nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2013‒08‒10
sixteen papers chosen by
Karl Petrick
Western New England University

  1. "Financial Reform and the London Whale" By Jan Kregel
  2. Take the Money and Run: The Business Enterprise in the Age of Money Manager Capitalism By Jo, Tae-Hee; Henry, John F.
  3. A New Interpretation of Kaldor's First Growth Law for Open Developing Countries By Penelope Pacheco-Lopez; A.P.Thirlwall
  4. "Debt Relief and the Fed's Money-creation Power" By William Greider
  5. "Uncertainty and Contradiction: An Essay on the Business Cycle" By Michalis Nikiforos
  6. Bankers in the Ivory Tower: The Financialization of Governance at the University of California By Eaton, Charlie; Goldstein, Adam; Habinek, Jacob; Kumar, Mukul; Stover, Tamera Lee; Roehrkasse, Alex
  7. Social Democracy and Distributive Conflict in the UK, 1950-2010 By Carlo V. Fiorio; Simon Mohun; Roberto Veneziani
  8. "Unusual and Exigent: How the Fed Can Jump-start the Real Economy" By William Greider
  9. Why Is Finance Important? Some Thoughts on Post-Crisis Economics By Yew-Kwang NG
  10. "The Impact of a Path to Citizenship on the US Economy and Social Insurance System" By Selcuk Eren
  11. The Measurement of Labour Content: A General Approach By Naoki Yoshihara; Roberto Veneziani;
  12. Where Did All the Money Go? Stimulus in Fact and Fantasy By Stephen A. Marglin; Peter Spiegler
  13. "A Failure by Any Other Name: The International Bailouts of Greece" By C.J. Polychroniou
  14. Regional Disparities in Per Capita Income in India: Convergence or Divergence? By A.P.Thirlwall
  15. "Foreign and Public Deficits in Greece: In Search of Causality" By Michalis Nikiforos; Laura Carvalho; Christian Schoder
  16. J.M. Keynes, Neoclassical Synthesis, New Neoclassical Synthesis and the Crisis: the Current State of Macroeconomic Theory By Waldo Mendoza

  1. By: Jan Kregel
    Abstract: The recent report by the Senate Permanent Subcommittee on Investigations on the operations of JPMorgan Chase's Synthetic Credit Portfolio unit--aka the London Whale--has brought renewed attention to the risks of proprietary trading for insured banks, and provides depth to the larger risks inherent in the financial system after Dodd-Frank.
    Date: 2013–06
  2. By: Jo, Tae-Hee; Henry, John F.
    Abstract: Most heterodox theories of the business enterprise base themselves on the Veblenian going concern in which managers pursue the long-run survival and growth of the enterprise, whereas absentee owners are occupied with short-run financial interests. Since Veblen’s era, the capitalist social provisioning process has evolved toward money manager capitalism in a dialectical fashion. At the heart of the transformation are changes in the business enterprise. In this paper, we make a threefold argument. First, while the Veblenian account of a going concern still holds true for many enterprises, more and more of the economy is being directed toward financial concerns. Second, as a consequence, the social provisioning process becomes more unstable and people’s welfare becomes more vulnerable. Third, the concept of a going concern is therefore to be modified in order to put the business enterprise in the context of money manager capitalism.
    Keywords: Thorstein B. Veblen, Hyman P. Minsky, Going Concern, Money Manager Capitalism, Mergers and Acquisitions, Social Provisioning Process
    JEL: B5 D20 G34
    Date: 2013–08–01
  3. By: Penelope Pacheco-Lopez; A.P.Thirlwall
    Abstract: Kaldor’s first law of growth posits a positive causal relation between the growth of manufacturing output and the growth of GDP due to static and dynamic returns to scale in manufacturing and rising productivity outside the manufacturing sector as resources are transferred from diminishing returns activities. In an open economy, however, the Kaldor first law of growth is open to another interpretation because it is apparent across countries that there is a close association between manufacturing output growth and export growth, and between export growth and GDP growth. Results are presented for 89 developing countries over the period 1990-2011, also distinguishing between low income, lower-middle income and upper-middle income countries, and between the continents of Africa, Asia and Latin America.
    Keywords: Kaldor’s growth laws; manufacturing growth; export growth; GDP growth
    JEL: C21 E12 F43
    Date: 2013–08
  4. By: William Greider
    Abstract: Monetary policy is running out of gas. Six years ago, in the heat of crisis, the Federal Reserve's response was awesome. The Fed created trillions of dollars and flooded the system with easy money--enough to stabilize financial markets and rescue wounded banks. It brought short-term interest rates down to near zero and long-term mortgage rates to bargain-basement levels. It provided a huge backstop for the dysfunctional housing sector, buying $1.25 trillion in mortgage-backed securities, nearly one-fourth of the market. Flooding Wall Street with money saved the banks, but it didn't work for the real economy, where most Americans live and toil. And official Washington now appears to have opted for an unspoken policy of complacency. The Fed knows, even if politicians do not, the danger of sliding into a liquidity trap, which would utterly disarm its monetary tools. So the Fed wants Congress and the White House to borrow and spend more because, when the private sector is stalled and afraid to act, only the federal government can step in and provide the needed jump start. The country needs a stronger Fed--a central bank not afraid to use its awesome powers to help the real economy more directly. One of the ways it can do this is by revisiting--and extending--its bold ideas on debt relief. By harnessing the power of money creation, the Fed can help clear away the overhang of mortgage and student debt holding back the economic recovery. This policy note draws from articles originally published in "The Nation". Portions are republished with permission.
    Date: 2013–08
  5. By: Michalis Nikiforos
    Abstract: This paper presents a discussion of the forces at play behind the economic fluctuations in the medium run and their relation with the short-run macroeconomic equilibrium. The business cycle is the result of two separate phenomena. On the one hand, there is the instability caused by the discrepancy between expected and realized outcomes. On the other hand, this instability is contained by the inherent contradictions of capitalism; the upswing carries within it "the seeds of its own destruction." The same happens with the downswing. The paper provides a formal exposition of these insights, a discussion of how the formulation of this mechanism resembles the simple harmonic motion of classical mechanics, and an empirical evaluation.
    Keywords: Cycles, Harrod, Oscillations, Distribution
    JEL: B22 E11 E12
    Date: 2013–07
  6. By: Eaton, Charlie; Goldstein, Adam; Habinek, Jacob; Kumar, Mukul; Stover, Tamera Lee; Roehrkasse, Alex
    Abstract: This paper examines the recent changes in the relationships between public research universities and financial markets, using the University of California as a case study. Between 2003 and 2011, UC’s outstanding bond debt to investors more than doubled. Funds raised through borrowing were invested into medical centers, dormitories, and athletic facilities at the same time as core university functions were scaled back due to cuts in state appropriations. We argue that these divergent trends are best understood as the financialization of university governance. We first trace the precipitous growth of UC debt beginning in the early 2000s. We then show howthe university has partnered with Wall Street firms to expand its borrowing activities through the use of a broad array of financial instruments. These changes occurred as UC’s administration empowered financial managers and recruited Wall Street veterans to positions as senior university executives and members of UC’s Board of Regents. Finally, we discuss the consequences for university governance of this reorientation towards financial strategies and financial markets.
    Keywords: Social and Behavioral Sciences, Governance-Higher Education, University of California
    Date: 2013–08–12
  7. By: Carlo V. Fiorio (University of Milan); Simon Mohun (Queen Mary University of London); Roberto Veneziani (University of Massachusetts, Amherst)
    Abstract: ln the last three decades, two questions have been central for the Left. ls there a future for electoral socialism and social democracy? And, is it any longer possible to promote a significant redistribution of income in favour of labour? Political and economic events seem to suggest negative answers. ln his influential work, Adam Przeworski suggests that this is an irreversible trend that makes it impossible in the long-run to promote genuinely socialist objectives in capitalist democracies. ln particular, the structural dependence of labour on capital severely constrains feasible income distributions. ln this paper, a detailed quantitative and qualitative analysis of the post-war UK economy is provided which casts doubts on the structural dependence thesis. A short run profit-squeeze mechanism seems to exist, but income shares are more variable than the structural dependence argument suggests, and the power resources available to the two main classes in the economy are among the key determinants of distributive outcomes, different political-economic equilibria corresponding to different configurations of the balance of power between the two classes. JEL Categories:
    Date: 2013–05
  8. By: William Greider
    Abstract: Though it is not widely understood, the Federal Reserve has enormous untapped power to directly stimulate or influence the flows of lending and spending that generate jobs. Doing so would fulfill the Fed's often neglected "dual mandate": to strive for maximum employment as well as stable money. Fed technocrats often plead that legal or technical barriers won't allow them to do this, but their objections reflect an institutional bias that favors finance over industry, capital over labor. The central bank has abundant precedent from its own history for taking more direct actions to aid the economy. And it has ample legal authority to lend to all kinds of businesses that are not banks. This policy note was originally published, in slightly different form, as "Can the Federal Reserve Help Prevent a Second Recession?," "The Nation", November 26, 2012. Reprinted with permission.
    Date: 2013–08
  9. By: Yew-Kwang NG (Division of Economics, Nanyang Technological University, Singapore 637332, Singapore)
    Abstract: The global financial crisis around 2008 and the subsequent great recession have forced attention on the relevance of economics. In particular, the core of economic theory suggests that money is neutral (affecting only the price level but not real economic variables) and hence finance and financial crises are not very important. This papers shows that this neutrality is based on the unrealistic institutional assumption of perfect competition. Relaxing this alone (without time lags, price rigidities, menu costs, and other frictions) makes money no longer necessarily neutral and hence makes finance and financial crisis much more important. The presence of increasing returns to scale at the firm level and to specialization at the economy level due to the division of labour also makes finance much more important than suggested by traditional economics. It also makes pecuniary external effects possibly of efficiency relevancy. The reasons for these are explained using simple analyses.
    Keywords: Finance; financial crisis; economics; relevance; money.
    JEL: G00 G01 E30 E50 D40
    Date: 2013–05
  10. By: Selcuk Eren
    Abstract: Comprehensive immigration reform has long eluded Congress. Although the Senate recently passed a bill—S. 744, or the Border Security, Economic Opportunity, and Immigration Modernization Act—that would take significant steps toward comprehensive reform, it is currently being held up in the Republican-controlled House. The sticking point? The "path to citizenship" provision for undocumented immigrants included in the Senate bill. Yet legalizing a significant proportion of the undocumented immigrant population would not impose serious costs on either the economy in general or the social insurance system in particular. On the contrary: maintaining the status quo would be economically wasteful.
    Date: 2013–07
  11. By: Naoki Yoshihara (Hitotsubashi University); Roberto Veneziani (University of Massachusetts, Amherst);
    Abstract: This paper analyses the theoretical issues related to the measurement of labour content in the context of general technologies with heterogeneous labour. A novel axiomatic framework is used in order to formulate the key properties of the notion of labour content and analyse its theoretical foundations. Then, a simple measure of labour content is uniquely characterised, which is consistent with common practice in input-output analysis and with a number of recent approaches in value theory. JEL Categories:
    Date: 2013–05
  12. By: Stephen A. Marglin; Peter Spiegler
    Abstract: The Obama stimulus remains controversial even as we approach the fourth anniversary of its launch. The most thorough assessment of its impact, John Cogan and John Taylor’s “What the Government Purchases Multiplier Actually Multiplied in the 2009 Stimulus Package” (see also Taylor, “An Empirical Analysis of the Revival of Fiscal Activism in the 2000s”) concludes that the stimulus had no impact on economic activity. Focusing on its impact on state governments, Cogan and Taylor contend that stimulus money simply allowed the states to build up their financial assets or reduce borrowing. We reassess the impact of the stimulus, focusing, like Cogan and Taylor, on the states. We find that the states spent about 2/3 of the stimulus money. Overall, we conclude that, over the period from mid-2009 to mid-2011 the stimulus added some 2 percent to GDP, in line with Congressional Budget Office estimates. Our analysis has three parts. First, we analyze the regressions Cogan and Taylor interpret as supporting their contentions with regard to the impact of the stimulus on spending by the states. We find that these regressions do not support their conclusions. Based on aggregate time series of revenues and expenditures and including lagged dependent variables, the regression coefficients are misleading: because of serial correlation in the data, the regressions produce high coefficients on the lagged dependent variables and correspondingly low coefficients on the other variables regardless of whether the structure specified by Cogan and Taylor has any validity. Second, we analyze the cross-sectional relationship between spending by state governments and injection of stimulus money. The data for Fiscal Year 2010 (July 2009 to June 2010) suggest that a dollar of stimulus money was divided between spending (2/3) and shoring up the state’s balance sheet (1/3). Third, we report the results of a survey of state budget officers. The results are remarkably uniform: despite differences in political orientation of their governments, and consequent differences in their evaluations of the wisdom of the stimulus, the general view is that the stimulus allowed the states to maintain expenditures that would have necessarily been cut in its absence.
    Date: 2013–07
  13. By: C.J. Polychroniou
    Abstract: Research Associate and Policy Fellow C. J. Polychroniou argues that a political solution based on a new economic vision is needed to bring an end to the Greek crisis. Polychroniou observes that what began as a financial crisis has been transformed into a full-fledged economic and social crisis by the neoliberal policies of the International Monetary Fund and the European Union (EU). Instead of growth, these policies have destroyed Greece's economy, divided the eurozone states, and hobbled a fragile global recovery. The past six years have seen Greece's descent into economic and social ruin. Exiting the current crisis, for Greece and countries throughout the eurozone, requires more than an end to austerity. Broadly, EU institutions must be radically restructured around the principles of sustainable, equitable growth. Specifically, Greece needs a comprehensive development plan, with massive public spending and investment.
    Date: 2013–07
  14. By: A.P.Thirlwall
    Abstract: The paper looks at the latest evidence of what has been happening to regional disparities in per capita income (measured as Gross State Domestic Product per capita) in India over the first decade of the twenty first century (1999/00 to 2010/11) by estimating cross section equations for unconditional and conditional beta convergence and sigma convergence across thirty two regions (twenty-eight States and four Union Territories). There is no evidence of unconditional convergence, but weak evidence of conditional convergence controlling for population growth; credit growth; male literacy; the share of agriculture in State GDP, and State expenditure as a share of State GDP. Sigma divergence has increased continuously, except among the poorest States.
    Keywords: Regional Growth; India; Convergence/Divergence
    JEL: O47 O53 R11
    Date: 2013–08
  15. By: Michalis Nikiforos; Laura Carvalho; Christian Schoder
    Abstract: The paper discusses the trajectories of the Greek public deficit and sovereign debt over the last three decades and its connection to the political and economic environment of the same period. We pay special attention to the causality between the public and the foreign deficit. We argue that from 1980 to 1995 causality ran from the public deficit to the foreign deficit, but that due to the European monetary unification process and the adoption of the common currency, causality has reversed since. This hypothesis is tested and verified econometrically using both Granger Causality and Cointegration analyses.
    Keywords: Greece, crisis, public debt, twin deficits, imbalances
    JEL: E62 F21 F34 F41
    Date: 2013–08
  16. By: Waldo Mendoza (Departamento de Economía - Pontificia Universidad Católica del Perú)
    Abstract: The aim of this paper is to describe chronologically the evolution of macroeconomic theory since the publication of the General Theory of J. M. Keynes in 1936 until the most recent macroeconomic developments motivated by the global economic crisis of 2008-2009.
    Keywords: Teoría Macroeconómica, estado actual de la Macroeconomía, síntesis neoclásica y nueva síntesis neoclásica.
    JEL: B22 E12 E13
    Date: 2013

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