nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2015‒12‒28
twelve papers chosen by
Karl Petrick
Western New England University

  1. Wage-led versus profit-led demand: What have we learned? A Kalecki-Minsky view By Engelbert Stockhammer
  2. Work and Consumption in an Era of Unbalanced Technological Advance By Benjamin M. Friedman
  3. Veblen, economic policy and the present crisis By Paolo Ramazzotti
  4. Economic Impossibilities for our Grandchildren? By Kevin Hjortshøj O'Rourke
  5. Trickle-Down Consumption, Financial Deregulation, Inequality, and Indebtedness By Francisco ALVAREZ-CUADRADO; Irakli JAPARIDZE
  6. Political capitalism: The interaction between income inequality, economic freedom and democracy By Krieger, Tim; Meierrieks, Daniel
  7. "Losing Ground: Demographic Trends in US Labor Force Participation" By Fernando Rios-Avila
  8. "The ECB, the Single Financial Market, and a Revision of the Euro Area Fiscal Rules" By Mario Tonveronachi
  9. "Redistribution in the Age of Austerity: Evidence from Europe, 2006-13" By Markus P.A. Schneider; Stephen Kinsella; Antoine Godin
  10. "Completing the Single Financial Market and New Fiscal Rules for the Euro Area" By Mario Tonveronachi
  11. Economics of Means-Tested Transfer Programs: Introduction By Robert Moffitt
  12. Dynamics of Socio-Economic systems: attractors, rationality and meaning By Andrzej Nowak; Jørgen Vitting Andersen; Wojciech Borkowski

  1. By: Engelbert Stockhammer (Kingston University)
    Abstract: The Bhaduri-Marglin model has become a widely used workhorse model in heterodox macroeconomics and it has given rise to a dozen or so empirical studies, which at times have given conflicting results. Neo-Kaleckians and neo-Goodwinians have applied different estimation strategies, with the former typically estimating behavioural equations, while the latter have often used reduced-form demand equations. Further differences include the lag structure, the output measure, the control variables and the sample. The paper, firstly, tries to clarify the terms of the debate. While neo-Kaleckians interpret the model as medium-term, partial-equilibrium goods market model, neo-Goodwinians are interested in the interaction of demand and distribution and regard the model as a long-run model with short-run cycles. Second, we elaborate a Kalecki-Minsky view of the economy as characterised by a wage-led demand regime and cycles driven by financial fragility. Many of the reported results may suffer from omitted variable bias as they do not include financial control variables. At least in the recent past, financial effects on demand have been much larger in size than distribution effects. A wage-led Minsky model with reserve army distribution function gives rise to pseudo-Goodwin cycles.
    Keywords: wage-led growth, Bhaduri-Marglin model, Post Keynesian Economics, Minsky cycles
    JEL: B50 E11 E12 E20
    Date: 2015–12
  2. By: Benjamin M. Friedman
    Abstract: Keynes’s “Grandchildren” essay famously predicted both a rapid increase in productivity and a sharp shrinkage of the workweek – to fifteen hours – over the century from 1930. Keynes was right (so far) about output per capita, but wrong about the workweek. The key reason is that he failed to allow for changing distribution. With widening inequality, median income (and therefore the income of most families) has risen, and is now rising, much more slowly than he anticipated. The failure of the workweek to shrink as he predicted follows. Other factors, including habit formation, socially induced consumption preferences, and network effects are part of the story too. Combining the analysis of Keynes, Meade and Galbraith suggests a way forward for economic policy under the prevailing circumstances.
    JEL: E21 E24
    Date: 2015–11
  3. By: Paolo Ramazzotti (Università di Macerata)
    Abstract: <span lang="EN-US" style="mso-ansi-language:EN-US">There are two basic ways to provide a critical view of the economy we live in and of mainstream accounts of it. The first one is to assess whether and how it can meet the procurement requirement, i.e. whether it can achieve the material reproduction of society. It typically includes analyses of the economy’s ability to achieve goals such as full employment, real and financial stability, a decent income for all. The second one is to assess whether, quite independently of its performance, it meets a social requirement, i.e. whether its overall setup is consistent with a range of generally accepted values. The aim of the paper is to focus on this second approach by discussing Veblen’s views of how and why business requirements intrinsically contrast the livelihood of the community. It contends that, in so far as Veblen’s intuition about such a contrast is correct, it should be possible to envisage an appropriate policy to deal with it. Unfortunately, Veblen’s discussion of possible alternatives is not very helpful, in this respect. The paper argues that this has to do with theoretical shortcomings in Veblen’s treatment of profit. The paper is structured as follows. Following the Introduction, Section 2 briefly summarizes the basic features of the Veblenian dichotomy. Section 3 discusses how technology fits into the dichotomy and the unsolved issues in Veblen’s theory. Section 4 points out what appears to be a policy stalemate. It discusses Veblen’s treatment of what he thought could be an alternative to the existing state of affairs. It suggests that Veblen’s notion of pecuniary gain is either too restrictive or too broad to conceive of an economy that overcomes the profitability-serviceability dichotomy. Section 5 contends that a proper understanding of the dichotomy and of possible policies to contrast it has to situate the dichotomy within market relations. Markets are depicted not only as a choice mechanism based on relative prices but as one where important social categories are turned into commodities despite their incompatibility with such a role. This typically Polanyian approach provides some insights on how to conceive of a policy that takes account of the dichotomy but does not waver between the forced acquiescence to the status quo and the millenarian expectation of an all-encompassing change. Our emphasis on the extension of contracted exchange suggests that policy may act on the degree of commodification of the economy and, in particular, of its fictitious commodities. It suggests that other criteria - typically those concerning people’s civil, political and social rights - may prevail over those of relative prices. It goes without saying that this is only a guideline for policy, not a road map. To some extent a guideline such as this one prevailed in some countries during the post Second World War ”golden age”. Neoliberalism has changed this. It has reinstated the principle whereby everything should be conceived of as a commodity, so that markets – contracted exchange based on relative prices - are the ultimate criterion for whatever change. The paper does not aim to discuss the insurgence of neoliberalism. It does suggest, however, that the dichotomy occurs - and should be contrasted – in relation not only to how business chooses the amount and composition of output but also to how it manages labor relations, the creation and application of technology and, more generally, of knowledge.</span>
    JEL: O1 O11
    Date: 2014–11
  4. By: Kevin Hjortshøj O'Rourke
    Abstract: The paper looks at the development of the secular stagnation thesis, in the context of the economic history of the time. It explores some 19th century antecedents of the thesis, before turning to its interwar development. Not only Alvin Hansen, but Keynes and Hicks were involved in the conversations that led to Hansen's eventual statement of the thesis that we are familiar with. The argument made sense in the context of the interwar period, but more so in Britain than the US.
    JEL: B22 N10
    Date: 2015–12
    Abstract: Over the last thirty years the U.S. experienced a surge in income inequality coupled with increasing levels of borrowing. We model an OLG economy populated by two types of household that care about how their consumption compares to that of their peers. In this framework individual debt-to-income ratios decrease with income, increases in consumption of rich households lead to increases in consumption of the rest, and aggregate borrowing increases with income inequality. We calibrate our model to evaluate the welfare implications of the process of financial liberalization that began in the 1980s. Our analysis suggests that some of the …financial developments that lead to the recent expansion of credit may have decreased, rather than increased, welfare.
    Keywords: relative consumption, indebtness, inequality, credit constraints
    Date: 2015
  6. By: Krieger, Tim; Meierrieks, Daniel
    Abstract: In this contribution we study the relationship between income inequality and economic freedom for a panel of 100 countries for the 1971-2010 period. From a panel causality study we find that income inequality has a negative causal effect on economic freedom, while causation does not run in the opposite direction. We argue that the negative effect of inequality on economic liberty is due to the elite's political power stemming from its disproportionate control over a country's economic resources. The elite uses this power to curtail economic freedom to defend its economic interests by discouraging innovation, competition and protecting its rents. Running a series of dynamic panel estimations, we show that the negative effect of income inequality on economic freedom is robust to different sets of controls and estimation techniques. Finally, we show that the dynamics of the inequality-freedom nexus are to some extent conditional upon a country's political regime. When inequality is low, democracies enjoy comparatively higher levels of economic liberty, in line with the interests of a large middle-class. By contrast, economic freedom is lower in democracies (compared to strongly autocratic regimes with the same income distribution) when inequality is high. We argue that the latter finding corresponds to a system of political capitalism or captured democracy, where a powerful economic elite cooperates with politicians and bureaucrats for their mutual benefit.
    Keywords: income inequality,economic freedom,democratic institutions,political capitalism,middle-class,captured democracy
    JEL: D31 D72
    Date: 2015
  7. By: Fernando Rios-Avila
    Abstract: US labor force participation has continued to fall in the wake of the Great Recession. Improvements in the US unemployment rate reflect the fact that more people are falling out of the labor force, not a stronger labor market. Controlling for changes in the demographic makeup of the workforce (i.e., gender, age, education, and race), Research Scholar Fernando Rios-Avila investigates trends in labor force participation across and within groups between 1989 and 2013. He finds that not all groups have lost ground equally, while participation rates for some groups have actually increased. Understanding these patterns in labor force participation is a necessary first step toward crafting effective policy responses.
    Date: 2015–11
  8. By: Mario Tonveronachi
    Abstract: Mario Tonveronachi, University of Siena, builds on his earlier proposal (The ECB and the Single European Financial Market) to advance financial market integration in Europe through the creation of a single benchmark yield curve based on debt certificates (DCs) issued by the European Central Bank (ECB). In this policy brief, Tonveronachi discusses potential changes to the ECB's operations and their implications for member-state fiscal rules. He argues that his DC proposal would maintain debt discipline while mitigating the restrictive, counterproductive fiscal stance required today, simultaneously expanding national fiscal space while ensuring debt sustainability under the Maastricht limits, and offering a path out of the self-defeating policy regime currently in place.
    Date: 2015–11
  9. By: Markus P.A. Schneider; Stephen Kinsella; Antoine Godin
    Abstract: We examine the relationship between changes in a country's public sector fiscal position and inequality at the top and bottom of the income distribution during the age of austerity (2006-13). We use a parametric Lorenz curve model and Gini-like indices of inequality as our measures to assess distributional changes. Based on the EU's Statistics on Income and Living Conditions SLIC and International Monetary Fund data for 12 European countries, we find that more severe adjustments to the cyclically adjusted primary balance (i.e., more austerity) are associated with a more unequal distribution of income driven by rising inequality at the top. The data also weakly suggest a decrease in inequality at the bottom. The distributional impact of austerity measures reflects the reliance on regressive policies, and likely produces increased incentives for rent seeking while reducing incentives for workers to increase productivity.
    Keywords: Inequality; Austerity; Europe; Fiscal Policy; Lorenz Curve
    JEL: D31 D63 E62 E65 H6
    Date: 2015–12
  10. By: Mario Tonveronachi
    Abstract: Until market participants across the euro area face a single risk-free yield curve rather than a diverse collection of quasi-risk-free sovereign rates, financial market integration will not be complete. Unfortunately, the institution that would normally provide the requisite benchmark asset--a federal treasury issuing risk-free debt--does not exist in the euro area, and there are daunting political obstacles to creating such an institution. There is, however, another way forward. The financial instrument that could provide the foundation for a single market already exists on the balance sheet of the European Central Bank (ECB): legally, the ECB could issue "debt certificates" (DCs) across the maturity spectrum and in sufficient amounts to create a yield curve. Moreover, reforming ECB operations along these lines may hold the key to addressing another of the euro area's critical dysfunctions. Under current conditions, the Maastricht Treaty's fiscal rules create a vicious cycle by contributing to a deflationary economic environment, which slows the process of debt adjustment, requiring further deflationary budget tightening. By changing national debt dynamics and thereby enabling a revision of the fiscal rules, the DC proposal could short-circuit this cycle of futility.
    Date: 2015–12
  11. By: Robert Moffitt
    Abstract: This volume collects a series of essays by prominent economists on each of the major means-tested, or welfare, programs in the United States: the Medicaid, Earned Income Tax Credit, Supplemental Nutrition Assistance, Temporary Assistance for Needy Families, Supplemental Security Income, Subsidized Housing, Training, and Early Education programs. Each essay covers the institutional history of a program, the policy issues surrounding it, its rules and regulations, its history of expenditure and caseloads, and, most importantly, a summary of the research that economists have conducted on the program and the findings from that research. The volume is an update of a popular first volume in 2003 which became a reference Handbook on the shelf of all economists and policy-makers who work on, or who are interested in, transfer programs in the United States. The new volume focuses primarily on the changes in programs which have occurred since 2003 and the results of new research since that date. The volume will be a timely contribution to on-going policy discussions in Washington and elsewhere, bringing the available evidence to bear on the many issues surrounding those programs.
    JEL: I3
    Date: 2015–11
  12. By: Andrzej Nowak (Institute for Social Studies, University of Warsaw - Institute for Social Studies, University of Warsaw,, Florida Atlantic University [Boca Raton]); Jørgen Vitting Andersen (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Wojciech Borkowski (University of Social Sciences and Humanities - University of Social Sciences and Humanities)
    Abstract: Gintis Helbing and go beyond the traditional boundaries of scientific disciplines and offer the integration of major theories of the main disciplines of the social and natural sciences. The theory captures many ideas of social psychology. Several assumptions of the model, however, can be questioned. The hypothesis that social systems are at equilibrium is too narrow, because social systems can also be out of balance. The concept of dynamic attraction shows that the systems may converge to different types of attractors in accordance with the value of control parameters. The notion of rationality of human behavior can be challenged on the basis of new data of psychology, decision sciences and behavioral economics. Often individuals do not process information, but rather copy the choices of others. Individuals interact by both direct and indirect means – if market mechanisms. More importantly, the social dynamic, unlike physical systems, are governed by a sense. Despite these limitations of the theory and Gintis Helbing is an important step in the integration of social sciences.
    Keywords: Complex system,adaptive system,general equilibrium
    Date: 2015–10

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