nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2016‒05‒28
fifteen papers chosen by
Karl Petrick
Western New England University

  1. Full Employment, Open Economy Macroeconomics, and Keynes’ General Theory: Does the Swan Diagram Suffice? By Paul Davidson
  2. Economics, Neuroeconomics, and the Problem of Identity By Davis, John B.
  3. Autonomous government expenditure growth, deficits, debt and distribution in a neo-Kaleckian growth model By Hein, Eckhard
  4. "The Greek Public Debt Problem" By Michalis Nikiforos; Dimitri B. Papadimitriou; Gennaro Zezza
  5. Weaknesses of 'wage-led growth' By Skott, Peter
  6. "Going Forward from B to A? Proposals for the Eurozone Crisis" By Massimo Amato; Luca Fantacci; Dimitri B. Papadimitriou; Gennaro Zezza
  7. Luigi Pasinetti and the Political Economy of Growth and Distribution By Joseph Halevi
  9. Determinants of US household debt: New evidence from the SCF By Rafael Wildauer
  10. Innovative Enterprise or Sweatshop Economics? In Search of Foundations of Economic Analysis By William Lazonick
  11. The role of inequality in climate-poverty debates By Tschakert,Petra
  12. The Japanese macroeconomic mystery By W Max Corden; Sisira Jayasuriya
  13. Banking Crises By Richard S.Grossman
  14. Human Capital and Education: The State of the Art in the Economics of Education By Burgess, Simon
  15. Black Lives Matter: How the Portrayal of Race in the U.S. Media Frames Racial Opinion, Discourse, and Violence By Savanna Washington

  1. By: Paul Davidson (University of Tennessee.)
    Abstract: This paper provides critical comments on the Peter Temin - David Vines promotion of the basic Swan Diagram as (1) a policy tool to encourage any individual debtor nation experiencing balance of payment deficits to reduce its exchange rate in order to expand exports and reduce imports and (2) the Swan Diagram as a simple model for understanding Keynes's General Theory for an Open Economy. This paper explains that the Swan Diagram is completely incompatible with Keynes's analysis. Instead Keynes advocated that the onus should be placed on creditor nations to correct international payments imbalances and thereby promote economic expansion internationally. Keynes warned against any deficit nation adopting a policy that tries to achieve a balance in its international payments by following any policy designed to reduce imports and increase exports. Such a policy sends a contractionary force onto the international economy and tends to injure all trading partners.
    Keywords: Swan Diagram, balance of payments, fiscal policy, neoclassical Synthesis Keynesianism, Post Keynesianism.
    JEL: B3 E12 E42 E61 F33 F41
  2. By: Davis, John B. (Department of Economics Marquette University)
    Abstract: This paper reviews the debate in economics over neuroeconomics’ contribution to economics. It distinguishes majority and minority views, argues that this debate has been framed by mainstream economics’ conception of itself as an isolated science, and argues that this framing has put off the agenda in economics issues such as individual identity that are increasingly important in connection with the social and historical context of economic explanations in a changing complex world. The paper first discusses how the debate over neuroeconomics has been limited to the question of what information from other sciences might be employed in economics. It then goes on to the individual identity issue, and discusses how economics’ top-down, closed character generates a circular individual identity conception, while bottom-up, open character of psychology and neuroscience, and their continual concern with the changing relation between theory and evidence, has produced four competing individual identity conceptions in neuroeconomic research.
    Keywords: neuroeconomics, mainstream economics, isolated science, identity, revealed preference, circularity, MRI, distributed cognition
    JEL: A12 B41 D03 D87
    Date: 2016–04
  3. By: Hein, Eckhard
    Abstract: This paper is linked to some recent attempts at including a non-capacity creating autonomous expenditure category as the driver and determinant of growth into Kaleckian distribution and growth models. Whereas previous contributions have focussed on taming Harrodian instability, generated by the deviation of the goods market equilibrium rate of capacity utilisation from a normal or target rate of utilisation, we rather focus on the so far neglected issues of deficit, debt and distribution dynamics in such models. For this purpose we treat the growth of government expenditures on goods and services, financed by credit creation, as the exogenous growth rate driving the system. We examine the medium-run convergence of the system towards such a growth rate, analyse the related long-run debt dynamics and deal with stability and income distribution issues. Finally we touch upon the economic and, in particular, fiscal policy implications of our model results.
    Keywords: government deficits and debt,public expenditure growth,Kaleckian distribution and growth model
    JEL: E11 E12 E25 E62
    Date: 2016
  4. By: Michalis Nikiforos; Dimitri B. Papadimitriou; Gennaro Zezza
    Abstract: This paper examines the issue of the Greek public debt from different perspectives. We provide a historical discussion of the accumulation of Greece's public debt since the 1960s and the role of public debt in the recent crisis. We show that the austerity imposed since 2010 has been unsuccessful in stabilizing the debt while at the same time taking a heavy toll on the Greek economy and society. The experience of the last six years shows that the country's public debt is clearly unsustainable, and therefore a bold restructuring is needed. An insistence on the current policies is not justifiable either on pragmatic or on moral or any other grounds. The experience of Germany in the early post-World War II period provides some useful hints for the way forward. A solution to the Greek public debt problem is a necessary but not sufficient condition for the solution of the Greek and wider European crisis. A broader agenda that deals with the malaises of the Greek economy and the structural imbalances of the eurozone is of vital importance.
    Keywords: Greece; Public Debt; Austerity; Eurozone; Crisis
    JEL: E62 F34 F41 N10 N94
    Date: 2016–05
  5. By: Skott, Peter (Department of Economics, University of Massachusetts, Amherst)
    Abstract: The emphasis in post-Keynesian macroeconomics on wage-versus profit-led growth may not have been helpful. The profit share is not an exogenous variable, and the correlations between the profit share and economic growth can be positive for some exogenous shocks but negative for others. The terminology, second, suggests a unidirectional causality from distribution to aggregate demand while in fact distribution can itself be directly affected by shifts in aggregate demand. The reduced form correlations,third, depend on interactions with the labor market, and a focus on the goods market can be misleading. If, fourth, empirical estimates are taken at face value, the support for wage-led conclusions is much weaker than suggested by the literature. A focus on the growth-benefits of a reduction in inequality, finally, makes for an impoverished policy discussion.
    Keywords: investment, saving, income distribution, Lucas critique, Marglin-Bhaduri model
    JEL: E2 O41
    Date: 2016
  6. By: Massimo Amato; Luca Fantacci; Dimitri B. Papadimitriou; Gennaro Zezza
    Abstract: After reviewing the main determinants of the current eurozone crisis, this paper discusses the feasibility of introducing fiscal currencies as a way to restore fiscal space in peripheral countries, like Greece, that have so far adopted austerity measures in order to abide by their commitments to eurozone institutions and the International Monetary Fund. We show that the introduction of fiscal currencies would speed up the recovery, without violating the rules of eurozone treaties. At the same time, these processes could help transition the euro from its current status as the single currency to the status of "common clearing currency," along the lines proposed by John Maynard Keynes at Bretton Woods as a system of international monetary payments. Eurozone countries could therefore move from "Plan B," aimed at addressing member-state domestic problems, to a "Plan A" for a better European monetary system.
    Keywords: Euro; Fiscal Currencies; Austerity; Current Account Imbalances; Clearing Union
    JEL: E02 E12 E42 F45
    Date: 2016–05
  7. By: Joseph Halevi (International University College of Turin)
    Abstract: Luigi Pasinetti’s work has deeply affected modern economic theory. His papers on the Cambridge Capital Controversy are world renowned. But he has made many other contributions to the economic debates of the last half century, offering not only detailed criticisms of mainstream economic theory, but also the elaboration of an alternative, more complete, and coherent framework for understanding growth and income distribution, structural change, and trade relations. He has also made notable contributions to discussions of economic policy. Pasinetti’s papers are very clearly written, but many are formidably technical and often build cumulatively on his previous work. This paper provides a careful and synthetic overview of his contributions as well as a reconstruction of Pasinetti’s philosophical approach to economics as a science meant to serve humanity.
    Keywords: Luigi Pasinetti, Capital Controversy, Piero Sraffa, Classical Economics, Vertical Integration, Theory of Value and Prices, Structural Dynamics, Trade, Growth, Crises, Maastricht Criteria.
    JEL: B31 B4 B5 C6 E1 F1
  8. By: Richard G. Lipsey (Simon Fraser University)
    Abstract: Advocates of green-growth policies and those who advocate policies to stop growth both accept that the world faces serious environmental problems. They disagree on and debate about appropriate remedies. Green-growth advocates argue that it is possible to create a green economy compatible with sustained growth. The no-growth advocates argue that the whole growth process must be stopped if the planet is to be saved from catastrophe. This short paper argues that choosing the optimal policy for dealing with these serious problems does not require deciding which group is right. Instead it is argued that the optimal policy is to act as if the green-growth advocates are right and only if they are proved wrong by the failure of their policies to do the job, should no-growth policies be attempted.
    Keywords: climate change, green growth, no-growth policies, environmental policies, carbon pricing.
    JEL: Q28 Q38 Q48
    Date: 2016–04
  9. By: Rafael Wildauer (Kingston University)
    Abstract: This paper investigates the factors driving US household borrowing up to 2007. Two popular explanations are tested: First, the expenditure cascades hypothesis based on the assumption of debt-financed expenditures driven by an increasingly polarised distribution of income (‘keeping up with the Joneses’) and second, the hypothesis of Minskyian households which identifies climbing real estate prices as the decisive factor in household debt accumulation (re-mortgaging in order to cash in on capital gains and rising loan-to-value ratios in property purchases). This paper develops a method for obtaining individual household borrowing figures despite the lack of a panel structure from the Survey of Consumer Finances (SCF); it is the first to use the high quality information the SCF provides to investigate the impact of shifts in the income distribution and asset prices on household borrowing. The findings indicate that it is the interaction between the concentration of income at the top of the distribution and rising real estate prices which explains a large fraction of the increase in household borrowing prior to 2008. Therefore, neither the expenditure cascades hypothesis nor the hypothesis of Minskyian households are, in isolation, sufficient in order to understand household debt accumulation and thus the paper calls for a synthesis: future research should analyse the role of the distribution of income and asset prices together rather than separately.
    Keywords: household debt, expenditure cascades, wealth effects, Minsky
    JEL: D12 D31 E03 E12
    Date: 2016–05
  10. By: William Lazonick (University of Massachusetts Lowell and The Academic-Industry Research Network.)
    Abstract: In Capitalism, Socialism, and Democracy, Joseph Schumpeter asserts: “perfect competition is not only impossible but inferior, and has no title to being set up as a model of ideal efficiency.†For neoclassical economists, the large corporation is a “market imperfection†that, compared with “perfect competition,†should result in higher product prices and lower industry output. Yet business history reveals the capability of the most productive enterprises to generate massive quantities of output at low costs to attain large market shares with buyers benefiting from low prices even as employees receive higher pay and shareholders ample dividends. By integrating the history of industrial development in Britain and the United States with the ideas of leading economic thinkers, this essay demonstrates the absurdity of perfect competition as the ideal of economic efficiency. Indeed, I show that, in their desire to make the market rather than the firm the main arbiter of resource allocation, neoclassical economists have enshrined the sweatshop as the foundation of their analysis, with profoundly negative consequences for understanding how a modern economy actually operates and performs. In doing so, neoclassical economists ignore not only the economic history of capitalism but also the intellectual history of their own discipline. I conduct a journey through two hundred years of economic thought – from Adam Smith’s The Wealth of Nations (1776) to Alfred Chandler’s The Visible Hand (1977) – to derive analytical foundations for a theory of innovative enterprise that can explain and explore firm-level sources of productivity growth in the economy. What then do more sophisticated theories of the firm rooted in the neoclassical tradition have to offer? In a section of this essay that I call (borrowing a phrase from Adolf Berle and Gardiner Means) “Economic Theory for ‘an Era of Corporate Plundering’,†I outline the shortcomings of Williamsonian transaction-cost theory and Jensenian agency theory for analyzing the role of the business corporation in the operation and performance of the economy. From the perspective of the theory of innovative enterprise, I demonstrate how the methodology of constrained optimization trivializes the business enterprise while the ideology that companies should be run to maximize shareholder value legitimizes financial predators, many senior corporate executives among them, in the looting of the industrial corporation. The “era of corporate plundering†since the mid-1980s has contributed to extreme concentration of income among the richest households and the erosion of middle-class employment opportunities. Finally, I call for a transformation of economic thinking so that the innovative enterprise is at the center of economic analysis. The theory of innovative enterprise exposes as costly intellectual failures “perfect competition†as the ideal of economic efficiency, “constrained-optimization†as the prime tool of economic analysis, and “maximizing shareholder value†as the ideology of superior corporate governance. The theory of innovative enterprise provides, moreover, a clear and compelling rationale for sharing the gains of business enterprise among stakeholders in the broader community, in conjunction with government policies that seek to support sustainable prosperity, characterized by stable and equitable economic growth.
    JEL: B10 B20 B41 D01 D23 D40 L2 O30
    Date: 2015–10
  11. By: Tschakert,Petra
    Abstract: There is no doubt that the poorest people are already and will continue to be most severely impacted by climatic changes, including shifting trends as well as more frequent and severe extreme events. Yet, new insights on the dynamics and distribution of poverty point to the need to comprehend where the poor and poorest are, how they are poor, and why their poverty constrains their abilities to cope with and adapt to occurring and predicted changes. This paper draws on a diverse and growing literature on climate change and poverty to argue that uneven power relations more so than exposure and sensitivity to climatic hazards make the poor and disadvantaged distinctly more vulnerable than more affluent, privileged, and powerful groups and individuals. Further, climatic stressors and climate change as well as climate policies, often entangled with social exclusion and institutional neglect, compound the issue of poverty and exacerbate human precariousness, hence acting as a threat multiplier. The paper compares different approaches to assessing poverty, and explores structural processes and power dynamics that drive or perpetuate inequalities. The paper also investigates how the currently nonpoor may become transient or chronic poor, how climate change may exacerbate poverty traps, and how interventions to curb emissions and multidimensional poverty may be tackled to pursue climate-resilient development pathways.
    Keywords: Regional Economic Development,Science of Climate Change,Climate Change Mitigation and Green House Gases,Rural Poverty Reduction,Population Policies
    Date: 2016–05–17
  12. By: W Max Corden; Sisira Jayasuriya
    Abstract: This paper examines Japan’s two decades of so-called ‘stagnation’ since the rapid the collapse of the bubble economy in the early 1990s brought the long period of rapid post-war economic growth to an abrupt halt. Successive governments have experimented with varying policy measures to restore growth without much success, though Keynesian fiscal measures have helped avoid high unemployment. A series of policy mistakes and demographic shifts that foreshadowed an aging and shrinking population led to a loss of confidence in the country’s long term economic prospects and hampered recovery. A major cause of continuing stagnation has been a sharp decline in private corporate investment to the point where it became a net saver. Surprising for a country with no regulatory barriers to cross border capital mobility, the bulk of Japanese savings have gone into government bonds yielding progressively lower returns despite better foreign options. This extreme ‘home bias’ has enabled governments to run debt financed fiscal deficits for a long period but now public debt has exploded to well over twice GDP, threatening fiscal sustainability. Direct government measures to channel investments overseas through a Sovereign Wealth Fund can not only boost Japan’s longer term income but also provide an immediate stimulus by depreciating its exchange rate. A fundamental lesson from the Japanese experience is that, to avoid a public debt sustainability problem, long term fiscal stimulus measures should make productive investments that enable subsequent debt repayments.
    Keywords: fiscal sustainability, bond market crisis, home bias, sovereign wealth fund
    JEL: E12 E21 E62
    Date: 2016
  13. By: Richard S.Grossman (Department of Economics, Wesleyan University)
    Abstract: Financial crises have been a common feature of the economic landscape for more than two centuries. The chapter defines banking crises, considers the type of costs that they impose, and outlines the most common causes of banking crises during the past 200 years. The remainder of the chapter considers five distinct historical periods: the nineteenth century, when the “boom- bust” pattern that would typify later crises became established; the inter-war period, which was punctuated by two major sets of crises (post-World War I crisis and the Great Depression); the post-World War II financial lock-down, which was characterized by a complete absence of banking crises; deregulation and the return of crises in the 1970s; and the subprime crisis that emerged in 2008 and the subsequent euro-zone crisis.
    Date: 2016–05
  14. By: Burgess, Simon (University of Bristol)
    Abstract: This review describes the research frontier on human capital and education in economics research. It delineates what is known and largely agreed, and what are the most promising lines for future research. The approach will be to explain clearly and precisely the research evidence, in a way that makes this accessible to a wide audience. The survey has two particular aims. First, it draws out the implications for key education policy issues, highlighting which policy ideas can be supported by the economics research. To do this, my focus is on research that identifies causal effects. Second, it tries to identify some of the big open research questions and policy knowledge gaps in this field.
    Keywords: education, human capital
    JEL: I20
    Date: 2016–04
  15. By: Savanna Washington (City University of New York)
    Abstract: In 1915, “The Clansman,†a 3-1/2 hour film, opened at Clune’s Auditorium in Los Angeles seating 2500 people. At the time most films ran 15 minutes or less and screened at “Nickelodeans,†cheap store fronts that generally seated 200 people or less. Later re-titled, “Birth of a Nation,†it was the first movie to introduce modern shot composition, editing, and theatrics in a way audiences had never seen before. Donald Bogle writes, “The film’s magnitude and epic grandeur swept audiences off their feet.†Then president, Woodrow Wilson, said of the film, “It’s like writing history with lightning.†Only the film wasn't history, it was single-minded propaganda written by Thomas Dixon.The film was based on the book written by Thomas Dixon – a Southern white man, entitled, “The Clansman: An Historical Romance of the Ku Klux Klan,†Dixon lived in North Carolina during the “Reconstruction†period immediately after the American Civil War. Reconstruction was a period marked by the beginnings of enfranchisement for former black slaves, including advances in elected office, which horrified whites in North Carolina (and throughout the South). The negative stereotypes of Blacks in Birth of a Nation, “Literal and unimaginative as some types might now appear, the naïve and cinematically untutored audiences of the early part of the century responded to the character types as if they were the real thing.†(Bogle) It is estimated that by 1930 almost 50 million Americans had seen the film – fully one-third of the population of the country. In 1934, the Payne Fund Studies argued that, “Birth of a Nation showed how great an impact films could have in encouraging audiences’ racism.†Birth of a Nation gave rise to negative black archetypes that continued to be perpetrated in the media for decades after the film and these negative archetypes still frame racial opinion, public discourse, and violence in the United States, 100 years after it was released. In 2014-2015 in the United States, several deaths of unarmed black men at the hands of police renewed public discourse about race in contemporary America. How are African-American communities perceived by the police and the majority culture as a whole? Where do these perceptions emanate? This paper focuses on the history of the perception of Black people in America and how the film, “Birth of a Nation,†distributed 100 years ago this year, continue to shape the narrative of Black people in America.
    Keywords: Black images in media, Black Lives Matter, Birth of a Nation, D.W. Griffith,

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