nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2015‒06‒27
sixteen papers chosen by
Karl Petrick
Western New England University

  1. Post-Keynesian Economics – A User’s Guide By Neil Hart; Peter Kriesler
  2. Inequality, the Financial Crisis and Stagnation: Competing Stories and Why They Matter By Thomas I. Palley
  3. A Minskian extension to Kaleckian dynamics By Kemp-Benedict, Eric
  4. Growth models and working class restructuring before the crisis By Stockhammer, Engelbert; Durand, Cédric; List, Ludwig
  5. Review Article of Capital in the Twenty-First Century, Thomas Piketty By Geoffrey C. Harcourt
  6. Braaaaaaaains! The Undead Humbug Production Function: Now With Human Capital By Mike Isaacson
  7. Too dynamic to fail. Empirical support for an autocatalytic model of Minsky's financial instability hypothesis By Natasa Golo; Guy Kelman; David S. Bree; Leanne Usher; Marco Lamieri; Sorin Solomon
  8. “Heinz” Harcourt’s collaborations: Over 57 varieties By Geoffrey C. Harcourt
  9. Workers Ownership and Profit-Sharing in a New Capitalist Model? By Richard B. Freeman
  10. Income Distribution and the Great Depression By Christian A. Belabed
  11. Myths and Self-Deceptions about the Greek Debt Crisis By Stergios Skaperdas
  12. The crisis of finanace-led capitalism in the United States of America By Trevor Evans
  13. The Legacies of Slavery in and out of Africa By Bertocchi, Graziella
  14. Eyes wide shut: John Rawls's silence on racial justice By Ai-Thu Dang
  15. FRED-MD: A Monthly Database for Macroeconomic Research By McCracken, Michael W.; Ng, Serena
  16. The rise of behavioural economics: A quantitative assessment By Geiger, Niels

  1. By: Neil Hart (Industrial Relations Research Centre, UNSW); Peter Kriesler (School of Economics, UNSW Business School, UNSW)
    Abstract: This paper provides a brief introduction to post-Keynesian economics. Post-Keynesians are sceptical of the usefulness of the equilibrium method, and favour an approach based on path-determined models with, due to the influence of uncertainty on economic decisions, an important role assigned to money, institutions and rules of thumb. As there are no forces within capitalist economies which can guarantee full employment, government intervention is important. While monetary policy is seen as a rather blunt instrument, fiscal policy is perceived to be much more potent than it is in the mainstream. However, there are inherent limits to the achievement of sustained full employment in capitalist economies.
    Keywords: Keynes, post-Keynesians, methodology, path dependency, economic policy
    JEL: B2 B41 B5 D4 D5 E6
    Date: 2015–06
  2. By: Thomas I. Palley
    Abstract: This paper examines several mainstream explanations of the financial crisis and stagnation and the role they attribute to income inequality. Those explanations are contrasted with a structural Keynesian explanation. The role of income inequality differs substantially, giving rise to different policy recommendations. That highlights the critical importance of economic theory. Theory shapes the way we understand the world, thereby shaping how we respond to it. The theoretical narrative we adopt therefore implicitly shapes policy. That observation applies forcefully to the issue of income inequality, the financial crisis and stagnation, making it critical we get the story right.
    Keywords: Income inequality, financial crisis, stagnation, economic theory.
    JEL: E00 E02 E10 E20 E24
    Date: 2015
  3. By: Kemp-Benedict, Eric
    Abstract: Minsky’s financial instability hypothesis (FIH) has been criticized as suffering from a fallacy of composition that violates a central thesis of Kalecki. Nevertheless, Minsky’s description of borrowing and lending behavior is sufficiently compelling that it continues to drive new research. In this paper we propose a modified Kaleckian model in which a behavioral rule captures Minsky’s microeconomic argument that firms and banks increase the leverage of new loans during booms, but which translates through Kaleckian dynamics into a falling debt-to-capital ratio at a macroeconomic level. The expanding loan-to-capital ratio drives a potential instability, but in utilization, rather than debt.
    Keywords: financial instability hypothesis; Kalecki; Minsky; debt dynamics
    JEL: E12 E32
    Date: 2015–06–22
  4. By: Stockhammer, Engelbert (Kingston University London); Durand, Cédric (CEPN Université Paris 13); List, Ludwig (CEPN Université Paris 13)
    Abstract: This paper builds on post-Keynesian macroeconomics, the Regulation Approach and a Neo-Gramscian International Political Economy approach to class analysis and offers an empirical analysis of European growth models and working class restructuring in Europe between 2000 and 2008. We will distinguish between the ‘East’, the ‘North’, and the ‘South’ and structure our analysis around industrial upgrading, financialisation and working class coherence. We find an export-driven growth model in the North, which came with wage suppression and outsourcing to the East. In the East the growth model can be characterised as dependent upgrading, which allowed for high real wage growth despite declining working class coherence. The South experienced a debt-driven growth model with a real estate bubble and high inflation rates resulting in large current account deficits. Our analysis shows that class restructuring forms an integral part in the economic process that resulted in European imbalances and the Euro crisis.
    Keywords: European growth models; class analysis; labour relations; debt-driven growth; financialisation
    JEL: B50 P52 Z10
    Date: 2015–06–18
  5. By: Geoffrey C. Harcourt (School of Economics, UNSW Business School, UNSW)
    Date: 2015–06
  6. By: Mike Isaacson (Department of Economics, New School for Social Research)
    Abstract: This paper demonstrates that the human-capital augmented Cobb-Douglas function is identically equal to the rules of aggregate accounting with any factor indices and an arbi- trary `human capital' variable thrown in. It is demonstrated empirically that the term for `total factor productivity' does not show total factor productivity at all, but rather a factor share weighted geometric mean of the prot rate and the quotient of the wage rate and human capital. It is demonstrated empirically with randomly generated data that both the calculation of this term as well as tests of its explanatory power in development economics are the result of using an arbitrary variable correlative with wages. It is also a story about zombies.
    Keywords: Capital, development accounting, human capital, methodology
    JEL: A13 B4 C43 E13 E24
    Date: 2015–06
  7. By: Natasa Golo; Guy Kelman; David S. Bree; Leanne Usher; Marco Lamieri; Sorin Solomon
    Abstract: Solomon and Golo [1] have recently proposed an autocatalytic (self-reinforcing) feedback model which couples a macroscopic system parameter (the interest rate), a microscopic parameter that measures the distribution of the states of the individual agents (the number of firms in financial difficulty) and a peer-to-peer network effect (contagion across supply chain financing). In this model, each financial agent is characterized by its resilience to the interest rate. Above a certain rate the interest due on the firm's financial costs exceeds its earnings and the firm becomes susceptible to failure (ponzi). For the interest rate levels under a certain threshold level, the firm loans are smaller then its earnings and the firm becomes 'hedge.' In this paper, we fit the historical data (2002-2009) on interest rate data into our model, in order to predict the number of the ponzi firms. We compare the prediction with the data taken from a large panel of Italian firms over a period of 9 years. We then use trade credit linkages to discuss the connection between the ponzi density and the network percolation. We find that the 'top-down'-'bottom-up' positive feedback loop accounts for most of the Minsky crisis accelerator dynamics. The peer-to-peer ponzi companies contagion becomes significant only in the last stage of the crisis when the ponzi density is above a critical value. Moreover the ponzi contagion is limited only to the companies that were not dynamic enough to substitute their distressed clients with new ones. In this respect the data support a view in which the success of the economy depends on substituting the static 'supply-network' picture with an interacting dynamic agents one.
    Date: 2015–06
  8. By: Geoffrey C. Harcourt (School of Economics, UNSW Business School, UNSW)
    Date: 2015–06
  9. By: Richard B. Freeman
    Date: 2015–01
  10. By: Christian A. Belabed
    Abstract: There is a growing literature comparing the current financial crisis or Great Recession to the worst economic crisis of capitalism, the Great Depression. However, the role of rising income inequality, which has risen dramatically before both crises, is rarely discussed. In this paper we discuss the rise of top-end inequality and its effects on household consumption, saving, and debt for the 1920s by applying a non-standard theory of consumption, the relative income hypothesis, to the period of interest. We argue that income inequality is linked to the increase of household consumption and the simultaneous decline of household savings as well as rapidly increasing household debt. Thus, the rise of top-end inequality in connection with a broader institutional change, such as the deregulation of financial markets, has contributed to a build-up of financial and macroeconomic instability, in the period leading to the Great Depression.
    Keywords: income distribution, relative income hypothesis, household debt, financial innovation, great depression
    JEL: D31 D33 E21 E25 N12 N22 N32 N62
    Date: 2015
  11. By: Stergios Skaperdas (Department of Economics, University of California-Irvine University)
    Abstract: The long-running Greek public debt crisis has been accompanied by an information war that has obscured what has occurred. The misconceptions, self- deceptions, and myths associated with the crisis have been at least partly responsible for the obviously inadequate response to the crisis and for the damage to the economies and societies of primarily Greece but also of other Eurozone countries. I argue against seven such myths about the effects of default, the primary cause of the crisis, the likely effects of an exit from the eurozone, the bargaining power of the Greek government in its negotiations with the EU/ECB/IMF troika, and others. I also discuss the context of the wider slippage of democracy in the European Union and future prospects.
    Keywords: Eurozone; Greece; Debt; Default
    JEL: D70 E50 H50 H60
    Date: 2015–06
  12. By: Trevor Evans (Institute for International Political Economy, Berline School of Economics and Law)
    Abstract: This study examines the development of the US economy since the prolonged recession in the early 1980s. This period was characterised by a serious weakening in the bargaining position of waged workers and a major expansion of the financial sector. Most of the economic gains accrued to top earners and economic growth became increasingly dependent on the expansion of credit. This precarious constellation led to short recessions in 1990 and again in 2001, but then in 2007 and 2008 the failure of highly complex financial securities led to the most serious financial crisis since 1929. The study reviews the development of profitability, income distribution and other key macroeconomic variables in the period leading up to, during and immediately after the crisis. It then identifies the main channels by which the crisis was transmitted from the US to other advanced capitalist economies and concludes with a brief review of the policy measures introduced by the US government in response to the crisis.
    Keywords: United States, finanace-led capitalism, financial crisis
    JEL: E25 E32 E44 E58 E65 F44 G01
    Date: 2015–05–01
  13. By: Bertocchi, Graziella (University of Modena and Reggio Emilia)
    Abstract: The slave trades out of Africa represent one of the most significant forced migration experiences in history. In this paper I illustrate their long-term consequences. I first consider the influence of the slave trade on the "sending" countries in Africa, with attention to their economic, institutional, demographic, and social implications. Next I evaluate the consequences of the slave trade on the "receiving" countries in the Americas. Here I distinguish between the case of Latin America and that of the United States. For the latter, I further discuss the subsequent migration experiences of the Second Middle Passage, when African slaves were transported, again forcibly, from the coastal regions to the inland, and of the Great Migration, when as free people they chose to leave the deep South for the Northern cities.
    Keywords: slavery, Africa, Americas
    JEL: F22 J15 O15
    Date: 2015–06
  14. By: Ai-Thu Dang (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS)
    Abstract: John Rawls's remarks on race are sparse in his writings. However, three key moments in his conceptual apparatus wherein racial issues appear explicitly can be be highlighted: (1) the status of race as a feature of the veil of ignorance; (2) racial minorities, the least advantaged, and the difference principle; and (3) the role of arguments made by antebellum abolitionist dissidents and Martin Luther King, Jr., in favor of racial equality in his reformulation of his notion of public reason. I show that the introduction of race poses difficulties for Rawls in his theory of justice. I also propose an explanation of why Rawls does not address issues of racial justice more explicitly and in-depth. However, because Rawls himself explained his relative silence on racial justice, I discuss its relevance. I contend that Rawls's conception of justice as fairness as a form of political liberalism is indebted to a strong principle of equal citizenship for all individuals that is blind to race and ethnicity, so his theoretical apparatus addresses the issue of legal racial discrimination or institutional racism. Nevertheless, it fails to address the problem of systemic racial discrimination.
    Abstract: Il n'existe pas de développements systématiques dans les écrits de John Rawls sur la question des inégalités raciales ou fondées sur l'origine ethnique, mais seulement des remarques parcellaires et répétitives sur ce sujet. On peut toutefois repérer trois moments clés dans la construction théorique de Rawls où les questions de justice raciale sont introduites : le statut de la race et le voile d'ignorance ; les minorités raciales, les plus mal lotis de la société et le principe de différence ; le rôle des arguments religieux avancés par les abolitionnistes américains et par Martin Luther King en faveur de l'égalité raciale dans la reformulation par Rawls de sa conception de la raison publique. Je montre que l'introduction des questions de justice raciale déstabilise le cadre théorique de Rawls et soulève des questions dont il est lui-même conscient. Je discute de l'explication donnée par Rawls pour justifier son relatif silence et je montre que ses principes de justice permettent de lutter contre la discrimination directe mais ne permettent pas de répondre au défi de la discrimination systémique.
    Date: 2015–04
  15. By: McCracken, Michael W. (Federal Reserve Bank of St. Louis); Ng, Serena (Department of Economics, Columbia University)
    Abstract: This paper describes a large, monthly frequency, macroeconomic database with the goal of establishing a convenient starting point for empirical analysis that requires "big data." The dataset mimics the coverage of those already used in the literature but has three appealing features. First, it is designed to be updated monthly using the FRED database. Second, it will be publicly accessible, facilitating comparison of related research and replication of empirical work. Third, it will relieve researchers from having to manage data changes and revisions. We show that factors extracted from our dataset share the same predictive content as those based on various vintages of the so-called Stock-Watson dataset. In addition, we suggest that diffusion indexes constructed as the partial sum of the factor estimates can potentially be useful for the study of business cycle chronology.
    Keywords: diffusion index; forecasting; big data; factors.
    JEL: C30 C33 G11 G12
    Date: 2015–06–15
  16. By: Geiger, Niels
    Abstract: This paper is devoted to the question of operationalising the development of behavioural economics, focussing on trends in the academic literature. The main research goal is to provide a quantitative assessment in order to answer the question of whether or not behavioural economics has gained in relative importance in the past few years. After an introduction and a short summary of the history of behavioural economics, several studies are laid out and evaluated. The results generally confirm the story as it is usually told in the literature, and add some notable additional insights.
    Keywords: behavioural economics,bounded rationality,culturomics
    JEL: D03 E61 E65
    Date: 2014–09

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