nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2017‒01‒15
eight papers chosen by
Karl Petrick
Western New England University

  1. The Continuing Relevance of Keynes's Philosophical Thinking: Reflexivity, Complexity, and Uncertainty By Davis, John B.
  2. Financialization and Distribution in a Kaleckian Model with Firms’ Debt Accumulation By Hiroaki Sasaki
  3. "The Great Recession and Racial Inequality: Evidence from Measures of Economic Well-Being" By Thomas Masterson; Ajit Zacharias; Fernando Rios-Avila; Edward N. Wolff
  4. When Keynes goes to Brussels : a New Fiscal Rule for the EMU ? By Francesco Saraceno
  5. Trade, Poverty Eradication, and the Sustainable Development Goals By Brambilla, Irene; Porto, Guido
  6. On the Political Economy of Financial Deregulation By Korkut Erturk
  7. Political Economy Approach of Institutional Research By liu, michelle yan
  8. Asymmetric Power and Market Failure: Power Hazard in Exchange By Korkut Erturk

  1. By: Davis, John B. (Department of Economics Marquette University)
    Abstract: This paper explains the continuing relevance of Keynes’s philosophical thinking in terms of his anticipation of complexity thinking in economics. It argues that that reflexivity is a central feature of the philosophical foundations of complexity theory, and shows that Keynes employed an understanding of reflexivity in both his philosophical and economic thinking. This argument is first developed in terms of his moral science conception of economics and General Theory beauty contest analysis. The paper advances a causal model that distinguishes direct causal relationships and reflexive feedback channels, uses this to distinguish Say’s Law economics and Keynes’s economics, and explains the economy as non-ergodic in these terms. Keynes’s policy activism is explained as a complexity view of economic policy that works like self-fulfilling and self-defeating prophecies. The paper closes with a discussion of the ontological foundations of uncertainty in Keynes’s thinking, and comments briefly on what a complexity-reflexivity framework implies regarding his thinking about time.
    Keywords: Keynes, complexity, reflexivity, non-ergodic, policy activism, uncertainty, time
    JEL: E12 B41
    Date: 2017–01
  2. By: Hiroaki Sasaki
    Abstract: This study investigates the degree to which increased shareholder power, which is important in the context of financialization, affects macroeconomic variables, exclusively income distribution, by building a Kaleckian model with firms’ debt accumulation. We find that the extent to which a decrease in firms’ retention ratio affects rentiers’ and workers’ income distribution differs according to whether the steady-state equilibrium exhibits debt-led or debt-burdened demand.
    Keywords: financialization; income distribution; firm debt
    JEL: E12 E21 E22 E32 E44
    Date: 2017–01
  3. By: Thomas Masterson; Ajit Zacharias; Fernando Rios-Avila; Edward N. Wolff
    Abstract: The Great Recession had a tremendous impact on low-income Americans, in particular black and Latino Americans. The losses in terms of employment and earnings are matched only by the losses in terms of real wealth. In many ways, however, these losses are merely a continuation of trends that have been unfolding for more than two decades. We examine the changes in overall economic well-being and inequality as well as changes in racial economic inequality over the Great Recession, using the period from 1989 to 2007 for historical context. We find that while racial inequality increased from 1989 to 2010, during the Great Recession racial inequality in terms of the Levy Institute Measure of Economic Well-Being (LIMEW) decreased. We find that changes in base income, taxes, and income from nonhome wealth during the Great Recession produced declines in overall inequality, while only taxes reduced between-group racial inequality.
    Keywords: LIMEW; United States; Great Recession; Race; Distribution of Wealth; Distribution of Income
    JEL: D31 D63 I31 J15
    Date: 2017–01
  4. By: Francesco Saraceno (OFCE Sciences PO)
    Abstract: The Economic and Monetary Union (EMU) institutions are consistent with a New Consensus that emerged in the 1980s, limiting the role for macroeconomic (particularly fiscal) policy to short term stabilizations by means of rules. I will argue that the policy inertia induced by the Consensus may have played a role in the disappointing performance of EMU economies even before the crisis. The crisis of the Consensus, and the debate on secular stagnation, proved that Keynesian (and possibly) persistent excesses of savings over investment may hamper growth. This has put fiscal policy back to the center of the scene, and given the General Theory, at eighty, a second youth. I will argue therefore that the EMU fiscal rule should be amended to allow semi-permanent negative government savings. I will finally argue that a modified Golden Rule may serve this objective, and allow EU-wide policy coordination. This seems the only reasonable reform with some chances of being adopted by the EU divided policy makers.
    Keywords: Fiscal rules, fiscal policy, EMU, golden rule, secular stagnation, Keynes, policy mix, public investment
    JEL: B22 E02 E62 E65
    Date: 2016–12
  5. By: Brambilla, Irene (Asian Development Bank Institute); Porto, Guido (Asian Development Bank Institute)
    Abstract: We investigate if trade can help achieve the United Nations Sustainable Development Goal of poverty eradication using microeconomic and macroeconomic mechanisms and the effects of trade and trade policy on consumer prices, producer prices, and wages. As these mechanisms affect the real income of households, they determine the likelihood that a household may be lifted out of or pushed into poverty. The impacts of trade on growth and longer-term consequences of trade liberalization were also analyzed using data from African countries. While there is sound evidence that trade can be pro-poor, there is significant heterogeneity in the poverty impacts of trade, both across households and countries. This highlights the importance of complementary policies such as infrastructure, trade facilitation, and social protection.
    Keywords: trade; trade liberalization; trade policy; poverty; poverty eradication; United Nations Sustainable Development Goals
    JEL: F14 F16 O24
    Date: 2016–12–31
  6. By: Korkut Erturk
    Abstract: Drawing broadly on the literature on the political economy of the financial crisis, the paper looks at deregulation as a market driven process that culminated in a collective action failure. In the run up to the 2008 Financial Crisis strong competition and moral hazard went hand in hand and that raises a flag that needs explanation. The paper argues that opportunistic profit (rent) seeking was more the cause rather than the effect of moral hazard and regulation failure. Deregulation promised higher profitability partly because of better risk management made possible by advances in information technology and partly because financial institutions could take “tail-risks” the full cost of which they did not have to bear. The profits deregulation promised in turn incentivized financial firms to invest in tilting the political process to shape government policy. Because systemic risk cannot be fully privatized social insurance against it is inevitably a common pool (or open) resource, which means that there is an incentive for financial units to over-extract in the form of excessive risk taking in the absence of effective regulation. That explains why with deregulation market competition could culminate in excessive risk taking with mounting social costs. Using simple game theory the paper gives a stylized account of what sustained the deregulatory trend. In the course of deregulation, the regulator’s implicit threat of imposing discipline on financial institutions lost much of its credibility. That, combined with growing plutocracy go a long way in explaining why deregulation became a run-away market driven process that worsened the problem of moral hazard over time.
    Keywords: financial deregulation, collective action failure, excessive risk taking, moral hazard JEL Classification: D72, C70, G20, G18
    Date: 2016
  7. By: liu, michelle yan
    Abstract: Abstract Institutional research should be ready to move to the next stage, a stage that is, as argued by this paper, characterized by a more comprehensive approach integrating economics, politics, and social culture. The theoretical foundation for such a move exists, as the interconnection between political institutions and economic institutions has been addressed by North, Fukuyama, and Acemoglu, and the influences of cultural heritage on institutional choices have further been mentioned by North and Huntington. Another shift in institutional research proposed by this paper is a change from general to specific solutions because the institutional characteristics become individualized after considering the impacts of culture heritage. This paper presents the correlations between political and economic institutions and the unique characteristics of political orders taking different developmental paths using a data analysis based on the World Governance Index (WGI) and other development indicators. The paper also discusses the influences of cultural heritage on institution’s choice of transformation path and proposes a institutional research framework.
    Keywords: Institutional Economics, Political Economy, Comparative Economic System, Comparative Political System, World Governance Index (WGI)
    JEL: P16 P26
    Date: 2016–10
  8. By: Korkut Erturk
    Abstract: In simple textbook treatment of bilateral exchange traders end up on the contract curve such that the trading surplus is maximized regardless of any asymmetric bargaining power they might have. However, that need not be true when the terms of exchange are determined by uncooperative bargaining, for gains from trading will not reach its potential unless traders refrain from acting strategically. But, because power asymmetry creates quasi-rents that the more powerful player can capture, she might maximize her payoff when total gain from trading falls short of its potential. In other words, power asymmetry can make acting strategically tempting for the more powerful player, which however is socially costly. Using game theory the paper specifies profit maximizing strategic behavior under asymmetric power and considers its relevance for a more general conception of market exchange where traders bargain strategically. Two examples, involuntary unemployment and North’s theory of the state, are then discussed in light of the model developed.
    Keywords: Asymmetric Power, Rent Seeking, Uncooperative Games, Strategic Bargaining JEL Classification: A10, D70, C70, E02
    Date: 2016

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