nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2015‒02‒16
eight papers chosen by
Karl Petrick
Western New England University

  1. The Greek Economy: Which Way Forward? By Mark Weisbrot; David Rosnick; Stephan Lefebvre
  2. Understanding Financial Instability: Minsky Versus the Austrians By Van den Hauwe, Ludwig
  3. Private Equity and the SEC after Dodd-Frank By Eileen Appelbaum
  4. Does Finance Benefit Society? By Luigi Zingales
  5. Like ripples on a pond: behavioral spillovers and their implications for research and policy By Paul Dolan; Matteo M. Galizzi
  6. "Is Industrialization Conducive to Long-Run Prosperity?" By Raphael Franck; Oded Galor
  7. Financial inclusion, rather than size, is the key to tackling income inequality By David Martinez Turegano; Alicia Garcia-Herrero
  8. Baumol’s cost disease and the sustainability of the welfare state By Torben M. Andersen; Claus T. Kreiner

  1. By: Mark Weisbrot; David Rosnick; Stephan Lefebvre
    Abstract: In the past 6 years the Greek economy has gone through a massive adjustment at a steep price. The economy finally grew in 2014, by 0.6 percent, but the recovery is weak, slow and fragile. This paper argues that prolonged mass unemployment and reduced living standards, brought about by years of recession and budget cuts, are unnecessary, and that a robust recovery is feasible. It presents an alternative macroeconomic scenario with a moderate fiscal stimulus, which brings the economy much closer to full employment over the next five years, with a lower net debt than currently projected by the IMF. This alternative is just one of many possible scenarios, some of which might include debt cancellation, or more help from the European Central Bank in maintaining low interest rates, especially in light of its recently announced quantitative easing program. The current program, which forecasts a weak recovery with many downside risks, as well as continued mass unemployment in the years ahead, should be replaced with policies that offer a much stronger and faster recovery.
    Keywords: greece, greek elections, greek economy, syriza, employment, Europe
    JEL: F F01 F02 F53 F55 E E5 E6
    Date: 2015–01
  2. By: Van den Hauwe, Ludwig
    Abstract: In the wake of the Financial Crisis and the subsequent Great Recession several commentators have suggested that the analysis of financial instability provided by various strands of heterodox economics got it "right" and that mainstream economics got it "wrong". In this paper two variants of heterodox views about financial instability are compared critically: the views of the late Hyman P. Minsky on the one hand, and the theses of the Austrian School on the other. Indeed there seem to exist a number of prima facie similarities and analogies between Minsky’s approach to the study of financial instability and that of the Austrian School. In particular attention can be drawn to such elements as, among others, the following: (a) both theories are theories of the upper turning point; (b) both theories give due attention to institutional factors, in particular the role of banks and financial institutions; (c) both approaches reject mainstream static equilibrium theorizing; (d) both approaches adhere to a monetary theory of the business cycle and explain, in their respective ways, the non-neutrality and the endogeneity of money; (e) in both approaches the role of Knightian uncertainty is appreciated; (f) in both approaches an attempt is made to provide the theory of the business cycle with adequate micro-foundations as well as with price-theoretic foundations. At the same time it can be seen that these similarities and analogies are quite superficial. The most important differences between both approaches relate to (a) the fundamental causal analysis of business cycles and the role of the interest-rate mechanism; (b) the identification of the relevant institutional context; (b) the role of capital and capital theory; (c) the quite different appreciation of the role of liquidity and liquidity preference; (d) the link between uncertainty and institutional context and (e) the quite different remedies that are proposed by the two approaches. It is concluded that the apparent similarities between both approaches are superficial, while the divergences are profound and fundamental.
    Keywords: Financial Instability, Business Cycle, Minsky, Austrian School
    JEL: B50 B53 B59 E3 E30 E32
    Date: 2014–12–24
  3. By: Eileen Appelbaum
    Abstract: A new report by Senior Economist Eileen Appelbaum of the Center for Economic and Policy Research (CEPR) shows just how much the recnt SEC investigations of private equity funds has revealed and why it remains important to continue to regulate the industry. The report reviews the widespread practices in the industry that have unfairly enriched some private equity firms at the expense of pension funds and other investors in their funds.
    Keywords: private equity, dodd-frank
    JEL: G G2 G28 G3 G38
    Date: 2015–01
  4. By: Luigi Zingales
    Abstract: Academics’ view of the benefits of finance vastly exceeds societal perception. This dissonance is at least partly explained by an under-appreciation by academia of how, without proper rules, finance can easily degenerate into a rent-seeking activity. I outline what finance academics can do, from a research point of view and from an educational point of view, to promote good finance and minimize the bad.
    JEL: G00 O43
    Date: 2015–01
  5. By: Paul Dolan; Matteo M. Galizzi
    Abstract: No behavior sits in a vacuum, and one behavior can greatly affect what happens next. We propose a conceptual frame within which a broad range of behavioral spillovers can be accounted for when applying behavioral science to policy challenges. We consider behaviors which take place sequentially and are linked, at a conscious or unconscious level, by some underlying motive. The first behavior leads to another behavior which can either work in the same direction as the first (promoting spillover), or push back against it (permitting or purging spillover). Looking through this conceptual lens at the existing evidence, we find pervasive evidence for all kinds of spillover effects across a variety of fields and domains. As a result, behavioral scientists, especially those seeking to inform policy, should try to capture all the ripples from one behavior to the next when a pebble of intervention is thrown in the pond, and not just at the immediate behavioral splash it makes.
    Keywords: behavioral spillovers policy-making; nudges; crowding in/out
    JEL: C91 C93
    Date: 2015–04
  6. By: Raphael Franck; Oded Galor
    Abstract: This research explores the long-run effect of industrialization on the process of development. In contrast to conventional wisdom that views industrial development as a catalyst for economic growth, highlighting its persistent effect on economic prosperity, the study establishes that while the adoption of industrial technology was initially conducive to economic development, it has had a detrimental effect on standards of living in the long-run. Exploiting exogenous source of regional variation in the adoption of steam engines during the French industrial revolution, the research establishes that regions which industrialized earlier experienced an increase in literacy rates more swiftly and generated higher income per capita in the subsequent decades. Nevertheless, early industrialization had an adverse effect on income per capita, employment and equality by the turn of the 21st century. This adverse effect reflects neither higher unionization and wage rates nor trade protection, but rather underinvestment in human capital and lower employment in skilled-intensive occupations. These findings suggest that the characteristics that permitted the onset of industrialization, rather than the adoption of industrial technology per se, have been the source of prosperity among the currently developed economies that experienced an early industrialization.
    Keywords: Economic Growth, Industrialization, Steam Engine bounded rationality.
    Date: 2015
  7. By: David Martinez Turegano; Alicia Garcia-Herrero
    Abstract: In this paper we assess empirically whether financial inclusion contributes to reducing income inequality when controlling for other key factors, such as economic development and fiscal policy. We conclude that financial inclusion contributes to reducing income inequality to a significant degree, while the size of the financial sector does not. The policy implication of this result is that financial inclusion should be at the forefront of government policies to reduce income inequality in a given economy. Given the broad way in which we have defined inequality in our empirical analysis, this means facilitating the use of credit to both households, especially low-income ones, as well as to small and medium-sized enterprises.
    Keywords: Emerging Economies, Financial Inclusion, Research, Working Paper
    JEL: D63 G21 H23 O15
    Date: 2015–02
  8. By: Torben M. Andersen (Department of Economics and Business, Aarhus University); Claus T. Kreiner (Department of Economics, University of Copenhagen)
    Abstract: If productivity increases more slowly for services than for manufactured goods then services suffer from Baumol’s cost disease and tend to become relatively more costly over time. Since the welfare state in all countries is an important supplier of tax financed services, this translates into a financial pressure which seems to leave policymakers with a trilemma; increase taxes (and hence tax distortions), cut spending or redistribute less. Under the assumptions underlying Baumol’s cost disease, we show that these dismal implications are not warranted. The welfare state is sustainable and Baumol growth leaves scope for Pareto improvements.
    Keywords: : Public sector, Baumol cost disease, welfare state sustainability
    JEL: H4 H21
    Date: 2015–02–09

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