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on Post Keynesian Economics |
| By: | Mariana Mazzucato (Science Policy Research Unit, University of Sussex); Caetano C.R. Penna (Science Policy Research Unit, University of Sussex) |
| Abstract: | Recent work has highlighted the need for innovation investments to be understood through a mission oriented approach rather than a market failure one (Foray et al. 2012). However, this work has only focused on state agencies, such as DARPA, overlooking the role of public financial institutions such as state investment banks. Indeed, with the increasingly short-term nature of private financial markets, the role of public financial institutions has become increasingly important, and yet they continue to be analysed and evaluated through the market failure framework. Beginning with the importance of SIBs today in the emerging green economy, the paper develops a conceptual typology of the different roles that SIBs play in the economy which together show the market creation/shaping process of SIBs, rather than their mere ‘market fixing’ roles. The paper discusses four types of investments, both theoretically and empirically: countercyclical; developmental; venture capitalist role; and challenge-led. To develop the typology, we first discuss how standard market failure theory (MFT) justifies the roles of SIBs, the diagnostics and evaluation toolbox associated with it, and resulting criticisms centred on notions of ‘government failures’. We then show the limitations of this approach based on insights from Keynes, Schumpeter, Minsky and Polanyi, and other authors from the evolutionary economics tradition, which help us move towards a framework for public investments that is more about market creating/shaping rather than market fixing. As frameworks lead to evaluation tools, we use this new lens to both discuss the increasingly targeted investments that SIBs are making, and to provide a new light on the usual criticisms that are made about such directed activity (e.g. crowding out and picking winners). |
| JEL: | G20 O16 O38 L52 P16 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:7&r=pke |
| By: | Dimitri B. Papadimitriou; Michalis Nikiforos; Gennaro Zezza |
| Abstract: | Our latest strategic analysis reveals that the US economy remains fragile because of three persistent structural issues: weak demand for US exports, fiscal conservatism, and a four-decade trend in rising income inequality. It also faces risks from stagnation in the economies of the United States' trading partners, appreciation of the dollar, and a contraction in asset prices. The authors provide a baseline and three alternative medium-term scenarios using the Levy Institute's stock-flow consistent macro model: a dollar appreciation and reduced growth in US trading partners scenario; a stock market correction scenario; and a third scenario combining scenarios 1 and 2. The baseline scenario shows that future growth will depend on an increase in private sector indebtedness, while the remaining scenarios underscore the linkages between a fragile US recovery and instability in the global economy. |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levysa:sa_mar_16&r=pke |
| By: | Franz Dietrich (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Christian List (LSE - London School of Economics) |
| Abstract: | Behaviourism is the view that preferences, beliefs, and other mental states in social-scientific theories are nothing but constructs re-describing people's behaviour. Mentalism is the view that they capture real phenomena, on a par with the unobservables in science, such as electrons and electromagnetic fields. While behaviourism has gone out of fashion in psychology, it remains influential in economics, especially in 'revealed preference' theory. We defend mentalism in economics, construed as a positive science, and show that it fits best scientific practice. We distinguish mentalism from, and reject, the radical neuroeconomic view that behaviour should be explained in terms of brain processes, as distinct from mental states. |
| Keywords: | decision theory,scientific realism,Mentalism,behaviourism,revealed preference |
| Date: | 2016–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01249632&r=pke |
| By: | Mark Setterfield (New School For Social Research,); Yun K. Kim (University of Massachusetts, Boston); Jeremy Rees (Trinity College, Hartford) |
| Abstract: | We investigate the claim that the way in which debtor households service their debts matters for macroeconomic performance. A Kaleckian growth model is modified to incorporate working households who borrow to finance consumption that is determined, in part, by the desire to emulate the consumption patterns of more affluent households. The impact of this behavior on the sustainability of the growth process is then studied by means of a numerical analysis that captures various dimensions of income inequality. When compared to previous contributions to the literature, our results show that the way in which debtor households service their debt has both quantitative and qualitative effects on the economy’s macrodynamics. |
| Keywords: | Consumer debt, emulation, income distribution, Golden Age regime, Neoliberal regime, expenditure cascades, growth |
| JEL: | E12 E44 O41 |
| Date: | 2015–11 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:31&r=pke |
| By: | Kazuhiro Kurose (Tohoku University); Naoki Yoshihara (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 difficulties 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: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:kch:wpaper:sdes-2016-4&r=pke |
| By: | Joseph E. Gagnon (Peterson Institute for International Economics) |
| Abstract: | After short-term interest rates in many advanced economies fell below 1 percent, central banks turned to quantitative easing (QE) to support economic growth. They purchased massive and unprecedented amounts of long-term bonds in an effort to reduce long-term borrowing costs. Nevertheless, recovery from the Great Recession proved disappointingly slow. Recently, some central banks have pushed short-term interest rates slightly below zero to provide an additional boost to growth. The slow recovery and the turn to negative rates have raised questions about the benefits of QE bond purchases and whether their effectiveness has reached a limit. Gagnon reviews the outpouring of research on QE and its effects and finds overwhelming evidence that QE does ease financial conditions and supports economic growth. The channels are similar to those of conventional monetary policy. QE can be especially powerful during times of financial stress, but it has a significant effect in normal times with no observed diminishing returns. Rarely, if ever, have economists studying a specific question reached such a widely held consensus so quickly. But this consensus has yet to spread more broadly within the economics profession or the wider world. |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:iie:pbrief:pb16-4&r=pke |
| By: | Alberto Paloni; John Ebireri |
| Abstract: | According to mainstream economic theory, development of the banking sector is essential to fund innovation and technological development, especially in developing countries. In turn, this is expected to cause a shift in comparative advantage towards more sophisticated export goods. Moreover, as financial development relaxes firms’ liquidity constraints, the expectation is that this would result in a greater capacity to export and hence diversification in the export basket. Alternative economic theories are more critical. On the basis of a different conceptualisation of technological advancement which emphasises the centrality of learning and the tacit character of technology, they conclude that financial liberalisation policies would not make more finance available for innovative activities. To the contrary, the main beneficiaries of such policies would be firms employing simpler technologies and making low value added products. Thus, financial development is more likely to prevent an improvement in the degree of sophistication of a country’s export basket. Moreover, as finance is directed towards activities in which the country is already competitive, diversification of the export basket is also hindered. Our empirical analysis provides support for these heterodox theories. Recent empirical work by mainstream researchers also finds that banking sector development forces countries to specialise in accordance with their existing comparative advantage. However, mainstream and heterodox economic theories reach opposite conclusion on whether this is a beneficial process. |
| Keywords: | bank development, export sophistication, export concentration, technological progress, developing countries |
| JEL: | B5 O1 O3 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2016_10&r=pke |
| By: | Yekaterina Chzhen; Sudhanshu Handa; Emilia Toczydlowska; Zlata Bruckauf; UNICEF Innocenti Research Centre |
| Abstract: | With income inequality increasing and children exposed to higher risks of poverty and material deprivation than the population as a whole in the majority of European countries, there is a concern that income inequality among children has worsened over the financial crisis. This paper presents results on the levels of bottom-end inequality in children’s incomes in 31 European countries in 2013 and traces the evolution of this measure since 2008. The relative income gap worsened in 20 of the 31 European countries between 2008 and 2013. Social transfers play a positive role in reducing income differentials, as post-transfer income gaps are smaller than those before transfers, especially in countries like Ireland and the United Kingdom. Countries with greater bottom-end income inequality among children have lower levels of child well-being, and higher levels of child poverty and material deprivation. |
| Keywords: | child poverty; child well-being; income distribution; income groups; |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ucf:inwopa:inwopa842&r=pke |