nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2015‒06‒20
fifteen papers chosen by
Karl Petrick
Western New England University

  1. Uncertainty: A diagrammatic treatment By Dow, Sheila
  2. Comparing Conceptions of Social Ontology: Emergent Social Entities and/or Institutional Facts? By Tony Lawson
  3. The economics of radical uncertainty By Ormerod, Paul
  4. Heavens above: what equilibrium means for economics. With an appendix on temporality, equilibrium, endogeneity and exogeneity, in the inductive sciences and in economics By Freeman, Alan
  6. Decision-making under radical uncertainty: An interpretation of Keynes' Treatise By Marsay, David
  7. Austerity and Repressive Politics: Italian Economists in the Early Years of the Fascist Government By Clara Elisabetta Mattei
  8. Radical uncertainty: Sources, manifestations and implications By Müller, Christian
  9. An Integrated Approach to Climate Change, Income Distribution, Employment, and Economic Growth* By Lance Taylor; Armon Rezai; Duncan K. Foley
  10. Stagnation traps By Gianluca Benigno; Luca Fornaro
  11. Do green jobs differ from non-green jobs in terms of skills and human capital? By Davide Consoli; Giovanni Marin; Alberto Marzucchi; Francesco Vona
  12. Finance and economic growth in OECD and G20 countries By Boris Cournède; Oliver Denk
  13. Democracy or Euro: who will surrender? By A. Lanzavecchia; E. Pavarani
  14. The Empirical Economist's Toolkit: From Models to Methods By Matthew T. Panhans; John D. Singleton
  15. The Gordon Gekko Effect: The Role of Culture in the Financial Industry By Andrew W. Lo

  1. By: Dow, Sheila
    Abstract: In spite of superficial similarities, the way in which uncertainty is understood as a feature of the crisis by mainstream economics is very different from Keynesian fundamental uncertainty. The difference stems from the mainstream habit of thinking in terms of a full-information benchmark, where uncertainty arises from ignorance. By treating uncertain knowledge as the norm, Keynesian uncertainty theory allows analysis of differing degrees of uncertainty and the cognitive role of institutions and conventions. The paper offers a simple diagrammatic representation of these differences, and uses this framework to depict different understandings of the crisis, its aftermath and the appropriate policy response.
    Keywords: uncertainty,risk,ambiguity,Keynes
    JEL: B41 B5 E00 G01
    Date: 2015
  2. By: Tony Lawson
    Abstract: It is commonplace, if erroneous, to suppose that worldviews (or ontological conceptions) that underpin, or are presupposed by, substantive analyses and/or methodological stances are somehow beyond interrogation2. This is thought to be especially so regarding social ontological orientations (see discussion in Lawson 2014). To the contrary ontological conceptions, including those relating to the social realm, are easily shown to be subject to empirical assessment in both absolute terms (see e.g. Lawson 2003 chapter 2; Lawson 2014) and in comparison to the explanatory power of competing accounts (see e.g., Lawson 2014,2015a).
    Date: 2015–06–10
  3. By: Ormerod, Paul
    Abstract: In situations of what we now describe as radical uncertainty, the core model of agent behaviour, of rational autonomous agents with stable preferences, is not useful. Instead, a different principle, in which the decisions of an agent are based directly on the decisions and strategies of other agents, becomes the relevant core model. Preferences are not stable, but evolve. It is not a special case in such circumstances, but the general one. The author provides empirical evidence to suggest that as a description of behaviour in the modern world, economic rationality is applicable in a declining number of situations. He discusses models drawn from the modern literature on cultural evolution in which imitation of others is the basic strategy, and suggests a heuristic way of classifying situations in which the different models are relevant. The key point is that in situations where radical uncertainty is present, we require theoretical 'null' models of agent behaviour which are different from those of economic rationality. Under uncertainty, fundamentally different behavioural rules are 'rational'. The author gives an example of a very simple pure sentiment model of the business cycle, in which agents use very simple heuristic decision rules. It is nevertheless capable of approximating a number of deep features of output growth over the cycle.
    Keywords: uncertainty,imitation,evolution,agent-based model,sentiment,business cycle
    JEL: D81 E32
    Date: 2015
  4. By: Freeman, Alan
    Abstract: This paper presents in formal terms the key notions of the temporalist approach in economics as I have presented it over the years, with an appendix providing a formal definition of such terms as endogenous, exogenous, temporalism, and equilibrium. I thus hope this paper can serve as something of a reference work for these concepts as well as the key terms ‘esoteric’ and ‘exoteric’ which are widely used in my writings. The paper incorporates, but supersedes, the prepublication version of a chapter of the same name originally published in Mosini, V. (ed) 2007. “Equilibrium in Economics: Scope and Limits”, with a previously unpublished appendix. It provides the background to the argument I have made in a number of other pieces, (for example Freeman 2004, most recently Freeman 2015) to the effect that economics plays a religious, not a scientific role, in the social sciences. I argue that the concept of equilibrium in economics plays a special and defining role in this respect which is not adequately recognised either by its defenders, nor by the critics of economics. I term this role esoteric, by which I mean that its primary function is not to explain what we experience or observe, but to justify it. This is a work in progress but summarises, hopefully with as few typographical and mathematical errors as possible, the general arguments that have been developed, or deployed, in my various writings on equilibrium, self-restoration, crisis, and the esoteric function of economics, to this date.
    Keywords: equilibrium, temporalism, TSSI, self-restoration, cycles, crisis, endogenous, exogenous, esoteric, exoteric, religion, science
    JEL: A2 B41 E32 E37
    Date: 2015–06–14
  5. By: William R. DiPietro (Daemen College, Amherst, New York, USA)
    Abstract: As wages are the primary means of income for the majority of people in every country in the world, understanding the reasons for differences in wages is important for human welfare. One potential source of differences in wages between countries is differences in the degree of corporate dominance. This paper proposes that average country wages are negatively related to the extent of corporate dominance. The proposition is tested using cross country regression analysis. The results show that greater corporate dominance reduces average national wages when adjusting for the level of economic development and other relevant variables.
    Keywords: wages, corporate dominance, regression analysis
    JEL: J31 L1
    Date: 2015–03
  6. By: Marsay, David
    Abstract: Keynes' mathematical Treatise addresses what some call 'radical uncertainty', which he thought endemic in world affairs and whose appreciation underpinned much of his later work. In contrast, the mainstream view in economics, as elsewhere, has been that even if radical uncertainty exists, either there is in principle nothing that can ever be done about it, or that even if one could in theory do something about it then the institutions required would be unreliable, and one would be better off without them. Thus the mainstream has worked as if it were realistic to ignore even the possibility of radical uncertainty. But one needs some conceptualisation of radical uncertainty, such as Keynes', before one can make such judgments. This paper presents an interpretation, to inform debate. The viewpoint taken here is mathematical, but this is not to deny the value of other views.
    Keywords: mathematical models,equilibrium conditions,stability conditions,evolutionary games,policy,regulation,crisis management
    JEL: C62 G18 H12
    Date: 2015
  7. By: Clara Elisabetta Mattei
    Abstract: The historical forerunners of contemporary austerity are still largely unexplored. This essay considers the "liberal phase" of Fascist Italy (1922-1925) as a case study to explain austerity as a full-blown rationality, that is intrinsically, and simultaneously, theory and practice, encompassing the moral, the economic and the political. My explanation moves beyond the interpretation of austerity as the post-1980, neoliberal recipe of price deflation and budget cuts. The Italian case draws attention to a neglected connection: that between austerity and repression. Austerity was the guiding principle of the Fascist economic agenda during the 1920s. It served to extinguish the effects of the democratization process of the post-WWI years. The paper examines the work of four distinguished economists, Maffeo Pantaleoni, Luigi Einaudi, Alberto De Stefani and Umberto Ricci, who - in different roles as professors, journalists, advisors, and policy-makers ó can be considered the source, the guardians and the enforcers of Fascist austerity.
    Keywords: Austerity, Repressive Politics, Economists as Consultants, Fascism
    Date: 2015–06–13
  8. By: Müller, Christian
    Abstract: This paper argues that radical uncertainty is the outcome of standard market activity. The theoretical findings are corroborated with empirical analyses. The model example is applied to asset pricing and radical uncertainty is found a solution to various asset pricing "puzzles". In conclusion, radical uncertainty should form the basis of economic analysis.
    Keywords: rational expectations,uncertainty,subjectivity
    JEL: F31 F47 C53
    Date: 2015
  9. By: Lance Taylor; Armon Rezai (Vienna University of Economics and Business, Welthandelsplatz 1, 1020 Vienna, Austria); Duncan K. Foley
    Abstract: A demand-driven growth model involving capital accumulation and the dynamics of greenhouse gas (GHG) concentration is set up to examine macroeconomic issues raised by global warming, e.g. effects on output and employment of rising levels of GHG; offsets by mitigation; relationships among energy use and labor productivity, income distribution, and growth; the economic significance of the Jevons and other paradoxes; sustainable consumption and possible reductions in employment; and sources of instability and cyclicality implicit in the twodimensional dynamical system. The emphasis is on the combination of biophysical limits and Post- Keynesian growth theory and the qualitative patterns of system adjustment and the dynamics that emerge.
    Keywords: Demand-driven growth / climate change / demand and distribution / energy use / energy productivity / labor productivity / employment
    Date: 2015–03
  10. By: Gianluca Benigno; Luca Fornaro
    Abstract: We provide a Keynesian growth theory in which pessimistic expectations can lead to permanent, or very persistent, slumps characterized by unemployment and weak growth. We refer to these episodes as stagnation traps, because they consist in the joint occurrence of a liquidity and a growth trap. In a stagnation trap, the central bank is unable to restore full employment because weak growth pushes the interest rate against the zero lower bound, while growth is weak because low aggregate demand results in low profits, limiting firms’ investment in innovation. Policies aiming at restoring growth can successfully lead the economy out of a stagnation trap, thus rationalizing the notion of job creating growth.
    Keywords: Secular Stagnation, Liquidity Traps, Growth Traps, Endogenous Growth, Sunspots.
    Date: 2015–01
  11. By: Davide Consoli (INGENIO CSIC-UPV, Valencia (Spain)); Giovanni Marin (IRCrES-CNR, Milano (Italy); OFCE-SciencesPo, Sophia Antipolis (France)); Alberto Marzucchi (Catholic University of Milan (Italy), SPRU, University of Sussex, Brighton (UK)); Francesco Vona (OFCE-SciencesPo, Sophia Antipolis (France), SKEMA Business School, Sophia Antipolis (France))
    Abstract: This paper elaborates an empirical analysis of labour force characteristics associated to environmental sustainability. Using data on the United States we compare green and non-green occupations to detect differences in terms of skill content and of human capital. Our empirical profiling reveals that green jobs use high-level abstract skills significantly more than non-green jobs. Moreover, green occupations exhibit higher levels of education, work experience and on-the-job training. While preliminary, this exploratory exercise calls attention to an underdeveloped theme, namely the labour market implications associated with the transition towards green growth.
    Keywords: Skills, Green Jobs, Task Model, Human Capital
    JEL: J21 J24 O31 O33 Q20 Q40
    Date: 2015–05
  12. By: Boris Cournède; Oliver Denk
    Abstract: This paper shows that finance has been a key ingredient of long-term economic growth in OECD and G20 countries over the past half-century, but that there can be too much finance. The evidence indicates that at current levels of household and business credit further expansion slows rather than boosts growth. Causality from more credit to slower growth is supported by a novel empirical methodology which exploits changes in financial regulation across countries and time as a source of exogenous variation in financial size. The empirical analyses point to five factors that link more credit to slower growth: i) excessive financial deregulation, ii) a more pronounced increase in credit issuance by banks than other intermediaries, iii) too-big-to-fail guarantees by the public authorities for large financial institutions, iv) a lower quality of credit and v) a disproportionate rise of household compared with business credit. By contrast, expansions in stock market funding in general boost growth.<P>Finance et croissance économique dans les pays de l'OCDE et du G20<BR>Ce document montre que la finance a été une composante essentielle de la croissance économique à long terme dans les pays de l’OCDE et du G20 durant les cinquante dernières années, mais que parfois, il peut y avoir trop de finance. Certaines observations montrent en effet qu’au niveau actuel du crédit aux ménages et aux entreprises, toute nouvelle expansion freine plutôt qu’elle n’accélère la croissance. Des liens de causalité entre l’accroissement de l’offre de crédit et le ralentissement de la croissance sont mis en évidence par une nouvelle méthode empirique, qui utilise les modifications de la réglementation financière dans les pays et dans le temps comme une source de variation exogène de la taille de la finance. L’analyse empirique attire l’attention sur cinq facteurs qui établissent un lien entre l’accroissement de l’offre de crédit et le ralentissement de la croissance : i) une déréglementation financière excessive, ii) une émission de crédit par les banques en progression plus rapide que par les autres intermédiaires, iii) les garanties des pouvoirs publics sur les établissements d’importance systémique (TBTF), iv) une moindre qualité du crédit et v) une augmentation du crédit aux ménages nettement plus forte que celle du crédit aux entreprises. En revanche, l’accroissement du financement par actions en général stimule la croissance.
    Keywords: stock market, guarantees, Too-big-to-fail, equity finance, business credit, bank credit, housing credit, GDP growth, economic growth, debt finance, capital-market credit, marché boursier, crédit bancaire, croissance du PIB
    JEL: G1 G2 G3 O41 O47 O57
    Date: 2015–06–17
  13. By: A. Lanzavecchia; E. Pavarani
    Abstract: This article offers insights into the Eurozone, one of the most challenging experiments towards market and political integration through a single monetary unit - namely Euro. However, whereas markets might be fully integrated even without a common European currency, Euro and its functional institutions are shrinking sovereignty within member states. Today the Eurozone records the lowest percentage of growth in the world; it is an island of stagnation, deflation and high unemployment rate. Six years after the beginning of the crisis, most of the European countries have not yet recovered the value of GDP recorded in 2008. Dani Rodrik’s trilemma states that democracy, national sovereignty and global economic integration are mutually incompatible. Yet, the European Union is even shrinking both democracy and national sovereignty towards a global economic integration. Consequently, either democracy shall raise and abort such political project or Euro will shrink democracy to village governance level only.
    Date: 2015
  14. By: Matthew T. Panhans; John D. Singleton
    Abstract: While historians of economics have noted the transition toward empirical work in economics since the 1970s, less understood is the shift toward \quasi-experimental" methods in applied microeconomics. Angrist and Pischke (2010) trumpet the wide application of these methods as a \credibility revolution" in econometrics that has nally provided persuasive answers to a diverse set of questions. Particularly in uential in the applied areas of labor, education, public, and health economics, the methods shape the knowledge produced by economists and the expertise they possess. First documenting their growth bibliometrically, this paper aims to illuminate the origins, content, and contexts of quasi-experimental research designs, which seek natural experiments to justify causal inference. To highlight lines of continuity and discontinuity in the transition, the quasi-experimental program is situated in the historical context of the Cowles econometric framework and a case study from the economics of education is used to contrast the practical implementation of the approaches. Finally, signicant historical contexts of the paradigm shift are explored, including the marketability of quasi-experimental methods and the 1980s crisis in econometrics.
    Keywords: econometrics, quasi-experimental methods, natural experiments, applied economics
    JEL: B21 B23 B4 C1
    Date: 2015
  15. By: Andrew W. Lo
    Abstract: Culture is a potent force in shaping individual and group behavior, yet it has received scant attention in the context of financial risk management and the recent financial crisis. I present a brief overview of the role of culture according to psychologists, sociologists, and economists, and then present a specific framework for analyzing culture in the context of financial practices and institutions in which three questions are answered: (1) What is culture?; (2) Does it matter?; and (3) Can it be changed? I illustrate the utility of this framework by applying it to five concrete situations—Long Term Capital Management; AIG Financial Products; Lehman Brothers and Repo 105; Société Générale’s rogue trader; and the SEC and the Madoff Ponzi scheme—and conclude with a proposal to change culture via “behavioral risk management.”
    JEL: G01 G28 G3 M14 Z1
    Date: 2015–06

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