nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2016‒07‒09
thirteen papers chosen by
Karl Petrick
Western New England University

  1. "Have We Been Here Before? Phases of Financialization within the 20th Century in the United States" By Apostolos Fasianos; Diego Guevara; Christos Pierros
  2. The macroeconomics of shadow banking By Alberto Botta; Eugenio Caversazi; Daniele Tori
  5. A Confusion of Capital in the United States By O'Sullivan, Mary
  6. "From Antigrowth Bias to Quantitative Easing: The ECB's Belated Conversion?" By Jorg Bibow
  7. After the Financial Crisis; Reforms and Reform Options for Finance, Regulation and Institutional Structure By Hansjorg Herr
  8. Restoring Rational Choice: The Challenge of Consumer Financial Regulation By Campbell, John Y.
  9. Potential for Trouble: The IMF's Estimates of Potential GDP By David Rosnick
  10. Voting Share Reform at the IMF: Will it Make a Difference? By Mark Weisbrot; Jake Johnston
  11. Environmental Protection for Sale: Strategic Green Industrial Policy and Climate Finance By Fischer, Carolyn
  12. Strategic Subsidies for Green Goods By Fischer, Carolyn
  13. Millennium Development Goals (MDGs): Did they change social reality? By Moldalieva, Janyl; Muttaqien, Arip; Muzyamba, Choolwe; Osei, Davina; Stoykova, Eli; Le Thi Quynh, Nga

  1. By: Apostolos Fasianos; Diego Guevara; Christos Pierros
    Abstract: This paper explores from a historical perspective the process of financialization over the course of the 20th century. We identify four phases of financialization: the first, from the 1900s to 1933 (early financialization); the second, from 1933 to 1940 (transitory phase); the third, between 1945 and 1973 (definancialization); and the fourth period begins in the early 1970s and leads to the Great Recession (complex financialization). Our findings indicate that the main features of the current phase of financialization were already in place in the first period. We closely examine institutions within these distinct financial regimes and focus on the relative size of the financial sector, the respective regulation regime of each period, and the intensity of the shareholder value orientation, as well as the level of financial innovations implemented. Although financialization is a recent term, the process is far from novel. We conclude that its effects can be studied better with reference to economic history.
    Keywords: Financialization; Monetary Regimes; Speculation
    JEL: E42
    Date: 2016–06
  2. By: Alberto Botta; Eugenio Caversazi; Daniele Tori (University of Greenwich)
    Abstract: In this paper, we propose a simple short-run post-Keynesian model in which the key aspects of shadow banking, namely securitization and the production of structured finance instruments, are explicitly formalized. At the best of our knowledge, this is the first attempt to broaden purely real-side models and their traditional focus on shareholder-value orientation, the financialisation of non-financial firms, and the profit-led vs. wage-led dichotomy. We rather put emphasis on the role of financial institutions and rentier-friendly environment in determining the predominance of specific growth and distribution regimes. First, we illustrate the macroeconomic rationale of shadow banking practices. We show how, before the 2007-8 crisis, securitization and shadow banking allowed for an increase in profitability for the whole financial sector, while apparently keeping leverage under control. Second, we define a variety of shadow-banking-led regimes in terms of economic activity, productive capital accumulation, and income distribution. We show that both an ‘exhilarationist’ and a ‘stagnationist’ regime may prevail, nevertheless characterized by a probable increase in income inequality between rentiers and wage earners.
    Keywords: securitization, shadow banking, leverage, rentiers-led regimes, income distribution
    JEL: E02 E12 G23
    Date: 2016–06
  3. By: Alessandro Dafano (Università degli studi Roma Tre)
    Abstract: The aim of this paper is to highlight the intellectual influence of Keynes in the building of Italian econometrics and how our scholars tried to find a way out from the stagflation occurred in Italy during the Seventies. We have chosen two case studies: the model designed by PROMETEIA, the think tank belonging to the University of Bologna, and DYANMOD, the main model of Confindustria (Confederation of Italian Industries). Although the Keynesian thought crucially influenced their structure and functioning, they managed to explain also the oil-shock-induced supply side effects, showing an unexpected degree of innovation within Keynesian thought. Furthermore, these models were conceived to join the larger Project LINK by Lawrence Klein, in order to connect the economies of many OECD countries. Given our microeconomic foundations, the main conclusions traced by these models were the focus on balance of payments equilibrium, capital accumulation and public finance constraints, thus asking for economic policies that could guarantee growth and disinflation.
    Keywords: econometrics, oil shock, Lawrence Klein, John Maynard Keynes, neoclassical synthesis, Nino Andreatta, Guido Carli.
    JEL: B23 B31 E12 E65
    Date: 2016
  4. By: Mario Tonveronachi (Ragnar Nurkse School of Innovation and Governance, Tallinn University of Technology)
    Abstract: Europe is at a critical crossroads for the evolution of its overall political and institutional design. Its founding goal, the creation of the internal single market, is consistent neither with the existing setup, nor with the direction recently impressed to that evolution. The inconsistency between the fiscal, monetary and financial regulatory framework and the construction of the single market cannot be solved by reforming the EU treaties simply because there is no agreement on the new design. Following Minsky’s analysis, we single out the weaknesses and fragilities of that framework when the heterogeneous reality of the EU is taken into account. While constraints on fiscal and monetary reforms derive from the existing treaties, for financial regulation they come from mixing the international approach, which makes financial stability dependent on the financial morphology freely determined by financial markets, with the belief that the EU integration will come from the operation of private interests. We show that the current approach to financial regulation fails on both regards. Complying with the existing EU treaties, we propose a reform of ECB operations that would create the single financial market, at least for the euro area, and allow a reform of the existing fiscal rules capable of converting the current deflationary stance into a reflationary one. To complete the strengthening of the systemic cushions of safety, following the Minskyan approach a radical reform of financial regulation is presented that would combine higher financial resilience with finance more closely serving national economies. The three reforms would critically contribute to the consistency of the euro area design and make its membership attractive for the non-euro EU countries that currently strongly oppose entering into it, at least for those that do not want to go on playing the inshore-offshore game.
    Keywords: EU, Euro Area, ECB, fiscal rules, monetary policy, financial regulation
    JEL: E58 E61 G18 F02 F45 G18
    Date: 2016–01–30
  5. By: O'Sullivan, Mary
    Abstract: Thomas Piketty’s book, Capital in the Twenty-First Century, reopens fundamental questions about the role and rewards of capital that economists have never resolved. It does so by exploring the history of capital and derives much of its credibility from the evidence it marshals in defence of its claims. In this paper, I evaluate the basis for Piketty’s arguments by considering them in light of the history of US capitalism. I argue that it is extremely difficult to make economic sense of Piketty’s historical analysis of capital in the US in the 19th and 20th centuries. That is true, only in part, due to the distinctive choices he makes, compared to mainstream economists, in defining and measuring capital. Much more problematic, in fact, are theoretical commitments he shares with them that preclude an understanding of capital’s historical role and rewards in the US economy. Based on a discussion of several important features of US economic history, I have argued that such an understanding demands an historical analysis of capital, both productive and financial capital, in relation to the evolving social organisation of capitalism in the US.
    Keywords: History of capital, Capitalism, Capital theory, Theory of distribution, Finance capital, Productive capital
    JEL: B00 D20 D21 D24 D33 D92 E13 N00 O00
    Date: 2016
  6. By: Jorg Bibow
    Abstract: This paper investigates the European Central Bank's (ECB) monetary policies. It identifies an antigrowth bias in the bank's monetary policy approach: the ECB is quick to hike, but slow to ease. Similarly, while other players and institutional deficiencies share responsibility for the euro's failure, the bank has generally done "too little, too late" with regard to managing the euro crisis, preventing protracted stagnation, and containing deflation threats. The bank remains attached to the euro area's official competitive wage-repression strategy, which is in conflict with the ECB's price stability mandate and undermines its more recent, unconventional monetary policy initiatives designed to restore price stability. The ECB needs a "Euro Treasury" partner to overcome the euro regime's most serious flaw: the divorce between central bank and treasury institutions.
    Keywords: Central Banking; Monetary Policy; Euro Crisis; Lender of Last Resort; Euro Treasury
    JEL: E30 E42 E52 E58 E61 E65
    Date: 2016–06
  7. By: Hansjorg Herr (Berlin School of Economics and Law)
    Abstract: The finance dominated type of capitalism that has developed from the late 1970s and early 1980s on finds its nucleus in the deregulation of the national and international financial system and the switch to a shareholder oriented corporate governance system. Other aspects such as labour market deregulations (including policies to weaken trade unions), the aim of completely free trade around the globe, increasing freedom and power of multinational companies, and privatisation of formerly state functions also belong to the new regime. This finance dominated economic regime seems to be exhausted. The reforms implemented after the subprime crisis and the Great Recession are not sufficient to overcome the deeply rooted problems of the existing system. Reforms to the financial system did not substantially affect the functioning of the shadow banking system and the basic structures of the financial system were not changed. Both, the international financial system as well as the shareholder oriented corporate governance system were largely spared from reforms. Further labour market deregulations are still on the agenda of governments and international institutions. Policies to change income and wealth distribution are not on the political agenda. What is needed is a comprehensive reform agenda which searches for a new relationship between institutions, government policies, and markets.
    Keywords: financialisation, financial market regulation, demand management, income distribution
    JEL: E12 E44 F33 G28 P10
    Date: 2016–02–20
  8. By: Campbell, John Y.
    Abstract: This lecture considers the case for consumer financial regulation in an environment where many households lack the knowledge to manage their financial affairs effectively. The lecture argues that financial ignorance is pervasive and unsurprising given the complexity of modern financial products, and that it contributes meaningfully to the evolution of wealth inequality. The lecture uses a stylized model to discuss the welfare economics of paternalistic intervention in financial markets, and discusses several specific examples including asset allocation in retirement savings, fees for unsecured short-term borrowing, and reverse mortgages.
    Date: 2016
  9. By: David Rosnick
    Abstract: This issue brief examines the IMF’s methodology for estimating potential GDP, and its pitfalls and problems. A number of economists have noted recent problems with overestimates of actual GDP in recent years in Greece, and the IMF’s own research has found that the multipliers associated with fiscal tightening had been underestimated. But the policy and political implications of potential GDP estimates, which are not only forecasts but also continuously revised for past estimates, may be even more important.
    JEL: A A1 A11 B B4 B40 B41 F F5 F53
    Date: 2016–04
  10. By: Mark Weisbrot; Jake Johnston
    Abstract: For more than 20 years there have been efforts to reform the IMF through changing its voting structure. There are structural limits to both the success, in quantitative terms, of changing these limits; and to the impact of any changes that are won. Ignoring these constraints for the moment, it should in principle be possible to give more voice to the majority of the world’s governments, and by extension their people, by increasing voting shares of low- and middle-income countries; and in this way to possibly make IMF policy better reflect and serve the interests of the majority of the world’s population, especially in low- and middle-income countries.
    JEL: F F5 F53
    Date: 2016–04
  11. By: Fischer, Carolyn (Resources for the Future)
    Abstract: Industrial policy has long been criticized as subject to protectionist interests; accordingly, subsidies to domestic producers face disciplines under World Trade Organization agreements, without exceptions for environmental purposes. Now green industrial policy is gaining popularity as governments search for low-carbon solutions that also provide jobs at home. The strategic trade literature has largely ignored the issue of market failures related to green goods. I consider the market for a new environmental good (such as low-carbon technology) whose downstream consumption provides external benefits (such as reduced emissions). Governments may have some preference for supporting domestic production, such as by interest-group lobbying, introducing a political distortion in their objective function. I examine the national incentives and global rationales for offering production (upstream) and deployment (downstream) subsidies in producer countries, allowing that some of the downstream market may lie in nonregulating third-party countries. Restraints on upstream subsidies erode global welfare when environmental externalities are large enough relative to political distortions. Climate finance is an effective alternative if political distortions are large and governments do not undervalue carbon costs. Numerical simulations of the case of renewable energy indicate that a modest social cost of carbon can imply benefits from allowing upstream subsidies.
    Keywords: Green Industrial Policy, Emissions Leakage, Externalities, International Trade, Renewable Energy, Subsidies
    JEL: F13 F18 H21 Q5
    Date: 2016–04–14
  12. By: Fischer, Carolyn (Resources for the Future)
    Abstract: Globally and locally, government support policies for green goods (like renewable energy) are much more popular internationally than raising the cost of bads (as through carbon taxes). These support policies may encourage downstream consumption (renewable energy deployment) or upstream development and manufacturing of those technologies. The use of subsidies — particularly upstream ones — is disciplined by World Trade Organization agreements, and its subsidies code lacks exceptions for transboundary externalities such as human health or resource conservation, including those related to combating global climate change. The strategic trade literature has devoted little attention to the range of market failures related to green goods. This paper considers the market for a new environmental good that when consumed downstream may provide external benefits such as reduced emissions. The technology is traded internationally but provided by a limited set of upstream suppliers that may operate in imperfect markets, such as with market power or external scale economies. We examine the national incentives and global rationales for offering production and consumption subsidies in producer countries, allowing that some of the downstream market may lie in nonregulating third-party countries. Although technology producer countries can benefit from restraints on upstream subsidies, global welfare is higher without them, and market failures imply that optimal subsidies are even higher. We supplement the analysis with numerical simulations of the case of renewable energy, exploring optimal subsidies for the major renewable energy producing and consuming regions and the cost of restrictions on upstream subsidies.
    Keywords: International Trade, Subsidies, Imperfect Competition, Externalities, Emissions Leakage
    JEL: F13 F18 H21 Q5
    Date: 2016–04–14
  13. By: Moldalieva, Janyl (UNU‐MERIT, Maastricht University); Muttaqien, Arip (UNU‐MERIT, Maastricht University); Muzyamba, Choolwe (UNU‐MERIT, Maastricht University); Osei, Davina (UNU‐MERIT, Maastricht University); Stoykova, Eli (UNU‐MERIT, Maastricht University); Le Thi Quynh, Nga (UNU‐MERIT, Maastricht University)
    Abstract: The aim of the paper is to investigate whether the Millennium Development Goals (MDGs) changed social realities of people around the world or not. By answering this question, we contribute to the longstanding debate on whether social improvement in the lives of people is MDG-precipitated or it is incidental to the introduction of MDGs. We make use of interrupted time series analysis and show that although there has been improvement in social realities of people around the world between 1990 and 2013, the two dominant opposing views on the role of MDGs in this process are uncandid. Although the genesis of the improvement was in the early 1990s (before the introduction of MDGs), there is no way of stating without question that the improvement in social realities would have been sustained after 2001 in the absence of MDGs. We conclude that given the above, the question should not be "whether the MDGs have improved social realities or not". Instead, we recommend that in order to effectively assess the usefulness of the MDGs, one needs to conduct a tedious and complex task of "tracing-the-change" by following through the chain of policy changes triggered by the MDGs.
    Keywords: Millennium Development Goals, impact, social realities, Interrupted Time Series Analysis, Sub-Saharan Africa
    JEL: A13 I14 I24 O19 O21
    Date: 2016–06–16

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