nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2014‒05‒17
fifteen papers chosen by
Karl Petrick
Western New England University

  1. Finance and industrial strategy By Malcolm Sawyer
  2. "Minsky and Dynamic Macroprudential Regulation" By Jan Kregel
  3. "Monetary Mechanics: A Financial View" By Eric Tymoigne
  4. Fundamental principles of financial regulation and supervision By Jan A. Kregel; Mario Tonveronachi
  5. "Is Rising Inequality a Hindrance to the US Economic Recovery?" By Dimitri B. Papadimitriou; Michalis Nikiforos; Gennaro Zezza; Greg Hannsgen
  6. "Autonomy-enhancing Paternalism" By Martin Binder; Leonhard K. Lades
  7. "How Poor Is Turkey? And What Can Be Done About It?" By Ajit Zacharias; Thomas Masterson; Emel Memis
  8. More than Words and Good Intentions: The Political Agenda-Setting Power By Juan Felipe Riaño-Rodríguez
  9. The process of financial integration of EU economies By Marco Veronese Passarella
  10. Financialisation of the environment; A literature review By Eric Clark; Kenneth Hermele
  11. Karl Marx y Max Weber: ¿ruptura o continuidad? By Mejía Sanabria, Carlos Alberto
  12. The early history of environmental economics. By Sandmo, Agnar
  13. Ethics, moral philosophy and economics By Frédéric Teulon
  14. R&D Policy and Schumpeterian Growth: Theory and Evidence By A. Minniti; F. Venturini
  15. Minimum wages: the economics and the politics By Alan Manning

  1. By: Malcolm Sawyer (University of Leeds)
    Abstract: The paper is focused on the role of finance in the context of the implementation of industrial along the lines of industrial strategy. It argues that there is not a shortage of savings for the funding of investment, and that attention should focus on the direction of savings in ways compatible with development and sustainability. An underlying theme paper is that the financial sector has to serve the economy and industry, rather than vice versa. The financial sector should be re-structured in ways which are conducive to sustainable development. This would involve focusing activities of the financial sector on commercial banking, promotion of a financial sector less prone to financial instability, and direction of funds. A well-designed financial transaction tax along with other taxes on the financial sector would aid focusing the financial sector onto commercial banking activities. The promotion of a more diverse (e.g. in forms of ownership) and regional based banking system could contribute to stability. A combination of ‘directed lending’ with requirements that a stated proportion of bank lending be directed towards specified areas such as ‘green investment’, small and medium sized enterprises, and the birth of a State development bank are advocated.
    Keywords: industrial strategy, finance
    JEL: G20 L52
    Date: 2014–04–08
  2. By: Jan Kregel
    Abstract: In the context of current debates about the proper form of prudential regulation and proposals for the imposition of liquidity and capital ratios, Senior Scholar Jan Kregel examines Hyman Minsky's work as a consultant to government agencies exploring financial regulatory reform in the 1960s. As Kregel explains, this often-overlooked early work, a precursor to Minsky's "financial instability hypothesis"(FIH), serves as yet another useful guide to explaining why regulation and supervision in the lead-up to the 2008 financial crisis were flawed—and why the approach to reregulation after the crisis has been incomplete.
    Date: 2014–04
  3. By: Eric Tymoigne
    Abstract: This paper develops the framework of analysis of monetary systems put together by authors such as Macleod, Keynes, Innes, and Knapp. This framework does not focus on the functions performed by an object but rather on its financial characteristics. Anything issued by anybody can be a monetary instrument and any type of material can be used to make a monetary instrument, as these are unimportant determinants of what a monetary instrument is. What matters is the existence of specific financial characteristics. These characteristics lead to a stable nominal value (parity) in the proper financial environment. This framework of analysis leads the researcher to study how the fair value of a monetary instrument changes and how that change differs from changes in the value of the unit of account. It also provides a road map to understanding monetary history and why monetary instruments are held.
    Keywords: Monetary Instrument; Money; Fair Value; Unit of Account
    JEL: E5 E42 E44
    Date: 2014–05
  4. By: Jan A. Kregel; Mario Tonveronachi (Tallinn University of Technology, Estonia)
    Abstract: The financial system is a private-public partnership coming from government ceding the right to produce means of payment with the related permission on leveraged lending services, against the acceptance of rules designed to ensure stability for both individual institutions and the financial system. The experience shows that market-based regulation does not produce the wanted results, while rules-based and principle-based regulatory systems are prone to regulatory avoidance and capture, especially with complex regulatory schemes. While the reaction to the recent crisis has prompted a wide range of financial reforms, in a duel to match complexity with complexity, the previous approach based on leaving market forces to mould the financial structure with few if any constraints maintained. The paper shows that this approach adopts faulty or casuistic policy implications derived from both the laissez faire and the second-best versions of mainstream economic theory. However, some of its basic features, such as regulating institutions and products and not functions, and as promoting the international level playing field, are not coherent with its reputed theoretical foundations. Furthermore, the absence of strong principles and the impossibility to derive conclusive quantitative proposals from cost-benefit evaluations leaves an unacceptably wide area of discretion for experimentation with trial and error processes, easily leading to weak or distorted regulation. The difficulties experienced within this framework to deal with problems such as those posed by systemic institutions, shadow banking, weak rules and supervision, distorted risk evaluation, high compliance costs, etc. has convinced some observers that a ‘revolution’ in economic thinking and policy is required. Following Minsky, the conclusions review a heterodox approach to financial fragility and regulation. Characterising banking in terms of liquidity creation through acceptance, and distinguishing it from the production of liquidity by other financial institutions, it concludes that financial organisations should be regulated according to their function in providing liquidity of different types to the financial system.
    Keywords: Financial regulation, financial supervision, financial fragility, Hyman Minsky
    JEL: G01 G21 G24 G28 G32
    Date: 2014–03–19
  5. By: Dimitri B. Papadimitriou; Michalis Nikiforos; Gennaro Zezza; Greg Hannsgen
    Abstract: The US economy has been expanding moderately since the official end of the Great Recession in 2009. The budget deficit has been steadily decreasing, inflation has remained in check, and the unemployment rate has fallen to 6.7 percent. The restrictive fiscal policy stance of the past three years has exerted a negative influence on aggregate demand and growth, which has been offset by rising domestic private demand; net exports have had only a negligible (positive) effect on growth. As Wynne Godley noted in 1999, in the Strategic Analysis Seven Unsustainable Processes, if an economy faces sluggish net export demand and fiscal policy is restrictive, economic growth becomes dependent on the private sector's continuing to spend in excess of its income. However, this continuous excess is not sustainable in the medium and long run. Therefore, if spending were to stop rising relative to income, without either fiscal relaxation or a sharp recovery in net exports, the impetus driving the expansion would evaporate and output could not grow fast enough to stop unemployment from rising. Moreover, because growth is so dependent on "rising private borrowing," the real economy "is at the mercy of the stock market to an unusual extent." As proved by the crisis of 2001 and the Great Recession of 2007-09, Godley's analysis turned out to be correct. Fifteen years later, the US economy appears to be going down the same road again. Postrecession, foreign demand is still weak and the government is maintaining its tight fiscal stance. Once again, the recovery predicted in the latest Congressional Budget Office report relies on excessive private sector borrowing, and once again, the recovery is at the mercy of the stock market. Given that the income distribution has worsened since the crisis--continuing a 35-year trend--the burden of indebtedness will again fall disproportionally on the middle class and the poor. In order for the CBO projections to materialize, households in the bottom 90 percent of the distribution would have to start accumulating debt again in line with the prerecession trend while the stock of debt of the top 10 percent remained at its present level. Clearly, this process is unsustainable. The United States now faces a choice between two undesirable outcomes: a prolonged period of low growth—secular stagnation--or a bubble-fueled expansion that will end with a serious financial and economic crisis. The only way out of this dilemma is a reversal of the trend toward greater income inequality.
    Date: 2014–04
  6. By: Martin Binder; Leonhard K. Lades
    Abstract: Behavioral economics has shown that individuals sometimes make decisions that are not in their best interests. This insight has prompted calls for behaviorally informed policy interventions popularized under the notion of "libertarian paternalism." This type of "soft" paternalism aims at helping individuals without reducing their freedom of choice. We highlight three problems of libertarian paternalism: the difficulty of detecting what is in the best interest of an individual, the focus on freedom of choice at the expense of a focus on autonomy, and the neglect of the dynamic effects of libertarian-paternalistic policy interventions. We present a form of soft pa-ternalism called "autonomy-enhancing paternalism" that seeks to constructively remedy these problems. Autonomy-enhancing paternalism suggests using insights from subjective well-being research in order to determine what makes individuals better off. It imposes an additional con-straint on the set of permissible interventions highlighting the importance of autonomy in the sense of the capability to make critically reflected (i.e., autonomous) decisions. Finally, it acknowledges that behavioral interventions can change the strength of individual decision-making anomalies over time as well as influence individual preference learning. We illustrate the differences between libertarian paternalism and autonomy-enhancing paternalism in a sim-ple formal model in the context of optimal sin nudges.
    Keywords: Libertarian Paternalism; Behavioral Economics; Subjective Well-Being; Autonomy; Preference Learning; Welfare Economics
    JEL: B52 D18 D63 I18
    Date: 2014–05
  7. By: Ajit Zacharias; Thomas Masterson; Emel Memis
    Abstract: Gauging the severity of poverty in a given country requires a reasonably comprehensive measurement of whether individuals and households are surpassing some basic threshold of material well-being. This would seem to be an obvious point, and yet, in most cases, our official poverty metrics fail that test, often due to a crucial omission. In this policy brief, Senior Scholar Ajit Zacharias, Research Scholar Thomas Masterson, and Research Associate Emel MemiÅŸ present an alternative measure of poverty for Turkey and lay out the policy lessons that follow. Their research reveals that the number of people living in poverty and the severity of their deprivation have been significantly underestimated. This report is part of an ongoing Levy Institute project on time poverty (the Levy Institute Measure of Time and Income Poverty), which has produced research on Latin America, Korea, and now Turkey, with the aim of extending this approach to other countries.
    Date: 2014–05
  8. By: Juan Felipe Riaño-Rodríguez
    Abstract: Abstract In this paper, international aid is examined as a tool for political agenda-setting. A theoretical model is constructed for the analysis, incorporating the incentives created by foreign aid, on the political benefits of recipient governments. The model also incorporates the compensating benefits provided by these governments through the legitimization of the donor country's political agenda. The main results of this model indicate that governments which offer international assistance can in inffluence the political agenda of recipient countries through two channels: 1) By reducing the political costs of official intervention in issues that receive aid, and 2) By generating incentives for additional political rent-seeking. The results are studied in the case of aid provided by the USA to Colombia during the period 1998-2012, which shows the power of US presidents to establish part of the Colombian political agenda related to drugs and terrorism. The results are obtained through a novel content analysis of presidential speeches in both countries and from a set of estimates corrected by possible problems of endogeneity in foreign aid allocation.
    Keywords: Agenda-Setting, Foreign Aid, Content Analysis, International- Politics
    Date: 2014–04–14
  9. By: Marco Veronese Passarella (University of Leeds)
    Abstract: The aim of this document is to complement the analysis of ‘variegated financialisation’ provided (in an associated paper) by Passarella Veronese (2013) with a preliminary examination of the process of financial integration of EU countries, and especially of Euro Area’s member-States. In this regard, figures show that a process of increasing financial interconnectedness between different country-based economic units has been actually operating since the early 1990s within the Euro Area. As pointed out by ECB’s staff and other economics studies, convergences in lending rates and sovereign bond yields have been recorded, coupled with growing cross-border flows of capitals and cross-border interbank market integration (until the outbreak of the recent European crisis at least). However, especially after the launch of the single currency in 2002, this dynamics has gone along with growing current account imbalances (and, symmetrically, financial imbalances) within the Euro Area, due to differences in national growth rates, ‘inefficiencies’ in economies of peripheral countries, and the successful deflationary policies adopted by core countries. As a result, the permanent current account deficits of Euro Area’s peripheral economies have reflected in an increasing amount of financial liabilities placed by their government sectors in international markets (until the outbreak of the crisis at least). Thus, ‘real-world’ financial integration has not led to the development of a net of horizontal links between economic units operating within a uniform supranational economic space. What figures show, is rather a process of concentration and centralisation of capitals within the Euro Area, reinforcing structural imbalances between the core and the periphery. In the absence of radical changes in European institutions, this asymmetric integration is further endangering, instead of improving, the financial soundness of EU.
    Keywords: Financial Crises, Govern Policy and Regulation of Financial Markets, Financial Institutions, Varieties of Financialisation.
    JEL: G01 G18 G21 N20
    Date: 2014–04–03
  10. By: Eric Clark; Kenneth Hermele (Lund University, Department of Human Geography and Human Ecology Division)
    Abstract: This paper provides a review of research into financialisation of the environment, focusing on the role of financialisation in the interface between social and natural dimensions of sustainability, the geographical penetration of finance into environmental sectors, and its increasing control over the production of nature and environmental governance through regulating flows of capital and consequently material flows. Financialisation is conceptualised as a profoundly spatial process, forging financial ecologies with consequences crucial to conditions for sustainability of social-ecological systems. The paper introduces the theme by framing financialisation in historical contexts. Financialisation of the environment is then related to processes of commodification, privatisation, neoliberalisation and accumulation by dispossession within the broader context of intersections between political economy and political ecology, highlighting the distinction between use-value/object-oriented investments and exchange-value/’investor’-oriented investments, the right to inhabit place, and the shift from control and command to economic incentives, drawing out implications for sustainability. Research on financialisation of agriculture and land resources, and on financialisation in relation to economic and social dimensions, is reviewed, and current moves towards re-regulation are considered from the perspective of a Polanyian countermovement. Conclusions reconsider the nature of the relationship between financialisation and sustainability and the challenges of bringing financial systems into the service of achieving social and natural sustainability.
    Keywords: financialisation, sustainability, commodification, political ecology, land
    JEL: Q14 Q15 Q24 Q57 R11 R51 Z10
    Date: 2013–12–03
  11. By: Mejía Sanabria, Carlos Alberto
    Abstract: El comienzo del siglo XX pudo contemplar la emergencia de un intenso debate, que se prolonga hasta nuestros días, en torno a la obra de Karl Marx y Max Weber. En el afloraron diferencias sustanciales respecto de las perspectivas teóricas de los dos autores en el abordaje de diversas temáticas tratadas por ellos, algunas relacionadas con el método del materialismo histórico, el conocido asunto de la relación entre base económica y superestructura, el papel de las ideas y de la religión, particularmente del protestantismo, en la transformación del mundo material o las clases sociales y la función del Estado. Pensadores diversos han querido ver allí una radical ruptura teórica entre dos de los fundadores de la disciplina de la Sociología, iniciándose una corriente de pensamiento que aviva una ya prolongada tradición de enfrentamientos. Alguna evidencia empírica permite sostener que, antes que profundas rupturas, parecieran más bien identificarse líneas de continuidad entre los corpus de pensamiento que nos legaron los autores en cuestión
    Keywords: Materialismo histórico; Protestantismo; Marx, Karl, 1818-1883; Weber, Max, 1864 - 1920; Crítica e interpretación
    Date: 2013–10–16
  12. By: Sandmo, Agnar (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: This paper considers economists’ treatment of problems related to the environment prior to the establishment of environmental economics as a separate field in the 1960s. In discussing the literature from the late 18th century onwards, it looks on the one hand for awareness in the work of the early economists of the effects of economic activity on the natural and social environment and of the feedback from the environment to the economy. On the other hand, it describes how economic theory developed in a way which made it increasingly relevant for the study of environmental issues and the design of economic policy.
    Keywords: History of thought; environment; natural resources
    JEL: B00 Q30 Q50
    Date: 2014–04–08
  13. By: Frédéric Teulon
    Abstract: Seemingly, the economic relations have no thing to do with the morality. The economy claims to be able to be a science; yet in th other scientific disciplines one does not arise this type of questions (we do not wonder if the physics of particles is moral either or not or if the composition of such molecule obeys ethical principles.The analysis led here on Bernard Mandeville's papers which showed the ambiguous relationships which the vice maintians with the virtue. However the paradox is that the economy cannot work without a certain shape of morality. The economy is made by individuals endowed with a capacity to know right from wrong. While the economy and capitalism may be amoral, individuals are not.
    Keywords: Economics, Moral philosophy, Ethics, Economics of welfare.
    Date: 2014–05–15
  14. By: A. Minniti; F. Venturini
    Abstract: In recent years, a large body of empirical research has investigated whether the predictions of secondgeneration growth models are consistent with actual data. This strand of literature has focused on the longrun properties of these models by using productivity and innovation data but has not directly assessed the effectiveness of R&D policy in promoting innovation and economic growth. In the present paper, we fill this gap in the literature by providing a unified growth setting that is empirically tested with US manufacturing industry data. Our analysis shows that R&D policy has a persistent, if not permanent, impact on the rate of economic growth and that the economy rapidly adjusts to policy changes. The impact of R&D tax credits on economic growth appears to be long lasting and statistically robust. Conversely, more generous R&D subsidies are associated with an increase in the rate of economic growth in the short run only, indicating that, at best, this policy instrument has only temporary effects. Overall, the evidence regarding the effectiveness of R&D policy provides more support for fully endogenous growth theory than for semi-endogenous growth theory.
    JEL: O3 O38 O4
    Date: 2014–05
  15. By: Alan Manning
    Abstract: The UK's national minimum wage has tackled extreme low pay - but the wider problem of low pay remains as serious as ever. That is one of the conclusions of Professor Alan Manning in a discussion of the growing popularity of minimum wages as a way of tackling inequality - and the likelihood that it will lead to minimum wages that are much higher than we have seen before in some parts of the world. He notes that the driving force behind higher minimum wages is that they are very popular with voters - but even most economists now agree that they have little or no negative effect on employment. Big increases in minimum wages will test the view that negative effects on employment must eventually kick in.
    Keywords: National Minimum Wage, employment, living wage, politics, public policy
    JEL: J31 J38 J41
    Date: 2014–05

This nep-pke issue is ©2014 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.