nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2015‒09‒18
sixteen papers chosen by
Karl Petrick
Western New England University

  1. Growth and Distribution in Low Income Economies: Modifying Post Keynesian Analysis in Light of Theory and History By Razmi, Arslan;
  2. Fiscal and monetary policy rules in an unstable economy By Soon, Ryoo; Skott, Peter
  3. Sraffa and ecological economics By Yoann Verger
  4. Functional finance and intergenerational distribution in a Keynesian OLG model By Skott, Peter; Soon, Ryoo
  5. Unemployment (Fears) and Deflationary Spirals By Wouter Den Haan; Pontus Rendahl; Markus Riegler
  6. Sraffa and the environment By Yoann Verger
  7. The Crucial Role of Policy Surveillance in International Climate Policy By Aldy, Joseph Edgar
  8. A Critique of Attempts to Introduce Hotelling's rule in Sraffa's Theory By Yoann Verger
  9. Non-Western Marxist Traditions in Northeast Asia By Hiroshi Onishi
  10. The Guardians of Capitalism: International Consensus and Fascist Technocratic Implementation of Austerity By Clara Elisabetta Mattei
  11. London: A Multi-Century Struggle for Sustainable Development in an Urban Environment By Clark, William C.
  12. The Theory of Capital as a Theory of Capitalism – Hidden Austrian Contributions to a Historically Specific Approach to Capital By Eduard Braun
  13. Pushed by Poverty or by Institutions? Determinants of Global Migration Flows By Bergh, Andreas; Mirkina, Irina; Nilsson, Therese
  14. Methodological issues in case-study approach in evaluation and survey By M. Berni
  15. The rational economist in research: A model By Martin Paldam
  16. The Irish Real Estate Bubble: A Behavioral Finance Perspective By P. Ryan; C. Branigan

  1. By: Razmi, Arslan (University of Massachusetts at Amherst);
    Abstract: Growth in low-income developing economies with large sectors characterized by underemployment is unlikely to be wage-led in the traditional neo-Kaleckian sense of the term. Output and employment in the sectors of the economy producing non-tradable output could be demand-led, however, and policies directly aimed at more equitable distribution in these sectors could boost long-run growth. Some of the fast growing Asian economies may have been examples of wage-led growth in this rather different sense of the term. Over time, re-distributive measures in the traditional sector, such as land reforms, could lead to faster wage and output growth across the economy.
    Keywords: Demand regime, income distribution, wage-led growth, stagnationism, exhilarationism, neo-Kaleckian models, dependent economy models.
    JEL: F43 O41 O11 E12
    Date: 2016
  2. By: Soon, Ryoo (Department of Finance and Economics, Adelphi University); Skott, Peter (Department of Economics, University of Massachusetts, Amherst, MA 01003,USA, and Aalborg University)
    Abstract: This paper examines the implications of different monetary and fiscal policy rules in an economy characterized by Harrodian instability. We show that (i) a monetary rule along Taylor lines can be stabilizing for low debt ratios but becomes de-stabilizing if the debt ratio exceeds a certain threshold, (ii) a `Keynesian' fiscal policy rule can stabilize the economy at full employment, (iii) a fiscal `austerity' rule that links fiscal parameters to deviations from a target debt ratio fails to adjust the `warranted' to the `natural' growth rate and destabilizes the warranted path, (iv) instability may arise from a combination of fiscal and monetary policy rules which separately would stabilize the system, and (v) austerity rules can in some circumstances enhance the stabilizing effects of monetary policy.
    Keywords: functional finance, fiscal policy rule, austerity, public debt, Harrodian instability
    JEL: E12 E52 E62 E63
    Date: 2015
  3. By: Yoann Verger (REEDS - REEDS - Centre international de Recherches en Economie écologique, Eco-innovation et ingénierie du Développement Soutenable - UVSQ - Université Versailles Saint-Quentin-en-Yvelines)
    Abstract: References to Sraffa and to the neo-Ricardian school is something quite customary in ecological economics. By looking at contributions in this area since the beginning of ecological economics and at contributions on environmental problem from the neo-Ricardian school, we see that a connection between both school still has to be made. This connection should be articulated around the initial aim of Sraffa: to develop a new paradigm, competing against the neoclassical one. Only then it will be possible to develop a real eco-Sraffian approach able to pursue the analysis of the sustainability of the economic system.
    Keywords: Sraffa,neo-Ricardian,ecological economics,value,natural resources,political economy
    Date: 2015–09–04
  4. By: Skott, Peter (Department of Economics, University of Massachusetts, Amherst, MA 01003,USA, and Aalborg University); Soon, Ryoo (Department of Finance and Economics, Adelphi University)
    Abstract: This paper examines the role of fiscal policy in the long run. We show that (i) dynamic inefficiency in a standard OLG model generates aggregate demand problems in a Keynesian setting, (ii) fiscal policy can be used to achieve full-employment growth, (iii) the required debt ratio is inversely related to both the growth rate and government consumption, and (iv) a simple and distributionally neutral tax scheme can maintain full employment in the face of variations in ‘household confidence’.
    Keywords: Public debt, Keynesian OLG model, secular stagnation, structural liquidity trap, dynamic efficiency, confidence
    JEL: E62 E22
    Date: 2015
  5. By: Wouter Den Haan (London School of Economics; Centre for Macroeconomics (CFM); Centre for Economic Policy Research (CEPR)); Pontus Rendahl (Univesrity of Cambridge; Centre for Macroeconomics (CFM)); Markus Riegler (Univesrity of Bonn; Centre for Macroeconomics (CFM))
    Abstract: The interaction of incomplete markets and sticky nominal wages is shown to magnify business cycles even though these two features - in isolation - dampen them. During recessions, fears of unemployment stir up precautionary sentiments which induces agents to save more. The additional savings may be used as investments which induces agents to save more. The additional savings may be used as investments in both a productive asset (equity) and an unproductive asset (money). But even a small rise in money demand has important consequences. The desire to hold money puts deflationary pressure on the economy, which, provided that nominal wages are sticky, increases wage costs and reduces firm profits. Lower profits repress the desire to save in equity, which increases (the fear of) unemployment, and so on. This is a powerful mechanism which casues the model to behave differently from both its complete markets version, and a version with incomplete markets but without aggregate uncertainty. In contrast to previous results in the literature, agents uniformly prefer non-trivial levels of unemployment insurance.
    Keywords: Keynesian unemployment, business cycles, search frictions, magnification, propogation, heterogenous agents
    JEL: E12 E24 E32 E41 J64 J65
    Date: 2015–08
  6. By: Yoann Verger (REEDS - REEDS - Centre international de Recherches en Economie écologique, Eco-innovation et ingénierie du Développement Soutenable - UVSQ - Université Versailles Saint-Quentin-en-Yvelines)
    Abstract: In one draft note, Sraffa states that: “The difference between the ‘Physical real costs’ and the Ricardo–Marxian theory of ‘labour costs’ is that the first does, and the latter does not, include in them the natural resources that are used up in the course of production (such as coal, iron, exhaustion of land) [Air, water, etc. are not used up: as there is an unlimited supply, no subtraction can be made from [infinity ]. This is fundamental because it does away with ‘human energy’ and such metaphysical things. ... But how are we going to replace these natural things? There are three cases: a) they can be reproduced by labour (land properties, with manures etc.); b) they can be substituted by labour (coal by hydroelectric plant: or by spending in research and discovery of new sources and new methods of economising); c) they cannot be either reproduced nor substituted - and in this case they cannot find a place in a theory of continuous production and consumption: they are dynamical facts, i.e. a stock that is being gradually exhausted and cannot be renewed, and must ultimately lead to destruction of the society. But this case does not satisfy our conditions of a society that just manages to keep continuously alive” (Sraffa’s Unpublished Papers and Correspondence, Trinity College Library, Cambridge, UK, as catalogued by Jonathan Smith, D3:12:42: 33, dated 25 March 1946; Sraffa’s emphasis, quoted in Kurz et al., 2000). Thus Sraffa states that his theory, the “Physical real costs” theory, is taking into account the natural resources. I argue that this is not true: my position is that Sraffa is not dealing with natural resources, but with commodities produced by industries and exchanged in the market. Thus all resources which are not produced by industries or which are not exchanged in the market (for instance, wastes) are not encompassed by its model, and can not receive a price. And we have a confirmation of this when, in chapter Ⅺ of his book, Sraffa explicitly introduces natural resources: “natural resources which are used in production, such as land and mineral deposits, and which being in short supply enable their owners to obtain a rent, can be said to occupy among means of production a position equivalent to that of 'non-basics' among products. Being employed in production, but not themselves produced, they are the converse of commodities which, although produced, are not used in production” (Sraffa, 1960, § 85). In this chapter, we will see how Sraffa deals with natural resources in his book, through the problematic of the rent, in section [1] (after a short introduction about the introduction of the rent in Quesnay and Ricardo's theories). Then we will see how the neo-Ricardians manage to introduce these resources in their models and how they deals with general environmental problems. First we will see the case of exhaustible resources in section [2] and then we will study the introduction of waste, the management of pollution control and the exploitation of renewable resources in section [3].
    Keywords: Sraffa,Rent,Hotelling,Exhaustible resources,Renewable Resources,Waste,Pollution,Environment
    Date: 2015–08–21
  7. By: Aldy, Joseph Edgar
    Abstract: An extensive literature shows that information-creating mechanisms enhance the transparency of and can support participation and compliance in international agreements. This paper draws from game theory, international relations, and legal scholarship to make the case for how transparency through policy surveillance can facilitate more effective international climate change policy architecture. I draw lessons from policy surveillance in multilateral economic, environmental, and national security contexts to inform a critical evaluation of the historic practice of monitoring and reporting under the global climate regime. This assessment focuses on how surveillance produces evidence to inform policy design, enables comparisons of mitigation effort, and illustrates the adequacy of the global effort in climate agreements. I also describe how the institution of policy surveillance can facilitate a variety of climate policy architectures. This evaluation of policy surveillance suggests that transparency is necessary for global climate policy architecture.
    Date: 2014
  8. By: Yoann Verger (REEDS - REEDS - Centre international de Recherches en Economie écologique, Eco-innovation et ingénierie du Développement Soutenable - UVSQ - Université Versailles Saint-Quentin-en-Yvelines)
    Abstract: This paper argues that the Hotelling’s rule on the rise of royalties during the exhaustion of exhaustible natural resources cannot be retained within a Sraffian framework. At first, a critic of the major attempts that were developed in this domain is conducted. Then this paper brings forward the evidence that the value theory is changed by adding the Hotelling’s rule and is no longer consistent with Sraffa’s thinking. This paper also offers an alternative interpretation in which the rise of the rent on exhaustible natural resources is only dependent on technical requirements.
    Keywords: Sraffa,Rent,Royalty,Hotelling’s rule,Exhaustible resource
    Date: 2015–09–04
  9. By: Hiroshi Onishi (Faculty of Economics, Keio University)
    Abstract: Of the many origins and traditions of Marxism around the world, some are distinctly non-Western. For example, Maoism, certain schools of Japanese Marxism, and Stalinism have evolved differently from Western anti-neoliberalism. Among them, Japanese Marxists developed various original forms of Marxism, and the most important traditions were Koza-ha and Ronoha schools that originated from the pre-war period. This paper first discusses its influence on South Korean two debates on Korean capitalism, and then, discusses Chinese Marxism which has three special traditions. Some of them resonated with other forms of Asian Marxism. This resonance may have been formed by the essentially similar socio-political situation created by the backwardness of their countries.
    Keywords: Korean Capitalism debates, Social Formation debates, Koza-ha school, Maoism, Two-stage Revolution Theory
    JEL: B24
    Date: 2015–02
  10. By: Clara Elisabetta Mattei
    Abstract: Current debates on austerity often forget that these policies are almost 100 years old .This paper explores how the combination of austerity and technocracy acted as a powerful tool to secure the compliance of European countries to socio-economic stabilization after WWI. Austerity emerged as an economic, moral and technocratic message as economic experts sought to educate the restless post-war civil society. This paper analyses primary austerity documents from the international economic conferences of Brussels (1920) and Genoa (1922). In addition I use a case study of Italy (1922-1925) to show how austerity succeeded under the first years of Fascism, when the government authorized prominent economics professors to implement the international financial codes devised at Brussels and Genoa. This essay considers the scientific writings of De Stefani, Ricci and Pantaleoni to examine the theoretical roots of the technocratic nature of austerity.
    Keywords: Austerity, Technocracy, Post-WWI Financial Conferences, Economists as Consultants, Fascism
    Date: 2015–05–09
  11. By: Clark, William C.
    Abstract: In this paper I sketch key episodes in the two thousand year history of interactions between society and environment that have shaped the City of London and its hinterlands. My purpose in writing it has been to provide an empirical puzzle for use in teaching and theorizing about the long term coevolution of social-environmental systems and the potential role of policy interventions in guiding that coevolution toward sustainability. I undertook it because while a lively body of theory has begun to emerge seeking to explain such coevolution, rich descriptive characterizations of how specific social-environmental systems have in fact changed over the long time periods (multi-decade to multi-century) relevant to sustainable development remain relatively rare. One result is that the field of sustainability science lacks a sufficient number of the rich empirical puzzles that any field of science needs to challenge its theorizing, modeling and predictions. This paper reflects the beginning of an effort to provide one such characterization on a topic central to sustainability: the long term development of cities and their hinterlands.
    Date: 2015
  12. By: Eduard Braun (Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal))
    Abstract: Before economists and sociologists came up with their own definitions of the term “capital,” it was commonly understood as money invested in businesses by their owners or shareholders, and it continues to be understood this way in everyday business practice. In a recent article, Geoffrey Hodgson (2014) advises economists to return to this pre-Smithian usage of the term. The present paper takes up Hodgson’s demand and develops a theory of capital that is based upon this business notion of capital. It also argues that the Austrian theory of capital, if interpreted correctly, can serve as a starting point. Despite the conviction of its adherents to the contrary, the Austrian theory of capital is not universal or ahistorical, but dovetails with Hodgson’s vision of an approach to capital which analyses historically specific features of capitalism.
    Keywords: Capital Theory; Capitalism; Austrian Economics; Institutional Economics
    JEL: B25 B26 D24
    Date: 2015
  13. By: Bergh, Andreas (Research Institute of Industrial Economics (IFN)); Mirkina, Irina (Lund University); Nilsson, Therese (Research Institute of Industrial Economics (IFN))
    Abstract: The existing literature on determinants of migration flows typically claims that income differences across countries should be a pushing factor for people's movement. We suggest that institutional quality is a better proxy for the factors that trigger migration. People may well want to stay in or move to relatively poor countries if institutions are good, partly because good institutions have an intrinsic value for people and partly because good institutions may be a sign of future economic growth. In contrast, low income and absolute poverty work both as push-factors and as credit constraints, so that people may want to leave, but few can afford to migrate when poverty is high. We test our hypotheses using new data on bilateral migration flows from Abel and Sander (2014), the Worldwide Governance Indicators and the World Bank data on headcount poverty, using a migration gravity model with a spatial specification. Controlling for both source and destination income levels, we find that institutional quality matters significantly for migration. Poor institutions act as a push factor, while absolute poverty in a country of origin limits migration. We also find that omitting spatial factors biases the effect of institutions upwards.
    Keywords: Global migration; Institutions; Poverty; Gravity model; Spatial analysis
    JEL: F10 F22 P48
    Date: 2015–08–10
  14. By: M. Berni
    Abstract: A vast number of case studies (some of which are considered classic works) is produced in academic/scientific operative research, thesis and dissertation research as well as in professional practice across a variety of traditional social science disciplines - like psychology, sociology, political science, anthropology, history and economics - and practice oriented fields such as urban planning, public administration, public policy, management sciences, and education. Case studies often occur also in evaluation research (Yin, 1989) and, quoting from Stake (1995, p. 95-6), we can even say that “All evaluation studies are case studies.†In recent years, a deep theoretical and methodological reflection on case studies produced a wide and rich scientific literature in different social research fields including economics, the most ambitious social science in its epistemological aspirations (George e Bennett, 2005). In the field of project evaluation, the extensive use of case studies is not combined with an actual awareness of its theoretical and methodological foundations or its potential as a theory-building tool and, as a consequence, some considerations on case-study as a research strategy are needed. From a methodological point of view, this presentation mainly aims at: <ul><li>framing and defining the case-study as a research strategy (has the case-study scientific bases? What are the main features of case study? In what does it differ from other research strategies (experiment, statistical analysis, archival research, history) setting in which situations case-study is more suitable than other methods and when it is worth using it; </li><li>proposing a definition of a case-study as a research strategy suitable for evaluation and survey;</li><li>illustrating the main types of case-studies in the literature (e.g.: exploratory descriptive, explanatory, intrinsic, instrumental, etc.); </li><li>presenting the case-study research design; </li><li>highlighting the main criticisms to case-studies method (with a special, even though not exhaustive, attention to the problem of results’ generalization and validity). </li></ul><p>From the point of view of evaluation and survey, this work aims at stimulating a reflection on the need to provide evaluative case studies with major scientific foundation suggesting the opportunity to apply a case – study research design suitable to this scientific field.
    Keywords: Case-study, research strategy, evaluation design, evaluative case-study
    JEL: R3
    Date: 2014–12–01
  15. By: Martin Paldam (Department of Economics and Business Economics, Aarhus University, Denmark)
    Abstract: Econ is an economist who behaves as predicted by economic theory. His research for a paper reporting the ‘best’ estimate of an important parameter is modeled. The size of his search is determined from the costs and benefits of running regressions. The size determines the relevant supply side as the production possibility frontier. The demand side is the indifference curves generated where Econ’s preferences meet the market in the form of sponsors, referees and editors. The optimal selection appears as usual. It is shown that it is better than the true one, and that the bias has substantial inertia.
    Keywords: Rational economist, publication bias
    JEL: B4 D24
    Date: 2015–01–09
  16. By: P. Ryan; C. Branigan
    Abstract: Between the mid- 1990’s and the mid- 2000’s, in a period characterized as the Celtic Tiger, the Irish residential real estate market experienced a boom. During the 13 years from 1994 to 2007 house prices rose in excess of 400% and then in September 2007 they started to collapse with a sustained decline continuing for almost six years eventually stabilising in March 2013. From peak to trough this fall was in excess of 50% and in modern times is second only to Japan in terms of magnitude. This series of years of steady price rises accompanied by sustained price declines constitutes a classic speculative bubble which, when it finally burst, had disastrous consequences not only for the housing market, but also for the banking system and the entire Irish economy triggering eventually triggering a bailout from the IMF, European Commission and European Central Bank. This paper explores the role that individual’s emotions potentially played in firstly escalating and eventually pricking this bubble. To do this we conduct a textual analysis on official reports (including IMF and OECD reports) as well as commentary on the real estate market as reported in the media as prices firstly escalated and eventually declined. We also perform a textual analysis of the official reports that were commissioned after the collapse to investigate their analysis of the causes of the bubble. Our findings are consistent with Kindleberger and Aliber (2011) who couch their model of market bubbles in terms of human emotions, though the official reports into the causes of the crisis were largely silent on emotions as a primary driver. Our results have implications for the effectiveness of official policy responses to prevent a similar bubble emerging in the future
    Keywords: Behavioural Finance; Bubbles; Dublin; Rationality
    JEL: R3
    Date: 2015–07–01

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