nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2016‒04‒23
twelve papers chosen by
Karl Petrick
Western New England University

  1. The Dichotomy, Inconsistency, and Peculiar Outmodedness of the „Mainstream“ Textbook. The Example of Institutions By Elsner, Wolfram
  2. Heterodox Challenges to Consumption-Oriented Models of Legislation By Luigi Russi; John D. Haskell
  3. The Heckscher-Ohlin-Samuelson Model and the Cambridge Capital Controversies By Kurose, Kazuhiro; Yoshihara, Naoki
  4. Labor in the Twenty-First Century:The Top 0.1% and the Disappearing Middle-Class By William Lazonick
  5. From Abstraction to Phenomenology in Social Theory: Yanis Varoufakis the Economist By Ugo Mattei
  6. Transnational Theory, Global World: Theory Matters, Not Geography By Phoebe Gardner
  7. Skill Development and Sustainable Prosperity:Cumulative and Collective Careers versus Skill-Biased Technical Change By William Lazonick; Philip Moss; Hal Salzman; Öner Tulum
  8. Playing the game the others want to play: Keynes’ beauty contest revisited. By Camille Cornand; Rodolphe Dos Santos Ferreira
  9. Three Measures of Environmental Inequality By James K. Boyce; Klara Zwickl; Michael Ash
  10. On Behavioral Macroeconomics, Globalization, and Economic Growth By Rosas-Martinez, Victor H.
  11. Corruption, Inequality and Economic Growth By Ambar, Rabnawaz
  12. So what is Capital in the Twenty-First Century? Some notes on Piketty’s book Working paper, forthcoming in Capitalism & Society By Kornai, János

  1. By: Elsner, Wolfram
    Abstract: This paper critically reviews the leading microeconomic textbooks of Varian, Pindyck/Rubinfeld, and Schumann/Meyer/Stroebele, with a focus on their theoretical inconsistencies and their lack of an institutional perspective.
    Keywords: microeconomics; economic teaching; textbooks; institutions
    JEL: A20 A22 A23
    Date: 2016–04–03
  2. By: Luigi Russi (International University College of Turin); John D. Haskell (Mississippi College School of Law)
    Abstract: Consumption-oriented models of governance dominate the contemporary global legal architecture. The financial crisis beginning in 2008, however, poses fundamental questions about the future viability of these approaches to economics and law. This paper attempts to first, evaluate consumption's salient historical development and themes from the post World War II era to more recent legislative innovation, and second, introduce seven heterodox vignettes that challenge the hegemony of consumption in legislative policy. The paper concludes with some brief reflections upon potential opportunities and limitations of these heterodox traditions within future scholarship and policy addressing the interplay of law and consumption in global governance.
    Keywords: political economy, ordoliberalism, critical legal theory, deep ecology, consumerism
    JEL: N30 P16 P46
    Date: 2015–04
  3. By: Kurose, Kazuhiro (Graduate School of Economics and Management, Tohoku University); Yoshihara, Naoki (Department of Economics, University of Massachusetts, Amherst)
    Abstract: This paper examines the validity of the factor price equalisation theorem (FPET) in relation to capital theory. Additionally, it presents a survey of the literature on Heckscher–Ohlin–Samuelson (HOS) models that treat capital as a primary factor, beginning with Samuelson (1953). Furthermore, this paper discusses the Cambridge capital controversy, which contends that marginal productivity theory does not hold when capital is assumed to be as a bundle of reproducible commodities instead of as a primary factor. Consequently, it is shown that under this assumption, the FPET does not hold, even when there is no reversal of capital intensity. This paper also demonstrates that the recent studies on the dynamic HOS trade theory generally ignore the di¢ culties posed by the capital controversies and are thereby able to conclude that the FPET holds even when capital is modelled as a reproducible factor. Our analysis suggests that there is a need for a basic theory of international trade that does not rely on factor price equalisation and a model that formulates capital as a bundle of reproducible commodities.
    Keywords: factor price equalisation, capital as the bundle of reproducible commodities, reswitching of techniques, capital reversing.
    JEL: B51 D33 F11
    Date: 2016
  4. By: William Lazonick (University of Massachusetts Lowell and The Academic-Industry Research Network.)
    Abstract: The ongoing explosion of the incomes of the richest households and the erosion of middle-class employment opportunities for most of the rest have become integrally related in the now-normal operation of the U.S. economy. Since the beginning of the 1980s, employment relations in U.S. industrial corporations have undergone three major structural changes – summarized as “rationalization,†“marketization,†and “globalization†– that have permanently eliminated middle-class jobs in the United States. From the early 1980s, rationalization, characterized by plant closings, terminated the jobs of high-school educated blue-collar workers, most of them well-paid union members. From the early 1990s, marketization, characterized by the end of a career with one company as an employment norm, placed the job security of middle-aged whitecollar workers, many of them college educated, in jeopardy. From the early 2000s, globalization, characterized by the movement of employment offshore to lower-wage nations, left all members of the U.S. labor force, whatever their educational credentials and work experience, vulnerable to displacement. Initially, these structural changes in employment could be justified as business responses to changes in technologies, markets, and competitors. Once U.S. corporations transformed their employment relations, however, they often pursued rationalization, marketization, and globalization to cut current costs rather than to reposition themselves to produce competitive products. Defining superior corporate performance as ever-higher quarterly earnings per share, companies turned to massive stock repurchases to “manage†their own corporations’ stock prices. Trillions of dollars that could have been spent on innovation and job creation in the U.S. economy over the past three decades have instead been used to buy back stock for the purpose of manipulating stock prices. Legitimizing this financialized mode of corporate resource allocation has been the ideology, itself a product of the 1980s and 1990s, that a business corporation should be run to “maximize shareholder value.†Through their stock options and stock awards, corporate executives who make these resource-allocation decisions are themselves prime beneficiaries of the focus on rising stock prices as the sole measure of corporate performance. While rationalization, marketization, and globalization undermined stable and remunerative employment structures, the “financialization†of the U.S. corporation entailed the distribution of corporate cash to shareholders through stock repurchases, often in addition to generous cash dividends, and, incentivizing these distributions, the stock-based remuneration of top corporate executives. In this essay, I review evidence on the fundamental structural changes related to rationalization, marketization, and globalization that, since the early 1980s, have eroded U.S. middle-class employment opportunities. Then, I analyze how, in many different ways and in many different industries, the financialized mode of corporate resource allocation has undermined the prosperity of the U.S. economy. I go on to show how justified by the ideology that companies should be run to “maximize shareholder value,†this financialized behavior boosts the remuneration of top corporate executives, providing a major explanation for the increasing concentration of income among the top 0.1% of U.S. households that is, through the very way it is achieved, based on the systematic destruction of middle-class employment opportunities available to members of the U.S. labor force.
    JEL: D22 D31 G35 G38 J53 L21 M12 M21 N82 O30 P12
    Date: 2015–02
  5. By: Ugo Mattei (UC Hastings, University of Turin & IUC Turin)
    Abstract: This document contains the text of the academic 'laudatio' delivered by IUC Academic Coordinator Ugo Mattei, upon appointing Yanis Varoufakis a Honorary Professor of the IUC in March 2016. The address presents an overview of Yanis Varoufakis' intellectual development and trajectory, to demonstrate how the latter fulfils the motivations underpinning his honorary appointment, namely: (i) Varoufakis' denunciation, informed by disciplinary acumen, of the theoretical and practical failure of the current mainstream approach in economics; (i) his deep theoretical contribution to the discipline of Political Economy through the recovery of the humanistic thought of Karl Marx; (iii) his lucid analysis of the reasons for the collapse of austerity policies in Europe and elsewhere; (iv) his vivid demonstration of the fallacy – also theoretical – of the extractive financial policies that victimize the working classes, the poor and the commons in Europe; (v) the clarity, in his theoretical work, about the incompatibility with the democratic ideal of a macroeconomic framework devoid of government instruments able to cushion the shock to the markets imposed by the capitalist mode of production in the absence of regulation and control of financial speculation.
    Keywords: Yanis Varoufakis, political economy, heterodox economics, economic uncertainty, Europe, Greece, democracy
    JEL: B1 B31 B51
    Date: 2016–01
  6. By: Phoebe Gardner
    Abstract: The tools designed to analyse a globalising world ought to be specifically designed to address problems presented by that global world, rather than settling for those engineered for the century prior. The study of International Relations (IR) is dominated by mainstream problem-solving International Relations Theory (IRT), which tends to describe rather than explain phenomena. Analysis is hindered by dependence upon rigid concepts such as the nation-state and the balance of power. However, IR has witnessed an analytical shift toward concepts that utilise culture by engaging with the discipline’s strength: its interdisciplinary nature. Unfortunately, recruiting non-Western and alternative perspectives has become equated to an exercise designed to simply tickoff a certain amount of nation-states from a quota. In this sense, IRT ought to aspire to be transnational in nature, in order to effectively engage with problems presented by the global world in which it exists. Therefore, as this article suggests, in pursuing alternative cultural perspectives, it is the integrity of the theory itself that matters, rather than the geographical origin.
    Keywords: International Relations Theory, Critical Theory, Transnational Approach, Non-Western Approach, Cultural Perspectives, Power-Knowledge Relations.
    JEL: Y8
    Date: 2015–10
  7. By: William Lazonick (University of Massachusetts Lowell and The Academic-Industry Research Network.); Philip Moss (University of Massachusetts Lowell); Hal Salzman (Rutgers University); Öner Tulum (The Academic-Industry Research Network.)
    Abstract: There is widespread and growing concern about the availability of good jobs in the U.S. economy. Inequality has been growing for thirty years and is now at levels not seen since the 1920s. Stable and remunerative employment has become harder for U.S. workers to find. With the widespread plant closings of the 1980s, the loss of these “middle-class†employment opportunities was confined largely to blue-collar workers with high-school educations. As a group, members of the U.S. labor force with college educations always do better than those with high-school educations, but over the course of the 1980s the wage premium to having a college education expanded significantly. During the 1990s and 2000s, however, older and experienced college-educated white-collar workers began to find their earnings under pressure as the career employment opportunities available to them became far less plentiful, stable, secure, and remunerative than they had once been. In the 1990s major industrial corporations shifted sharply away from the norm of a white-collar career with one company that had prevailed since the 1940s. Then in the 2000s U.S. white- collar workers faced the incessant offshoring of jobs to be filled by college-educated workers in lower-wage developing economies, with India and China in the forefront. The Great Recession of 2007 to 2009 and its aftermath have only heightened these concerns about the ongoing disappearance of middle-class jobs. In this paper, we present an approach for analyzing these changes in middle-class employment opportunities that differs fundamentally from the dominant paradigm among economists known as “skill-biased technical change†(SBTC). Like all economists who adhere to the neoclassical theory of the market economy, SBTC assumes that wages are determined through the forces of supply and demand in the labor market. In contrast, our study of the development of the U.S. economy over the past half century views the primary determinant of wages on a sustainable basis as the employment practices of major business enterprises. We contend that, except when labor is an interchangeable commodity, wages are determined in business organizations where the promise of wage increases over time are both an inducement to supply more and better work effort when engaged in productive activities, and a reward for having done so in ways that add value over time. For employees in high-tech fields – known collectively as STEM (science, technology, engineering, and mathematics) workers – wages are determined not by supply and demand in the labor market but rather by the employment relations that prevail within leading business enterprises. The reason: Productivity in high-tech fields depends on learning that is both collective and cumulative. Focusing on STEM employment, we explore the hypothesis that the productivity and earnings of high-tech workers depend on collective and cumulative careers.
    JEL: D3 D4 G3 J3 L2 M1 N8 O3 P1
    Date: 2014–12
  8. By: Camille Cornand; Rodolphe Dos Santos Ferreira
    Abstract: In Keynes’ beauty contest, agents make choices by referring to their expectations of some fundamental value and of the conventional value to be set by the market. In doing so, agents respond to fundamental and strategic motives, respectively. The prevalence of either motive is usually set exogenously. Our contribution is to consider whether agents favor one of the two motives when the relative weights put on them are taken as strategic variables. We show that the strategic motive tends to prevail over the fundamental one, yielding a disconnection of agents’ actions from the fundamental. This is done in a simple valuation game emphasizing the role of public information. We then extend the same result to competition between the owners of two firms, by using a delegation game in which informational issues are embedded into a broader microfounded setting.
    Keywords: beauty contest, dispersed information, public signals, coordination, competition.
    Date: 2016
  9. By: James K. Boyce (Department of Economics and Political Economy Research Institute, University of Massachusetts Amherst); Klara Zwickl (Department of Socio-Economics, Vienna University of Economics and Business, and Department of Economics, University of Massachusetts Amherst); Michael Ash (Department of Economics and Center for Public Policy and Administration, University of Massachusetts Amherst)
    Abstract: Using data on industrial air pollution exposure in the United States, we compute three measures of environmental inequality: the Gini coefficient of exposure, the ratio of median exposure of minorities to that of non-Hispanic whites, and the ratio of median exposure of poor households to that of non-poor households. Comparing inequalities!in states and Congressional districts, we find that relative rankings by the three measures vary considerably. We conclude that different measures of environmental inequality may be appropriate for different analytical purposes.
    JEL: I14 Q53 Q56 R11
  10. By: Rosas-Martinez, Victor H.
    Abstract: We assess theoretically the effect of forming a free trade union on the total production of a nation, where such effects are caused by the absorption of technologies. A popular metaphor describes the people as crabs in a bucket because when one crab tries to scape, the others pull it down avoiding a possible way out for all of them. Given this knowledge, posteriorly and independently of the income inequality levels, we extend our analyses to consider the effect of envy in a macroeconomic level on the total production, and draw the implications which this phenomenon has on the formation of free trade unions. We make strategic policy recommendations to allow the achievement of a globalization that benefits each member nation, where we show that the great trade union might have to start with gradual and charitable subregional agreements.
    Keywords: International Trade; Technological Absorption; Behavioral Macroeconomics; Economic Growth; Trade Policy
    JEL: O11 O24
    Date: 2015–06–18
  11. By: Ambar, Rabnawaz
    Abstract: Corruption is worst curse of social system, which ruins all values of community and derails badly. It causes inequality in the whole chain, due to which some parties get too much profit, while other becomes miserable, leading to several street crimes as well as moral devaluations. Due to corruption and inequality, the economic growth is poorly affected, leading to imbalance in the society, causing lack of demand in the market, opportunities of labor and misbehavior of customers. Public can not avail proper advantages of capital movement in the society, and there is no proper regulation of taxation, due to that economic growth also become stuck at low levels.
    Keywords: Corruption, inequality, economic growth, society, tax
    JEL: A1 D8 D80
    Date: 2015
  12. By: Kornai, János
    Abstract: This study was inspired by Piketty’s excellent and important book. Its title and numerous statements in it arouse in readers expectations of a comprehensive analysis of capitalism. By comparison the author of this paper felt important aspects were lacking. The capitalist system has numerous immanent traits and innate tendencies, of which the paper takes a closer look at three properties. 1. One basic feature is dynamism, innovation, and creative destruction. No picture of capitalism can be full if this basic aspect is ignored. 2. Capitalism inevitably brings about a high degree of inequality; this must be eased by reforms, but cannot be entirely overcome. 3. The basic characteristics of capitalism – private ownership and the dominance of market coordination – give rise to strong incentive mechanisms that encourage but owners and enterprise executives to innovate and to cooperate effectively. One of the main incentives is competition, especially oligopolistic competition. There are strong mutual effects among these three important tendencies. It is impossible to understand well Piketty’s main subject, the distribution of income and wealth, if it is divorced from the other two tendencies. The study ends with its author’s own value judgements on the favourable and harmful, unjust attributes of the capitalist system.
    Keywords: capitalism, comparative approach, innovation, income distribution, incentives, sources of top income
    JEL: D21 D30 D60 N10 O31 P10 P51
    Date: 2016–04–11

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