nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2012‒11‒03
seven papers chosen by
Karl Petrick
University of the West Indies

  1. "Uncovering the Hidden Poor: The Importance of Time Deficits" By A Brief Guide to the US Stimulus and Austerity Debates
  2. "Fiscal Traps and Macro Policy after the Eurozone Crisis" By Greg Hannsgen; Dimitri B. Papadimitriou
  3. The “Doomsday” Effect in Climate Policies. Why is the Present Decade so Crucial to Tackling the Climate Challenge? By Baptiste Perrissin Fabert; Etienne Espagne; Antonin Pottier; Patrice Dumas
  4. US Status on Climate Change Mitigation By Burtraw, Dallas; Woerman, Matt
  5. How to Explain the Persistence of the Great Recession? A Balanced Stability Approach By Teodoro Dario Togati
  6. Green industrial policy : trade and theory By Karp, Larry; Stevenson, Megan
  7. Transcendental vs. Comparative Approaches to Justice : A Reappraisal of Sen’s Dichotomy. By Ragip Ege; Herrade Igersheim; Charlotte Le Chapelain

  1. By: A Brief Guide to the US Stimulus and Austerity Debates
    Abstract: Should we allow the fiscal cliff, with its across-the-board spending cuts and big tax increases that will affect almost every American, to take effect? Economists have been weighing in on such fiscal policy questions in what seems to be the most intense election-year debate in many years. To help our readers keep track of this debate, we offer a list of some of the specious arguments against fiscal stimulus and for austerity, together with our responses.
    Date: 2012–10
  2. By: Greg Hannsgen; Dimitri B. Papadimitriou
    Abstract: The United States must make a fundamental choice in its economic policy in the next few months, a choice that will shape the US economy for years to come. Pundits and policymakers are divided over how to address what is widely referred to as the "fiscal cliff," a combination of tax increases and spending cuts that will further weaken the domestic economy. Will the United States continue its current, misguided, policy of implementing European-style austerity measures, and the economic contraction that is the inevitable consequence of such policies? Or will it turn aside from the fiscal cliff, using a combination of its sovereign currency system and Keynesian fiscal policy to strengthen aggregate demand? Our analysis presents a model of what we call the "fiscal trap"—a self-imposed spiral of economic contraction resulting from a fundamental misunderstanding of the role and function of fiscal policy in times of economic weakness. Within this framework, we begin our analysis with the disastrous results of austerity policies in the European Union (EU) and the UK. Our account of these policies and their results is meant as a cautionary tale for the United States, not as a model.
    Date: 2012–10
  3. By: Baptiste Perrissin Fabert (Centre International de Recherche Agronomique pour le Développement); Etienne Espagne (CIRED); Antonin Pottier (CIRED); Patrice Dumas (Centre International de Recherche Agronomique pour le Développement)
    Abstract: Despite growing scientific evidence that passing a 2°C temperature increase may trigger tipping points in climate dynamics, most Integrated Assessment Models (IAM) based on Cost Benefit Analysis (CBA) with smooth quadratic damage functions are unable to account for the possibility of strong increase in climate damage. Our IAM RESPONSE makes it possible to bridge this gap by integrating a threshold effect damage function which sets a threshold of temperature increase from which climate damages increase significantly. To fit with on-going climate negotiations, this threshold is set at 2°C. Regardless of the bleak prospect of passing the threshold, it turns out that among a broad set of scenarios accounting for the diversity of worldviews in the climate debate, overshooting the 2°C target and then facing the resulting damage may become an optimal strategy for many economic agents who are struck by what we call a “doomsday effect”. We show that this effect happens for any level of jump in damage and dramatically increases if the beginning of mitigation efforts is postponed till the decade 2010-2020 on. In light of these results, we believe that any further delay in reaching a clear international agreement will close the window of opportunity for meeting the 2°C target with a reasonable chance of diplomatic success.
    Keywords: Integrated Assessment Model, Non Linear Effect, Doomsday Effect, 2°C Target
    JEL: C61 Q54 Q58
    Date: 2012–09
  4. By: Burtraw, Dallas (Resources for the Future); Woerman, Matt (Resources for the Future)
    Abstract: In 2009, President Obama pledged that, by 2020, the United States would achieve reductions in greenhouse gas emissions of 17 percent from 2005 levels. With the failure of Congress to adopt comprehensive climate legislation in 2010, the feasibility of the pledge was put in doubt. However, we find that the United States is near to reaching this goal; currently, the country is on course to achieve reductions of 16.3 percent from 2005 levels in 2020. Three factors contribute to this outcome: greenhouse gas regulations under the Clean Air Act, secular trends including changes in relative fuel prices and energy efficiency, and subnational efforts. Perhaps even more surprising, domestic emissions are probably less than would have occurred if the Waxman–Markey cap-and-trade proposal had become law in 2010. However, at this point the United States is expected to fail to meet its financing commitments under the Copenhagen Accord for 2020.
    Keywords: greenhouse gases, additionality, emissions cap and trade, Clean Air Act, carbon dioxide
    JEL: Q54 Q58 H77
    Date: 2012–10–16
  5. By: Teodoro Dario Togati (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)
    Abstract: The Great Recession (GR) brings about a stalemate in macroeconomics. On the one hand, while describing the immediate effects of the GR, standard models fail to account for its persistence. On the other, heterodox approaches do not regain consensus as they fail to devise an alternative method for capturing the deep causes of the GR that account for its persistence in a systematic way. This paper fills this gap by proposing a new framework called Balanced Stability Approach. Unlike standard macro which takes stability for granted, it provides a balanced assessment of stability, considering both threats and opportunities for phenomena such as the so-called New Economy (NE) on a par. On these grounds, the paper draws the conclusion that the persistence of the GR is due to a low level of aggregate demand rooted in the structural changes generated by the NE.
    Keywords: Economic Crisis, Stability, Deductivist Methods, Macroeconomics, Keynesianism
    JEL: B50 E32 E60
    Date: 2012–10
  6. By: Karp, Larry; Stevenson, Megan
    Abstract: This paper studies the reality and the potential for green industrial policy. It provides a summary of the green industrial policies, broadly understood, for five countries. It then considers the relation between green industrial policies and trade disputes, emphasizing the Brazil-United States dispute involving ethanol and the broader United States-China dispute. The theory of public policy provides many lessons for green industrial policy. The authors highlight four of these lessons, involving the Green Paradox, the choice of quantities versus prices with endogenous investment, the coordination issues arising from emissions control, and the ability of green industrial policies to promote cooperation in reducing a global public bad like carbon emissions.
    Keywords: Climate Change Economics,Environmental Economics&Policies,Climate Change Mitigation and Green House Gases,Energy Production and Transportation,Economic Theory&Research
    Date: 2012–10–01
  7. By: Ragip Ege; Herrade Igersheim; Charlotte Le Chapelain
    Abstract: In The Idea of Justice, Sen describes two competing approaches to theorizing about justice: “transcendental institutionalism,” in which he includes Rawls, and “realization-focused comparison,” in which he includes Condorcet and himself. This paper questions the robustness of his dichotomy through an examination of the works of Condorcet, Rawls, and Sen himself. We show that none belongs exclusively to either tradition. Further, we claim that an appeal to the concept of metaranking, developed by Sen in the 1970s, enables us to overcome the distinction between the transcendental and the comparative traditions and in the last instance to reconcile the two approaches.
    Date: 2012

This nep-pke issue is ©2012 by Karl Petrick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.