nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2015‒05‒30
twelve papers chosen by
Karl Petrick
Western New England University

  1. Intermediation, Money Creation, and Keynesian Macrodynamics in Multi-agent Systems By Bill Gibson; Mark Setterfield
  2. Animal spirits, investment and unemployment: An old Keynesian view of the Great Recession By Guerrazzi, Marco
  3. What happened to heterodox economics in Germany after the 1970s By Heise, Arne; Thieme, Sebastian
  4. Growth, debt and sovereignty prolegomena to the Greek crisis By Stavros B. Thomadakis
  5. Beyond Radicalism and Resignation: The Competing Logics for Public Participation in Policy Decisions By Rikki Dean
  6. The bankers’ paradox: the political economy of macroprudential regulation By Andrew Baker
  7. Macroprudential Policy: A Silver Bullet or Refighting the Last War? By Lopez, Claude; Markwardt, Donald; Savard, Keith
  8. The Inheritance of Educational Inequality among Young People in Developing Countries By Pastore, Francesco; Roccisano, Federica
  9. Job Loss in the Great Recession and its Aftermath: U.S. Evidence from the Displaced Workers Survey By Farber, Henry
  10. New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part I. The Wealth Residual By Joseph E. Stiglitz
  11. Piketty in the long run By Frank A Cowell
  12. A tale of paradigm clash: Simon, situated cognition and the interpretation of bounded rationality By Petracca, Enrico

  1. By: Bill Gibson (University of Vermont); Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: Keynesian economists refer to capitalism as a monetary production economy, in which the theory of money and the theory of production are inseparable (Skidelsky, 1992). One important aspect of this, brought to light by Robertson following the publication of The General Theory, is that in a Keynesian economy, endogenous money creation is logically necessary if the economy is to expand. A Keynesian economy cannot operate with an exogenously given supply of money as in verticalism. One way to ensure that money is endogenous is to simply assume that the supply of money is infinitely elastic, known in the literature as horizontalism. In this view, prior savings cannot be a constraint on current investment and it follows that the level of economic activity is determined by effective demand. Using a multi-agent systems model, this paper shows that real economies, especially those subject to recurrent financial crises, can be neither horizontalist nor verticalist. Horizontalism overlooks microeconomic factors that might block flows from savers to investors, while verticalism ignores an irreducible ability of the system to generate endogenous money, even when the monetary authority does everything in its power to limit credit creation.
    Keywords: Multi-agent system, intermediation, endogenous money, Keynesian macroeconomics
    JEL: D58 E12 C00
    Date: 2015–05
  2. By: Guerrazzi, Marco
    Abstract: This paper develops a DSGE model with investment and capital accumulation build along demand-driven explanations of the Great Recession. Specifically, following Farmer (2013), I set forth a search framework in which households decide about consumption while firms decide about recruiting effort as well as investment. This setting closed with market clearing in good and asset markets has one less equation than unknowns. Therefore, in order to solve such an indeterminacy, I assume that investment is driven by self-fulfilling expectations about the adjustment cost of capital. Consistently with the view of business cycles pushed by stock price fluctuations, this model has the potential to provide a more comprehensive rationale of the consumption-investment patterns observed during the years of the crisis.
    Keywords: Investment; Capital accumulation; Finance-induced recession; Search, DSGE Models
    JEL: E24 E32 E58
    Date: 2015–05–23
  3. By: Heise, Arne; Thieme, Sebastian
    Abstract: In the context of ongoing criticisms of the lack of pluralism in economics, the present article aims to discuss the development of 'heterodox' economics since the 1970s. Following Lakatos's concept of scientific research programs (srp), and concentrating on the situation in Germany, the article will discuss classifications of economics, and will specify the understanding of diversity in the light of 'axiomatic variations' of the economic mainstream. This will form the basis for the subsequent description of the development of heterodoxy in Germany, with special reference to the founding of new universities and the reform movements in the 1970s. It can be shown that the heterodox scene flourished in this period, but that this pluralization remained fragmented and short-lived; by the 1980s at the latest heterodoxy was again on its way to marginalization. The history of heterodoxy in Germany thus presents itself as an unequal 'battle of the paradigms', and can only be told as the story of a failure.
    Keywords: heterodox economics,pluralization,philosophy of science,sociology of science
    JEL: A11 B20 B50 Z13
    Date: 2015
  4. By: Stavros B. Thomadakis
    Abstract: The paper reflects a basic premise: Greek participation in the Euro-zone marked a definitive institutional break in the process of contracting and managing public debt. Instead of internal debt, used extensively in earlier decades, euro-denominated sovereign issues were now placed in the international market. Thus, the Greek state became a net ‘exporter’ of financial claims to an extent unprecedented in its recent history. In assessing the prolegomena to crisis, I offer a review of the post-junta, pre-euro period, the forces leading to accumulation of (mostly internal) debt and the predominance of a ‘money illusion’ in distributional politics; I also engage an argument that the institutional shift that occurred with Euro-zone entry brought about a fundamental change to the very ‘sovereignty’ of Greek public debt. It expunged ‘money illusion’ but created the ground for policies that embodied ‘financial’ and ‘fiscal’ illusions. The entrapment of elites and electorates in various ‘illusions’ reflected a persistent tendency to underestimate the limits imposed by globalization on Greek economic policies. In the euro era, Greek policy became trapped in a self-feeding loop of debt-driven growth that effectively undermined the country’s sovereignty.
    JEL: F3 G3 E6
    Date: 2015–03
  5. By: Rikki Dean
    Abstract: From the World Bank to the Occupy Movement, support for greater citizen participation in social policy decisions has become ubiquitous. This paper argues that existing typologies of participation are problematic in that they do not recognise the plurality of competing participatory logics that explain this rise in support for participation from groups with such divergent world views. Participatory practice is constructed in multiple ways, and each construction can only be understood with reference to the normative conception of societal organisation it encompasses. However, existing typologies take one of two approaches: either they assume one particular normative bias and categorise participatory forms as accordingly legitimate or illegitimate (for instance, Arnstein's ladder), or they categorise by institutional design features without reference to the broader social and political ideology that informs the use of these designs. This paper draws on Grid-Group Cultural Theory to outline an alternative approach. Participatory practice is categorised along two intersecting dimensions: sociality, the extent to which participation is solidaristic or agonistic, and negotiability, the extent to which participatory spaces are prescribed or negotiated. From these dimensions four archetypes of participation are derived, each with its own participatory logic, conception of the participant, preferred institutional forms, and links to broader social and political philosophies.
    Keywords: public participation, citizen engagement, participatory democracy, deliberative democracy, participatory governance, choice, voice, bureaucracy, health policy, housing policy, social exclusion policy, participation typology, Grid-Group Cultural Theory
    Date: 2014–12
  6. By: Andrew Baker
    Abstract: Macroprudential regulation, which has emerged as a new departure in financial regulation (albeit with a longer heritage), since the financial crash, is in a fluid, evolving and highly experimental phase. Understanding its future political economy requires engaging with macroprudential's constituent concepts and how they interrelate to one another. This paper argues that the emerging political economy of macroprudential regulation revolves around five paradoxes. The first three of these are paradoxes that characterise the financial system and are identified by the macroprudential perspective. In seeking to respond to these paradoxes, macroprudential policy, generates a further two distinctly institutional and political paradoxes. The last of these is a central bankers' paradox which relates to the source of independent central bank authority and the difficulty of building legitimacy and public support for macroprudential regulation. Functioning macroprudential regulation is about executing a technocratic control project that rests on a depoliticisation strategy, that in turn risks politicising central banks, exposing their claims to technical authority to critical scrutiny and potential political backlash. This is the ultimate central bankers’ paradox in the era of post-crash political economy. Central banks conducting macroprudential regulation need to be aware of this paradox and handle it with great care.
    JEL: E5 E6
    Date: 2015–04–29
  7. By: Lopez, Claude; Markwardt, Donald; Savard, Keith
    Abstract: As many central banks contemplate the normalization of monetary policy, their focus is turning to the promise of macroprudential policy as a tool to manage possible future systemic risk in financial markets. Janet Yellen and Mario Draghi, among others, are pinning much of their hopes for managing financial stability in the context of Basel III on macroprudentialism. Despite central banks’ clear intention that this policy will play a significant role in developed economies, few policymakers or financial players know what macroprudential policy is, much less how to assess its efficacy or necessity. Our report aims to clarify the concept of macroprudential policy for a broader audience, cultivating a better understanding of these tools and their implications for broader monetary policy going forward. The report also advocates the use of more refined indicators for financial cycles as benchmarks for policy discussions on macroprudential policy.
    Keywords: macroprudential policy, non-core liabilities, Basel III
    JEL: E6 F3
    Date: 2015–05
  8. By: Pastore, Francesco (University of Naples II); Roccisano, Federica (Catholic University Milan)
    Abstract: This letter provides new evidence on the extent of the inheritance of educational inequality in the eight developing countries (Azerbaijan, China, Egypt, Iran, Kosovo, Mongolia, Nepal, Syria) where the ILO carried out the first wave of School-to-Work Transition survey. We observe different patterns of correlation between the level of intergenerational mobility, the educational upgrade and the role of parents' in sons' and daughters' education.
    Keywords: intergenerational mobility, educational persistence, developing economies
    JEL: D63 H52 I24 P46 P52
    Date: 2015–05
  9. By: Farber, Henry (Princeton University)
    Abstract: The Great Recession from December 2007 to June 2009 is associated with a dramatic weakening of the labor market from which, by some measures, it has not completely recovered. I use data from the Displaced Workers Survey (DWS) from 1984-2014 to investigate the incidence and consequences of job loss from 1981-2013. In particular, the 2010, 2012, and 2014 DWSs provide a window through which to examine the experience of job losers in the Great Recession and its aftermath and to compare their experience to that of earlier job losers. These data show a record high rate of job loss in the Great Recession, with almost one in six workers reporting having lost a job in the 2007-2009 period, that has not yet returned to pre-recession levels. The employment consequences of job loss are also very serious during this period with very low rates of reemployment and difficulty finding full-time employment. The reduction in weekly earnings for those job losers during the 2007-2013 period who were able to find new employment are not unusually large by historical standards.
    Keywords: job loss, unemployment, wage loss
    JEL: J63
    Date: 2015–05
  10. By: Joseph E. Stiglitz
    Abstract: The paper identifies, and then resolves, a number of seeming puzzles in a newly identified set of stylized facts entailing movements in factor returns and shares and the wealth-income ratio. Standard data on savings cannot be reconciled with the increase in the wealth-income ratio: there is a wealth residual. An important component of this is associated with rents: land rents, exploitation rents, and returns on intellectual property. Nor can these stylized facts be reconciled with a standard neoclassical model, focusing on labor and capital, even taking into account technological change (including skill-biased technological change), with appropriately defined aggregates. Explaining why the concepts of “capital” and “wealth” are distinct, we show that appropriately defined aggregates for wealth may be (and in the case of some countries appear to be) moving in opposite directions. We identify some of the factors that may have contributed to the increase in rents and the divergence between wealth and capital. Subsequent Parts of this paper will investigate some of these factors in detail and relate them to changes in inequality.
    JEL: D31 E21 E22
    Date: 2015–05
  11. By: Frank A Cowell
    Abstract: I examine the idea of 'the long run' in Piketty (2014) and related works. In contrast to simplistic interpretations of long-run models of income- and wealth-distribution Piketty (2014) draws on a rich economic analysis that models the intra- and inter-generational processes that underlie the development of the wealth distribution. These processes inevitably involve both market and non-market mechanisms. To understand this approach, and to isolate the impact of different social and economic factors on inequality in the long run, we use the concept of an equilibrium distribution. However the long-run analysis of policy should not presume that there is an inherent tendency for the wealth distribution to approach equilibrium.
    Keywords: long run, income distribution, wealth distribution, inequality, inheritance, equilibrium
    JEL: D31
    Date: 2015–02
  12. By: Petracca, Enrico
    Abstract: The intellectual figure of Herbert A. Simon is well known for having introduced the influential notion of bounded rationality in economics. Less known, at least from the economists’ point of view, is the figure of Simon as eminent cognitive psychologist, co-founder of so-called cognitivism, a mainstream approach in cognitive psychology until the 80s of the last century. In fact, the two faces of Simon’s intellectual figure, as rationality scholar and as cognitive scientist, are not factorizable at all: according to Simon himself, cognitivism is bounded rationality and bounded rationality is cognitivism. This paper tries to answer a simple research question: has the notion of bounded rationality fully followed the development of cognitive psychology beyond cognitivism in the post-Simonian era? If not, why? To answer such questions, this paper focuses on a very specific historical episode. In 1993, on the pages of the journal Cognitive Science, Simon (with his colleague Alonso Vera) openly confronted the proponents of a new (paradigmatic) view of cognition called situated cognition, a firm challenger of cognitivism, which was going to inspire cognitive psychology from then on. This paper claims that this tough confrontation, typical of a paradigm shift, might have prevented rationality studies in economics from coming fully in touch with the new paradigm in cognitive psychology. A reconstruction of the differences between cognitivism and situated cognition as they emerged in the confrontation is seen here as fundamental in order to assess and explore this hypothesis.
    Keywords: Herbert A. Simon; bounded rationality; situated cognition theory; economics and cognitive psychology
    JEL: B31 B41 D03 D80
    Date: 2015

This nep-pke issue is ©2015 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.