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

  1. Financialization of the U.S. corporation: what has been lost, and how it can be regained By Lazonick, William
  2. Failing Institutions Are at the Core of the U.S. Financial Crisis By Yochanan Shachmurove
  3. Failing Institutions Are at the Core of the Euro Crisis By Yochanan Shachmurove; Alojzy Z. Nowak
  4. The Economic Security Index: A New Measure for Research and Policy Analysis By Hacker, Jacob S.; Huber, Gregory Alain; Nichols, Austin; Rehm, Philipp; Schlesinger, Mark; Valletta, Robert G.; Craig, Stuart

  1. By: Lazonick, William
    Abstract: The employment problems that the United States now faces are largely structural. The structural problem is not, however, as many economists have argued, a labor-market mismatch between the skills that prospective employers want and the skills that potential workers have. Rather the employment problem is rooted in changes in the ways that U.S. corporations employ workers as a result of "rationalization", "marketization", and "globalization". From the early 1980s rationalization, characterized by plant closings, eliminated the jobs of unionized blue-collar workers. From the early 1990s marketization, characterized by the end of a career with one company as an employment norm, placed the job security of middle-aged and older white-collar workers in jeopardy. From the early 2000s globalization, characterized by the movement of employment offshore, left all members of the U.S. labor force, even those with advanced educational credentials and substantial work experience, vulnerable to displacement. Nevertheless, the disappearance of these existing middle-class jobs does not explain why, in a world of technological change, U.S. business corporations have failed to use their substantial profits to invest in new rounds of innovation that can create enough new high value-added jobs to replace those that have been lost. I attribute that organizational failure to the financialization of the U.S. corporation. The most obvious manifestation of financialization is the phenomenon of the stock buyback, with which major U.S. corporations seek to manipulate the market prices of their own shares. For the decade 2001-2010 the companies in the S&P 500 Index expended about $3 trillion on stock repurchases. The prime motivation for stock buybacks is the stock-based pay of the corporate executives who make these allocation decisions. The justification for stock buybacks is the erroneous ideology, inherited from the conventional theory of the market economy, that, for superior economic performance, companies should be run to "maximize shareholder value". In this essay I summarize the damage that this ideology is doing to the U.S. economy, and I lay out a policy agenda for restoring equitable and stable economic growth.
    Keywords: U.S. economy; employment; financialization; stock buybacks; executive pay; shareholder value; stock-market manipulation; income inequality; equitable and stable economic growth
    JEL: D21 D31 L21 G35 G38 J23
    Date: 2012–07–17
  2. By: Yochanan Shachmurove (Department of Economics and Business, The City College of The City University of New York,and Department of Economics, The University of Pennsylvania)
    Abstract: This paper uses the structure of institutional economics to provide an explanation of the recent U.S. financial crisis. Institutional theory suggests that a county’s political, legal, social, and cultural institutions determine and characterize its economy. An institutional perspective of financial crises therefore incorporates unquantifiable aspects of the real world. Different institutions interacted to ignite and fuel the global crisis. A thorough understanding of all of the legal, political, and cultural institution that encompass a society, as well as their role in the market, is needed to explain and avoid the reoccurrences of financial crises.
    Keywords: Institutional Economics; Financial Crisis; Law and Economics; Interdependence; Behavioral Economics; Behavioral Finance; Hume; Veblen; Coase
    JEL: G O1 B52
    Date: 2012–10–16
  3. By: Yochanan Shachmurove (Department of Economics and Business, The City College of The City University of New York,and Department of Economics, The University of Pennsylvania); Alojzy Z. Nowak (University of Warsaw, Poland)
    Abstract: The European Union was created to promote economic, cultural, and regional prosperity. However, the Global Financial Crisis demonstrates that its economic institutions are flawed. While each sovereign state in the Eurozone forfeits the control of its money supply, the lack of a common fiscal institution allows individual countries to pursue their own political and financial agendas. The on-going economic hardship emphasizes the critical role of economic and political institution ions. This paper analyzes both beneficial and perverse incentives of joining the European Union, discusses the consequences of deficient economic institutions and provides potential solutions towards the alleviation of the crisis.
    Keywords: European Union; Eurozone; Harmonized Index of Consumer Prices; Portugal, Ireland, Greece and Spain (PIGS); Fiscal Union; Financial Crises; Maastricht Criteria; Maastricht Treaty; Exchange Rate; Euro
    JEL: B52 F00 F01 F33 K0
    Date: 2012–10–18
  4. By: Hacker, Jacob S. (Yale University); Huber, Gregory Alain (Yale University); Nichols, Austin (Urban Institute); Rehm, Philipp (Ohio State University); Schlesinger, Mark (Yale University); Valletta, Robert G. (Federal Reserve Bank of San Francisco); Craig, Stuart (Yale University)
    Abstract: This paper presents the Economic Security Index (ESI), a new, more comprehensive measure of economic insecurity. By combining data from multiple surveys, we create an integrated measure of volatility in available household resources, accounting for fluctuations in income and out-of-pocket medical expenses, as well as financial wealth sufficient to buffer against these shocks. We find that insecurity has risen steadily since the mid-1980s for virtually all subgroups of Americans, albeit with cyclical ups and downs. We also find, however, that there is substantial disparity in the degree to which different groups are exposed to economic risk. As the ESI derives from a data-independent conceptual foundation, it can be measured using different data sources. We find that the degree and disparity by which insecurity has risen is robust across these sources.
    Keywords: household income, volatility, wealth, medical spending
    JEL: I14 D31 J11
    Date: 2012–10

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