nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2017‒09‒03
nine papers chosen by
Karl Petrick
Western New England University

  1. The Keynesian Model in the General Theory: A Tutorial By Raul Rojas
  2. "Unemployment: The Silent Epidemic" By Pavlina R. Tcherneva
  3. Political Aspects of Household Debt By Yun K. Kim; Gilberto Tadeu Lima; Mark Setterfield
  4. Intergenerational sustainability dilemma and a potential solution: Future ahead and back mechanism By Shibly Shahrier; Koji Kotani; Tatsuyoshi Saijo
  5. How inclusive is growth in the Asia-Pacific region? By Oliver Paddison from the Macroeconomic Policy and Development Division.
  6. Is the balance of payments constrained growth rate time-varying? Exchange rate over valuation, policy-induced recessions, deindustrialization, and long run growth By Mark Setterfield; Selen Ozcelik
  7. Sketching the Contours of an Integrative Paradigm of Economic Geography By Hassink, Robert; Gong, Huiwen
  8. A More Detailed IS-LM Story By Hiermeyer, Martin
  9. Changing the Direction of the Economic and Demographic Research By Ron W. Nielsen

  1. By: Raul Rojas
    Abstract: This small overview of the General Theory is the kind of summary I would have liked to have read, before embarking in a comprehensive study of the General Theory at the time I was a student. As shown here, the main ideas are quite simple and easy to visualize. Unfortunately, numerous introductions to Keynesian theory are not actually based on Keynes opus magnum, but in obscure neoclassical reinterpretations. This is completely pointless since Keynes' book is so readable.
    Date: 2017–08
  2. By: Pavlina R. Tcherneva
    Abstract: This paper examines two key aspects of unemployment--its propagation mechanism and socioeconomic costs. It identifies a key feature of this macroeconomic phenomenon: it behaves like a disease. A detailed assessment of the transmission mechanism and the existing pecuniary and nonpecuniary costs of unemployment suggests a fundamental shift in the policy responses to tackling joblessness. To stem the contagion effect and its outsized social and economic impact, fiscal policy can be designed around two criteria for successful disease intervention--preparedness and prevention. The paper examines how a job guarantee proposal uniquely meets those two requirements. It is a policy response whose merits include much more than its macroeconomic stabilization features, as discussed in the literature. It is, in a sense, a method of inoculation against the vile effects of unemployment. The paper discusses several preventative features of the program.
    Keywords: Unemployment; Epidemic; Mortality; Morbidity; Health; Scarring Effects; Crime; Family; Job Guarantee; Labor Market Dynamics; Involuntary Job Loss; Prevention
    JEL: E24 E62 H1 H4 I18 I3 J08 J6
    Date: 2017–08
  3. By: Yun K. Kim (Department of Economics, University of Massachusetts, Boston); Gilberto Tadeu Lima (Department of Economics, University of Sao Paulo); Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: The recent literature has shown that income inequality is one of the main causes of borrowing and debt accumulation by working households. This paper explores the possibility that household indebtedness is an important cause of rising income inequality. If workers experience rising debt burdens, their cost of job loss may rise if they need labor-market income to continue borrowing and servicing existing debt. This, in turn, will reduce their bargaining power and increase income inequality, inducing workers to borrow more in order to maintain consumption standards, and so creating a vicious circle of rising inequality, job insecurity, and indebtedness. We believe that these dynamics may have contributed to observed simultaneous increases in income inequality and household debt prior to the recent nancial crisis. To explore the two-way interaction between inequality and debt, we develop an employment rent framework that explicitly considers the impact of workers' indebtedness on their perceived cost of job loss. This is embedded in a neo-Kaleckian macro model in which inequality spurs debt accumulation that contributes to household consumption spending and hence demand formation. Our analysis suggests that: (1) workers' borrowing behavior plays a crucial role in understanding the character of demand and growth regimes; (2) debt and workers' borrowing behavior play an important role in the labor market by in uencing workers' bargaining power; and (3) through such channels, workers' borrowing behavior can be a decisive factor in the determination of macroeconomic (in)stability.
    Keywords: Consumer debt, employment rent, cost of job loss, bargaining power, income distribution, growth, stability
    JEL: E12 E21 E24 E44 O41
    Date: 2017–08
  4. By: Shibly Shahrier (Research Center for Future Design, Kochi University of Technology); Koji Kotani (Research Center for Future Design, Kochi University of Technology); Tatsuyoshi Saijo (Research Center for Future Design, Kochi University of Technology)
    Abstract: Intergenerational sustainability is pivotal for the survival of human societies. However, current economic and political systems based on capitalism and democracy might not be effective at considering future generations’ needs, thereby compromising intergenerational sustainability (Schwartz, 2007, Shahrier et al., 2016, 2017). We design a new mechanism to improve intergenerational sustainability called the future ahead and back mechanism (FAB) and examine its effectiveness through field experiments consisting of intergenerational sustainability dilemma games (ISDGs). In such games, a lineup of consecutive generations is organized, and each generation can either maintain intergenerational sustainability (sustainable option) or maximize its own generation’s payoff by irreversibly imposing a cost on future generations (unsustainable option). In a basic ISDG, generations make the decision through deliberative democracy. In the ISDG with FAB, each generation is first asked to consider the decision of the current generation as if it is in the position of the next generation. Second, the generation makes the actual decision from its original position as the current generation. The results reveal that deliberative democracy does not prevent a majority of proself people from choosing unsustainable options, which is the mirror image of the results demonstrated in Hauser et al. (2014), thereby compromising intergenerational sustainability in the basic ISDG. By contrast, FAB is demonstrated to enable proself people to change their individual opinions from unsustainable to sustainable options, inducing more generations to choose sustainable options. We argue that the memories and experiences of what and how people request (or role-playing) as future generations in FAB trigger more logic-based reasoning than norm-based reasoning, thereby enhancing intergenerational sustainability.
    Keywords: Intergenerational sustainability dilemma, Capitalism and democracy, Culture and evolution, Future ahead and back mechanism
    Date: 2017–08
  5. By: Oliver Paddison from the Macroeconomic Policy and Development Division. (United Nations Economic and Social Commission for Asia and the Pacific)
    Abstract: On September 25, 2015, the international community adopted the 2030 Agenda for Sustainable Development, a framework that comprises, as a succession to the Millennium Development Goals (MDGs), a set of 17 Sustainable Development Goals (SDGs), with 169 corresponding targets. This framework, which is the culmination of years of deliberations and negotiations that have taken place since the Rio+20 outcome document, The future we want, will guide the formulation of development policies for the next 15 years. The Asia-Pacific region made tremendous progress towards reaching the MDGs. On the back of impressive economic growth, millions of people were lifted out of extreme poverty to the extent that the region reached before the 2015 deadline the first target under the Millennium Development Goal of eradicating extreme poverty and hunger by halving the proportion of people whose income is less than $1 a day. Yet, the region still faces significant development challenges. Thus, while it is still home to more than 740 million people, accounting for two-thirds of the world’s extremely poor, the region faces an unfinished development agenda in the areas of health, education, gender equality, decent employment and access to safe sanitation and drinking water: an estimated 21 million children are not enrolled in primary school, and 1 in 5 children under age of five, representing 75 million children in total, are underweight. A staggering 1.7 billion people still lack access to safe sanitation.
  6. By: Mark Setterfield (Department of Economics, New School for Social Research); Selen Ozcelik (Department of Economics, New School for Social Research)
    Abstract: A long-held view among macroeconomists in the UK and US is that sustained currency over valuation – often the result of financial-sector dominance – weakens domestic macroeconomic performance and results in premature deindustrialization. Similar concerns have been expressed about persistent, policy-induced recessions. According to balance-of payments-constrained growth (BPCG) theory, meanwhile, the BPCG rate in a multi-sector economy varies directly with the share of manufacturing in total output. This chapter develops a simple model that combines these observations to show how a temporary but persistent shock to the nominal exchange rate and/or domestic demand can both affect the actual rate of growth in the short run (by moving it away from the long-run equilibrium BPCG rate), and alter the BPCG rate itself (by lowering the income elasticity of demand for exports as a result of induced premature deindustrialization). The result is a time-varying balance-of payments constrained growth (TV-BPCG) rate. Because actual growth and the TV-BPCG rate vary directly, the latter is also characterized as quasi path dependent.
    Keywords: Exchange rate, policy-induced recession, deindustrialization, balance-ofpayments-constrained growth, path dependence
    JEL: E12 F43 O41
    Date: 2017–08
  7. By: Hassink, Robert (Kiel University); Gong, Huiwen (Kiel University)
    Abstract: Over the last twenty years, modern economic geography has been increasingly fragmented, particularly concerning its themes, on the one hand, and its schools of thought, perspectives and paradigms, on the other. Although there have been arguments in favor of engaged pluralism between the latter, what we see in reality is mainly fragmented pluralism, which is particularly problematic for the identification with the sub-discipline and the exchange with neighboring social disciplines. In order to solve this problem, in our view, we need an Integrative Paradigm of Economic Geography. In this paper, we sketch the contours of such a paradigm, which consists of a core, namely economic activities in space, place and scales and their drivers, and three inter-related ontological foundations, namely networks, evolution and institutions.
    Keywords: economic geography; pluralism; paradigms; Integrative Paradigm of Economic Geography
    JEL: R10 R11
    Date: 2017–08–28
  8. By: Hiermeyer, Martin
    Abstract: Textbooks give a fairly short IS-LM story. This paper offers a more detailed one. This story has several advantages vis-à-vis the usual textbook story, including: (a) it is clear about what it means by "money"; (b) it describes the central bank as targeting an interest rate; and (c) it covers the money multiplier and quantitative easing. To unfold, the more detailed story requires only minor adjustments to the IS-LM model, mostly the addition of the quantity equation of money – a mere identity.
    Keywords: Fiscal policy; monetary policy; teaching of economics
    JEL: A2 E52 E62
    Date: 2017–08–25
  9. By: Ron W. Nielsen
    Abstract: A simple but useful method of reciprocal values is introduced, explained and illustrated. This method simplifies the analysis of hyperbolic distributions, which are causing serious problems in the demographic and economic research. It allows for a unique identification of hyperbolic distributions and for unravelling components of more complicated trajectories. This method is illustrated by a few examples. They show that fundamental postulates of the demographic and economic research are contradicted by data, even by precisely the same data, which are used in this research. The generally accepted postulates are based on the incorrect understanding of hyperbolic distributions, which characterise the historical growth of population and the historical economic growth. In particular, data used, but never analysed, during the formulation of the Unified Growth Theory show that this theory is based on fundamentally incorrect premises and thus is fundamentally defective. Application of this simple method of analysis points to new directions in the demographic and economic research. It suggests simpler interpretations of the mechanism of growth. The concept or the evidence of the past primitive and difficult living conditions, which might be perhaps described as some kind of stagnation, is not questioned or disputed. It is only demonstrated that trajectories of the past economic growth and of the growth of population were not reflecting any form of stagnation and thus that they were not shaped by these primitive and difficult living conditions. The concept or evidence of an explosion in technology, medicine, education and in the improved living conditions is not questioned or disputed. It is only demonstrated that this possible explosion is not reflected in the trajectories of the economic growth and of the growth of population.
    Date: 2017–08

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