nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2012‒11‒17
seven papers chosen by
Karl Petrick
University of the West Indies

  1. Sucker Punched by the Invisible Hand By Fligstein, Neil; Goldstein, Adam
  2. Visualizing Uncertainties, or how Albert Hirschman and the World Bank disagreed on project appraisal and development approaches By Alacevich, Michele
  3. The four figures of gift: kula, potlatch, dan e hau By Matteo Aria; Nicolò Bellanca
  4. Schumpeter and Georgescu-Roegen on the Foundations of an Evolutionary Analysis By Christoph Heinzel
  5. Another Look at Foreign Aid By Ranis, Gustav
  6. The Emergence of a Finance Culture in American Households, 1989-2007 By Fligstein, Neil; Goldstein, Adam
  7. Slovak economic growth and the consistency of the balance-of-payments constraint approach By Elias Soukiazis; Eva Muchova

  1. By: Fligstein, Neil; Goldstein, Adam
    Abstract: The worldwide financial crisis of 2007-2010 was set off by the collapse of the subprime mortgage market in the U.S. This crisis caused widespread banking failure in the U.S. and forced the federal government to provide a massive bailout to the financial sector. The crisis simultaneously reverberated to banks around the world, and eventually brought about a worldwide recession. This paper documents why Western European countries were so susceptible to the housing price downturn. We explore various mechanisms by which the financial crisis might have spread including the existence of similar regulatory schemes, government deficits and current account imbalances, export connectedness, and the presence of a housing bubble. We present a surprising result: European banks went down because they had joined the market in the U.S. for mortgage backed securities and funded them by borrowing in the asset backed commercial paper market. They were pursuing the same strategies to make profit as the American banks, and when the housing market turned down, they suffered the same fate as their U.S. counterparts. Our study makes a broader theoretical point suggesting that subsequent studies of global finance and financial markets need to know something about the identities and strategies of the banks that structure the main markets for different products. This insight has implications for the literatures on financialization, globalization, and the sociology of finance.
    Keywords: Sociology, Worldwide Financial Crisis of 2007-2010
    Date: 2012–09–03
  2. By: Alacevich, Michele
    Abstract: Since its birth in 1944, the World Bank has had a strong focus on development projects. Yet, it did not have a project evaluation unit until the early 1970s. An early attempt to conceptualize project appraisal had been made in the 1960s by Albert Hirschman, whose undertaking raised high expectations at the Bank. Hirschman's conclusions -- published first in internal Bank reports and then, as a book in 1967 -- disappointed many at the Bank, primarily because they found it impractical. Hirschman wanted to offer the Bank a new vision by transforming the Bank's approach to project design, project management and project appraisal. What the Bank expected from Hirschman, HOWEVER, was not a revolution but an examination of the Bank's projects and advice on how to make project design and management more measurable, controllable, and suitable for replication. The history of this failed collaboration provides useful insights on the unstable equilibrium between operations and evaluation within the Bank. In addition, it shows that the Bank actively participated in the development economics debates of the 1960s. This should be of interest for development economists today who reflect on the future of their discipline emphasizing the need for a non-dogmatic approach to development. It should also be of interest for the Bank itself, which is stressing the importance of evaluation for effective development policies. The history of the practice of development economics, using archival material, can bring new perspectives and help better understand the evolution of this discipline.
    Keywords: Banks&Banking Reform,Public Sector Corruption&Anticorruption Measures,Corporate Law,Development Economics&Aid Effectiveness,Economic Theory&Research
    Date: 2012–11–01
  3. By: Matteo Aria; Nicolò Bellanca (Università degli Studi di Firenze)
    Abstract: Drawing on actual reinterpretation of Mauss’s classical essay on “the Gift”, the authors examine four ideal-typical forms of gift which recur in the anthropologic literature, and theoretically analyze them under relevant contemporary phenomena. Kula - as reciprocity gift-, Potlach – as competitive gift-, Hau – as non-returnable gift - and Dan - as asymmetrical gift- do not have in common something that allows us to use the same term for all, however they are tied to each other in many different ways. There is a complicate net of similarities that overlap and cross one another. According with this perspective the “gift” appears as a polythetic and polisemic concept: it is crucial tools in the understanding contemporary societies, cultures and economies as well as useful starting point for a new dialogue between anthropologists and economists.
    Keywords: gift; commodification; special currency
    JEL: Z13 B52 O10
    Date: 2012
  4. By: Christoph Heinzel
    Abstract: Qualitative change is widely recognized as a defining feature of evolution. Schumpeter and Georgescu-Roegen put it at the center of their methodological reasoning. I revisit important contributions of these two authors, paying attention to the immediate relationship of the major traits and treated issues between their works. With reference to qualitative change, their joint approach provides answers as to (i) why an evolutionary analysis has to necessarily apply a varied less formal set of methods as compared to modern static and dynamic analysis, (ii) why an evolutionary analysis is a necessary component of economic analysis, and (iii) how it can be seen as complementary to modern statics and dynamics. They argued for methodogical pluralism, where the choice of methods shall derive from close observation of the subject matter under scrutiny. Georgescu-Roegen's reasoning shows the necessity of interdisciplinary contributions and the interrelation of economic activity and environmental impact and constraints, putting environmental issues immediately on the evolutionary economics agenda. The paper provides a new ground for evaluating Georgescu-Roegen's own and their joint contribution to modern research.
    Keywords: Schumpeter, Georgescu-Roegen, qualitative change, evolution, evolutionary methodology
    JEL: B25 B31 B41 O10
    Date: 2012
  5. By: Ranis, Gustav (Yale University)
    Abstract: The discussion of the effectiveness of foreign aid has reached a high pitch. This paper assesses the sorry past and present key arguments for a potentially more effective and sustainable method of aid delivery. A key ingredient is to shake off the vestiges of structural adjustment and move towards true recipient country ownership complete with "self-conditionality" with aid recipients formulating their own reform packages. This means donors become much more passive, act like a bank and respond to proposals which concentrate on a few critical areas over a three to five-year period. Policy-based program lending should respond to packages put together by the main domestic stakeholders with the help, if necessary, of independent third parties. There should be no compulsion to lend; indeed, an aid hiatus is an indication that the new system is effective. What is required is for donors to stop using aid as a short-term foreign policy tool and for recipients to accept the notion that aid provides the opportunity to reduce the inevitable adjustment pains caused by real reforms.
    JEL: O11 O20 O38 P45
    Date: 2012–08
  6. By: Fligstein, Neil; Goldstein, Adam
    Abstract: As the financial economy has expanded beginning in the mid 1980s, it has done so in part by selling more products to individuals and households, such as mortgages, second mortgages, mutual funds, student loans, car loans, insurance, and various forms of retirement products. This has allowed households access to new forms of assets and debts and new ways to fund their lifestyles. This giant expansion of the financial services sector occurred at the same time that income inequality and job insecurity increased dramatically in the U.S. This paper seeks to tease out empirically the relationship between these trends by examining data on the activities of households in the past 20 years. There are two views, one that focuses on how households reacted defensively to preserve their lifestyles and the other which focuses on households developing a more financial mindset to the management of their assets, debt, and consumption and thereby using the new opportunities to invest and borrow money to increase their consumption. We show some support for both views. The use of financial products and debt has increased at all levels of the income distribution. Attitudes toward risk and indebtedness have generally become more lax. But, there is also evidence that people at the top of the income distribution are using their growing income to consume more while people lower down are struggling to keep up. The meaning of new financial culture is quite different depending on where you stand in the income hierarchy.
    Keywords: Sociology, American Households, Financial Culture
    Date: 2012–08–01
  7. By: Elias Soukiazis (GEMF and Faculty of Economics, University of Coimbra, Portugal); Eva Muchova (Faculty of National Economy, University of Economics in Bratislava, Slovakia)
    Abstract: The present study aims at verifying whether the balance-of-payments constrained growth approach is suitable for explaining the Slovak growth performance after its peaceful separation from the former Czechoslovakia in 1993. We use Thirlwall´s Law to predict actual growth of the Slovak economy based on the estimation of the income elasticities of demand for imports and exports, respectively. The income elasticity of demand for imports is obtained by employing 2SLS assuming that domestic income is endogenous. It is shown that the Slovak economy grew at a higher rate than the rate consistent with the balance-of-payments equilibrium at the cost of accumulating current account deficits. A sustainable solution should be focused on reducing the income elasticity of the demand for imports and increasing exports growth. In order the country not to fall into a balance-of-payments constrained growth trap policies must be designed to reduce the country´s dependence on imports by producing higher quality tradable goods.
    Keywords: balance-of-payments equilibrium growth rate, price and income elasticities of foreign trade, 2SLS regressions.
    JEL: C13 E12 F43 O24
    Date: 2012–10

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