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on Post Keynesian Economics |
| By: | Eric Tymoigne; L. Randall Wray |
| Abstract: | One of the main contributions of Modern Money Theory (MMT) has been to explain why monetarily sovereign governments have a very flexible policy space that is unencumbered by hard financial constraints. Through a detailed analysis of the institutions and practices surrounding the fiscal and monetary operations of the treasury and central bank of many nations, MMT has provided institutional and theoretical insights about the inner workings of economies with monetarily sovereign and nonsovereign governments. MMT has also provided policy insights with respect to financial stability, price stability, and full employment. As one may expect, several authors have been quite critical of MMT. Critiques of MMT can be grouped into five categories: views about the origins of money and the role of taxes in the acceptance of government currency, views about fiscal policy, views about monetary policy, the relevance of MMT conclusions for developing economies, and the validity of the policy recommendations of MMT. This paper addresses the critiques raised using the circuit approach and national accounting identities, and by progressively adding additional economic sectors. |
| Keywords: | Modern Money Theory; Price Stability; Full Employment; Financial Stability; Money |
| JEL: | B5 E10 E11 E12 E31 E42 E58 E6 F41 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_778&r=pke |
| By: | Thomas Herndon; Michael Ash; Robert Pollin |
| Abstract: | Herndon, Ash and Pollin replicate Reinhart and Rogoff and find that coding errors, selective exclusion of available data, and unconventional weighting of summary statistics lead to serious errors that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies in the post-war period. They find that when properly calculated, the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0:1 percent as published in Reinhart and Rogoff. That is, contrary to RR, average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower.The authors also show how the relationship between public debt and GDP growth varies significantly by time period and country. Overall, the evidence we review contradicts Reinhart and Rogoff's claim to have identified an important stylized fact, that public debt loads greater than 90 percent of GDP consistently reduce GDP growth.Media requests: please contact Debbie Zeidenberg. >> Download the paper here1,2>> "Debt and Growth: A Response to Reinhart and Rogoff" in The New York Times, April 29, 2013>> Supplemental Technical Critique of Reinhart and Rogoff's "Growth in a Time of Debt">> Robert Pollin and Michael Ash's op ed in the Financial Times>> Data and code files upon which the results are based >> Text document describing the files in the code and data archive>> Concordance between variable names in the RR working spreadsheet and the HAP data and code>> Additional spreadsheet with the following columns: country; year; public debt/GDP ratio; public debt/GDP category; real GDP growth. Columns are calculated from data and formulas in the Reinhart and Rogoff working spreadsheet and can be used, e.g., with pivot tables, to replicate the results in RR 2010 and HAP. >> Updated and more complete data and code package (as of May 17, 2013), as referenced in "Debt and Growth: A Response to Reinhart and Rogoff" in The New York Times, April 29, 2013. Code and data are open-source under the BSD 2-clause license (http://www.tldrlegal.com/l/BSD2). Documentation is here. >> A sample of the media coverage of the study1 The paper was updated at 1:35 pm on April 17, with the following corrections: (1) The notes to Table 3: "Spreadsheet refers to the spreadsheet error that excluded Australia, Austria, Canada, and Denmark from the analysis." is corrected to read: "Spreadsheet refers to the spreadsheet error that excluded Australia, Austria, Belgium, Canada, and Denmark from the analysis." (2) Page 13:�“Thus, in the highest, above-90-percent public debt/GDP, GDP growth of 4.1 percent per year in the 1950-2009 sample declines to only 2.5 percent per year in the 1980-2009 sample” is corrected to read "Thus, in the lowest, 0–30-percent public debt/GDP, GDP growth of 4.1 percent per year in the 1950–2009 sample declines to only 2.5 percent per year in the 1980–2009 sample." 2 The paper was updated at 9:36 am on April 22, with the following changes: (1) Table 3 has been expanded to show the effect of each of the errors�in RR�(spreadsheet error, selective year exclusion, and country weighting) separately and the effect of all interactions of the errors.�Text in the section "Summary: years, spreadsheet, weighting, and transcription" (p.10) has been updated to describe the expanded table. �No results have changed. (2) On p. 5, the text: "Outside the US, the series for some countries do not begin until 1957 and that for Italy is unavailable before 1980. Eight countries are available from 1946, sixteen from 1950, and all countries but Italy and Greece enter the dataset by 1957," has been changed to: "Outside the US, the series for some countries do not begin until the 1950’s and that for Greece is unavailable before 1970. Nine countries are available from 1946, seventeen from 1951, and all countries but Greece enter the dataset by 1957," and the text "real GDP growth is unavailable for Spain for 1959–1980" has been added. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp322&r=pke |
| By: | Dimitri B. Papadimitriou; Greg Hannsgen; Michalis Nikiforos; Gennaro Zezza |
| Abstract: | If the Congressional Budget Office's recent projections of government revenues and outlays come to pass, the United States will not grow fast enough to bring down the unemployment rate between now and 2016. The public sector deficit will decline from present levels, endangering the sustainability of the recovery. But as this new Strategic Analysis shows, a public sector stimulus of a little over 1 percent of GDP per year focused on export-oriented R and D investment would increase US competitiveness through export-price effects, resulting in a rise of net exports, and slowly lower unemployment to less than 5 percent by 2016. The improvement in net export demand would allow the US economy to enter a period of aggregate-demand rehabilitation—with very encouraging consequences at home. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levysa:sa_oct_13&r=pke |
| By: | Jeannette Wicks-Lim; Robert Pollin |
| Abstract: | As fast-food workers join picket lines around the country, media outlets are questioning how much a minimum wage increase would cost businesses, fast-food restaurants in particular. Jeannette Wicks-Lim and Robert Pollin examine the potential impact of a proposal to raise the federal minimum wage, concluding that the proposed hike to $10.50 would impose only modest costs, and could� meaningfully improve living standards for low-wage workers while avoiding the unintended consequence of reducing employment. They explain how they arrived at their key finding:�the average fast-food establishment�could�fully�cover the costs from the $10.50 minimum by raising prices 2.7 percent. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:uma:perirb:peri_fast_food_wages&r=pke |
| By: | Thomas I. Palley |
| Abstract: | This paper expands the neo-Kaleckian growth model to include nonlinearities, political economy factors, and interest rate and stock market effects. The expansions enrich the model and enhance its capacity to analyze and explain developments within contemporary capitalist economies. Nonlinearities can potentially make economies both wage- and profit-led, and failure to control for nonlinearities may result in misleading conclusions about the structure of the economy. Political economy analysis suggests capital’s desire for profit maximization results in a lower growth rate. Lastly, the paper shows why q theory of investment is inconsistent with the neo-Kaleckian approach to capital accumulation and a higher q can be associated with a fall in the rate of investment. |
| Keywords: | wage-led, profit-led, nonlinearities, q theory, stock market, political economy |
| JEL: | E12 O41 O33 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp335&r=pke |
| By: | Kazimierz Laski; Herbert Walther |
| Abstract: | Abstract Keynes and Kalecki both assume that private investment determines (but is not determined by) private savings. For Keynes, the desired level of saving is an increasing function of GDP, somehow related to the psychology of the society; ‘autonomous’ shifts of investment are determined by the state of long-term expectations. For Kalecki, the saving propensity depends on the income distribution in a capitalist society, while investment expenditures are determined by past investment decisions. The causality link between investment and saving runs through profits. We take a look at short-run and long-run aspects of Kalecki’s fundamental profit equation (1) We argue that the short lag between investment decisions and expenditures is an essential element of any meaningful interpretation of Kalecki’s profit equation. This lag has critical implications for the interpretation of the multiplier, for the story of ‘wage-led versus profit-led growth’ and for the various tax paradoxes related to the Kaleckian profit equation. (2) We argue that an excess of desired long-term saving over investment, which might be caused by demographic ageing in Western economies, can only be eliminated by accepting the necessity of a permanent primary public deficit and/or active redistributive policies. |
| Keywords: | profit equation, wage-led and profit-led growth, Kalecki |
| JEL: | B22 B31 E12 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:wii:wpaper:100&r=pke |
| By: | Hiroaki Sasaki |
| Abstract: | This paper presents a Kaleckian growth model in which (i) the rate of capacity utilization, the profit share, and the rate of employment are adjusted in the medium run, and (ii) the normal rate of capacity utilization and the expected rate of growth are adjusted in the long run. Both the Kalecki type and the Marglin-Bhaduri type investment functions are introduced. Using the model, we examine which regime is obtained in the long-run equilibrium, the wage-led regime or the profit-led regime. |
| Keywords: | Kaleckian model; long-run equilibrium; wage-led; profit-led |
| JEL: | E12 E24 O41 |
| URL: | http://d.repec.org/n?u=RePEc:kue:dpaper:e-11-002&r=pke |
| By: | Giovanni Bernardo; Emanuele Campiglio |
| Abstract: | This paper presents a small macroeconomic model describing the main mechanisms of the process of credit creation by the private banking system. The model is composed of a core unit--where the dynamics of income, credit, and aggregate demand are determined--and a set of sectoral accounts that ensure its stock-flow consistency. In order to grasp the role of credit and banks in the functioning of the economic system, we make an explicit distinction between planned and realized variables, thanks to which, while maintaining the ex-post accounting consistency, we are able to introduce an ex-ante wedge between current aggregate income and planned expenditure. Private banks are the only economic agents capable of filling this gap through the creation of new credit. Through the use of numerical simulation, we discuss the link between credit creation and the expansion of economic activity, also contributing to a recent academic debate on the relation between income, debt, and aggregate demand. |
| Keywords: | Banking System; Credit Creation; Growth; Aggregate Demand; Macroeconomic Modeling |
| JEL: | E20 E51 G21 O42 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_777&r=pke |
| By: | Michalis Nikiforos |
| Abstract: | The United States entered the second week of a government shutdown on Monday, with no end to the deadlock in sight. The cost to the government of a similar shutdown in 1995-96 amounted to $2.1 billion in today's dollars. However, the cost and broader consequences of today's shutdown are not yet clear--especially since the US economy is in the midst of an anemic recovery from the biggest economic crisis of the last eight decades. |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levypn:13-09&r=pke |
| By: | Ould Ahmed, Pepita; Marques-Pereira, Jaime; Le Maux, Laurent; Desmedt, Ludovic; Blanc, Jerome; Théret, Bruno |
| Abstract: | The objective of this article is to identify the monetary plurality in economic theory. We will try to throw light on the way in which theories are attracted towards both unicity and plurality, and more specifically by unification and diversification of money. It should also be noted, in this respect, that the economics of money has undergone considerable development since the 1970s. A survey of the diverse theories, whether mainstream or not, static or dynamic, holistic or individualistic, will reveal the surprising amount of attention devoted to the problem of monetary unicity and/or plurality. We base our presentation on two lines of thought: -The first of these lines concerns a situation of general equilibrium, as opposed to theories giving place to the forms of disequilibrium and regime-crises. The general equilibrium theories usually see money as a financial asset and assume that it is neutral at least over the long term; theories of the second type, on the contrary, see money as a necessary condition for the development of trade, acknowledging that it influences the system of relative prices and consequently the dynamics of production. Thus money is presumed to be totally neutral (“super-neutral”) in the New Classical Economics in the manner of Lucas (1972, 1995) and in the New Monetary Economics initiated by Black (1970) and Fama (1980). On the contrary, it is not neutral according to neo-Mengerian approaches and to those that are neo-Marxist, Chartalist and post-Keynesian. -The second line of thinking revolves round the relationship between economic theories and the question of the unicity or plurality of money as a norm to be established. This relationship is often linked to the role assigned by the various approaches to finance. For example, the macroeconomics of the New Classical Economics school, in dealing with monetary “friction” within general equilibrium theory, maintains an approach that is largely “unitary”, seeking to integrate it into its framework. In this respect it opposes the financial views of the New Monetary Economics, that are based on a pluralist notion of money, aiming moreover to ensure that it could be dispensed it with the world of reality. Similarly, neo-Mengerian economists, who are pluralist and see financing as the heart of the proper organisation of money, are opposed to the unitarian approaches of Marxist, Chartalist and post-Keynesian economists. Our survey of contemporary theories will give rise to a typology of the forms of monetary unicity and plurality, framing a new reading of monetary theories. |
| Keywords: | École néo-classique d'économie politique; Économie politique; Économie monétaire; Monnaie; |
| JEL: | G0 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:dau:papers:123456789/11496&r=pke |
| By: | Miklós Antal; Jeroen van den Bergh |
| Abstract: | We raise fundamental questions about macroeconomics relevant to escaping the financial-economic crisis and shifting to a sustainable economy. First, the feasibility of decoupling environmental pressure from aggregate income is considered. Decoupling as a single environmental strategy is found to be very risky. Next, three main arguments for economic growth are examined: growth as progress, growth to avoid economic instability, and growth to offset unemployment due to labor productivity improvements. For each, we offer orthodox, heterodox and new responses. Attention is paid to progress indicators, feedback mechanisms affecting business cycles, and strategies to limit unemployment without the need for growth. Besides offering an economy-wide angle, we discuss the role of housing and mortgage markets in economic cyclicality. Finally, interactions between real economic and financial-monetary spheres are studied. This includes money creation, capital allocation and trade-offs between efficiency and operating costs of financial systems. Throughout, environmental and transition implications are outlined. |
| Keywords: | Financial-monetary system, GDP information, housing-mortgage markets, macroeconomics, positive and negative feedbacks, productivity trap |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:feu:wfeppr:y:2013:m:11:d:0:i:9&r=pke |
| By: | Hiroaki Sakamoto |
| Abstract: | In this paper, I investigate the implications of policy-induced technological change based on a multi-region variant of the directed technical change model developed by Acemoglu et al. (2012). On top of the pollution externality accompanied by carbon dioxide emission, different regions are connected through a global market where energy-related machine producing firms monopolistically compete with each other. One of the main findings of the analysis is that unilaterally introduced climate policies in developed regions might have only a slight short-term impact at a global level, but later will turn out to be a basis for low-carbon development in developing regions as well as developed regions. The simulation results indicate that an extension of the Kyoto protocol, if appropriately designed, can trigger a long-term shift in energy use at a global level even without active involvement of the United States. Moreover, if the United States decides to join the treaty and a fairly moderate abatement target is agreed upon among the member states, the similar level of long-term environmental consequence as in the universal climate regime can be replicated without explicit participation of developing regions. |
| Keywords: | Climate change, directed technical change, unilateral policy, innovation, Kyoto protocol |
| JEL: | O31 O33 Q54 Q55 Q58 |
| URL: | http://d.repec.org/n?u=RePEc:kue:dpaper:e-11-007&r=pke |
| By: | Cem Oyvat |
| Abstract: | This study examines the impact of agrarian structures on income inequality over the long run. High land inequality increases income Gini coefficients in the urban sector as well as the rural sector, not only by creating congestion in the urban subsistence sector, but also by feeding the growth of the urban reserve army of labor, which pulls down the wages in the urban capitalist sector. An econometric analysis shows that the impact of initial land ownership distribution on both national and urban income distribution can persist for decades. |
| Keywords: | distribution, urbanization, informality, development |
| JEL: | O15 Q15 I24 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp336&r=pke |
| By: | Dani Rodrik |
| Abstract: | The contemporary approach to political economy is built around vested interests – elites, lobbies, and rent-seeking groups which get their way at the expense of the general public. The role of ideas in shaping those interests is typically ignored or downplayed. Yet each of the three components of the standard optimization problem in political economy – preferences, constraints, and choice variables – rely on an implicit set of ideas. Once the manner in which ideas enter these frameworks is made explicit, a much richer and more convincing set of results can be obtained. In particular, new ideas about policy—or policy entrepreneurship—can exert an independent effect on equilibrium outcomes even in the absence of changes in the configuration of political power. |
| JEL: | F5 P16 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19631&r=pke |