, Pisa); Giorgio Fagiolo (Sant'Anna School of Advanced Studies, Pisa); Mauro Napoletano (OFCE, Nice, France); Andrea Roventini (Department of Economics (University of Verona))
    Abstract: This work studies the interactions between income distribution and monetary and fiscal policies in terms of ensuing dynamics of macro variables (GDP growth, unemployment, etc.) on the grounds of an agent-based Keynesian model. The direct ancestor of this work is the ``Keynes meeting Schumpeter'' formalism presented in \citet{DFR10}. To that model, we add a banking sector and a monetary authority setting interest rates and credit lending conditions. The model combines Keynesian mechanisms of demand generation, a ``Schumpeterian'' innovation-fueled process of growth and Minskian credit dynamics. The robustness of the model is checked against its capability to jointly account for a large set of empirical regularities both at the micro level and at the macro one. The model is able to catch salient features underlying the current as well as previous recessions, the impact of financial factors and the role in them of income distribution. We find that different income distribution regimes heavily affect macroeconomic performance: more unequal economies are exposed to more severe business cycles fluctuations, higher unemployment rates, and higher probability of crises. On the policy side, fiscal policies do not only dampen business cycles, reduce unemployment and the likelihood of experiencing a huge crisis. In some circumstances they also affect long-term growth. Further, the more income distribution is skewed toward profits, the greater the effects of fiscal policies. About monetary policy, we find a strong non-linearity in the way interest rates affect macroeconomic dynamics: in one ``regime'' with low rates, changes in interest rates are ineffective up to a threshold beyond which increasing the interest rate implies smaller output growth rates and larger output volatility, unemployment and likelihood of crises.
    Keywords: agent-based Keynesian models, multiple equilibria, fiscal and monetary policies, income distribution, transmission mechanisms, credit constraints
    JEL: E32 E44 E51 E52 E62
    Date: 2012–01
  7. By: Christopher Garroway; Juan Ramón de Laiglesia
    Abstract: Poverty is typically measured in different ways in developing and advanced countries. The majority of developing countries measure poverty in absolute terms, using a poverty line determined by the monetary cost of a predetermined basket of goods. In contrast, most analyses of poverty in advanced countries, including the majority of OECD countries and Eurostat, measure poverty in relative terms, setting the poverty line as a share of the average or median standard of living in a country. This difference in how social outcomes are measured makes it difficult to share experiences in social policy design and implementation. This paper argues that policy analysis should rely on both relative poverty – measured as a share of the median standard of living – and absolute measures. As countries reduce extreme absolute poverty, concerns of social inclusion, better represented by relative poverty lines, become increasingly relevant. Anchoring the poverty line to median welfare makes the poverty line dependent on distributional parameters beyond the mean, thus allowing for poverty lines that differ across countries with the same level of income per capita. The paper derives and presents relative poverty headcount ratios from publicly available grouped data for 114 countries. An examination of the trends in absolute and relative poverty in Brazil, China and the United States uncovers commonalities that are not apparent if the analysis focuses on national poverty lines or different concepts across countries.<BR>Les pays développés et les pays en développement mesurent en général la pauvreté de façon différente. La plupart des pays en développement utilise des mesures absolues de la pauvreté, à l’aide d’un seuil de pauvreté défini par la valeur monétaire d’un panier de biens prédéterminé. Par contre, la plupart des analyses de la pauvreté dans des pays développés, y compris dans la plupart des pays de l’OCDE et des institutions telles que Eurostat utilisent des mesures relatives de la pauvreté, avec un seuil de pauvreté définie par une proportion fixe du niveau de vie moyen ou médian dans un pays. Ces différences de mesure rendent plus difficile le partage d’expériences en formulation et mise en oeuvre de politiques sociales. Ce document soutient que l’analyse des politiques publiques devrait reposer sur en même temps sur des mesures absolues et relatives, ces dernières se rapportant à une proportion du niveau de vie médian. Les questions d’inclusion sociale, qui sont mieux prises en compte par des lignes de pauvreté relatives, voient leur importance croitre au fur et à mesure que les pays réduisent la pauvreté absolue. Du fait de l’ancrage du seuil de pauvreté à la médiane de la mesure de bien-être, le seuil de pauvreté dépend de paramètres de la distribution au-delà du niveau de vie moyen, ce qui permet aux seuils de pauvreté d’être différents pour des pays avec le même revenu par habitant. Le document présente des taux de pauvreté relative calculés à partir de données disponibles au public pour 114 pays. Une analyse des tendances des mesures absolue et relative de la pauvreté pour le Brésil, la Chine et les États-Unis relève des points communs qui demeurent cachés si l’analyse se concentre uniquement sur les seuils de pauvreté nationaux ou sur des concepts de mesure propres à chaque pays.
    Keywords: relative poverty, poverty measurement, poverty in developing countries, pauvreté relative, mesure de la pauvreté, pauvreté et développement
    JEL: I32 O10 Y10
    Date: 2012–09–25
  8. By: Rania Antonopoulos; Thomas Masterson; Ajit Zacharias
    Abstract: Standard poverty measurements assume that all households and individuals have enough time to engage in the unpaid cooking, cleaning, and caregiving that are essential to attaining a bare-bones standard of living. But this assumption is false. With the support of the United Nations Development Programme and the International Labour Organization, Senior Scholars Rania Antonopoulos and Ajit Zacharias and Research Scholar Thomas Masterson have constructed an alternative measure of poverty that, when applied to the cases of Argentina, Chile, and Mexico, reveals significant blind spots in the official numbers.
    Date: 2012–10
  9. By: Sotiropoulos, Dimitris P. (Kingston University London); Lapatsioras, Spyros (University of Crete)
    Abstract: The recent theoretical works of the authors provide thorough insights into the workings of contemporary capitalism. Derivatives are the key issue involved here. They comprehend financialization as a development within, rather than a distortion of, capitalist production. They nevertheless underestimate the ability of Marx’s analytical categories to capture the essence of contemporary organization of capitalism. A return to Marx is not only helpful but is also indispensable for clarification of some unformed aspects in their analysis. What is actually involved in financialization is not just the emergence of a structure enabling more effective valuation of financial assets; it is also the development of a technology of power that is superimposed on existing power relations for the purpose of organizing their functioning.
    Keywords: Marx; derivatives; financialization; capitalization; risk.
    JEL: B14 B51 G32
    Date: 2012–04–17
  10. By: Dimitri B. Papadimitriou; L. Randall Wray
    Abstract: It's a mistake to interpret the unfolding disaster in Europe as primarily a "sovereign debt crisis." The underlying problem is not periphery profligacy, but rather the very setup of the European Monetary Union (EMU)—a setup that even now prevents a satisfactory resolution to this crisis. The central weakness of the EMU is that it separates nations from their currencies without providing them with adequate overarching fiscal or monetary policy structures—it's like a United States without a Treasury or a fully functioning Federal Reserve. Without addressing this basic structural weakness, Euroland will continue to stumble toward the cliff—and threaten to pull a tottering US financial system over the edge with it.
    Date: 2012–02
  11. By: Jan Kregel
    Abstract: Every crisis reveals unexpected consequences of economic policies. The current euro crisis should be no exception. As European Union governments search for a solution, there are already a number of lessons to be learned. Senior Scholar Jan Kregel outlines the top six.
    Date: 2012–08

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