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on Post Keynesian Economics |
| By: | Yun K. Kim; Gilberto Tadeu Lima; Mark Setterfield |
| 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 financial 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 influencing 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: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:mab:wpaper:2017_02&r=pke |
| By: | Yannis Dafermos; Maria Nikolaidi (University of Greenwich); Giorgos Galanis |
| Abstract: | Using a stock-flow-fund ecological macroeconomic model, we analyse (i) the effects of climate change on financial stability and (ii) the financial and global warming implications of a green QE programme. Emphasis is placed on the impact of climate change damages on the price of financial assets and the financial position of firms and banks. The model is estimated and calibrated using global data and simulations are conducted for the period 2015-2115. Four key results arise. First, by destroying the capital of firms and reducing their profitability, climate change is likely to gradually deteriorate the liquidity of firms, leading to a higher rate of default that could harm both the financial and the non-financial corporate sector. Second, climate change damages can lead to a portfolio reallocation that can cause a gradual decline in the price of corporate bonds. Third, financial instability might adversely affect credit expansion and the investment in green capital, with adverse feedback effects on climate change. Fourth, the implementation of a green QE programme can reduce climate-induced financial instability and restrict global warming. The effectiveness of this programme depends positively on the responsiveness of green investment to changes in bond yields. |
| Keywords: | ecological macroeconomics, stock-flow consistent modelling, climate change, financial stability, green quantitative easing |
| JEL: | E12 E44 E52 Q54 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp1712&r=pke |
| By: | Davis, John B. (Department of Economics Marquette University) |
| Abstract: | This paper argues that agent-based modeling’s innovations in method developed in terms of simulation techniques also involve an innovation in economic methodology. It shows how Epstein’s generative science conception departs from conventional methodological reasoning, and employs what I term an open rather than closed approach to economic methodology associated with the roles that reflexivity, counterfactual reasoning, and abduction play in ABM. Central to this idea is that improvements in how we know something, a matter of method, determine whether we know something, a matter of methodology. The paper links this alternative view of economics and economic methodology to a social science model of economics and contrasts this with standard economics’ natural science model of economics. The paper discusses what this methodological understanding implies about the concept of emergence. |
| Keywords: | agent-based modeling, simulation, generative science, reflexivity, abduction, social science model of economics, emergence |
| JEL: | A12 B41 C63 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrq:wpaper:2017-03&r=pke |
| By: | Yun K. Kim |
| Abstract: | The Great Recession has provided an important intellectual challenge to both post-Keynesian and mainstream economists. In this article, we survey the influential post- Keynesian views on the rise of household debt in the US, as well as the Atif Mian and Amir Sufi’s studies, perhaps the most influential and empirically oriented studies of mainstream economics. We highlight some of the commonalities and differences between them. By examining both post-Keynesian and Mian and Sufi’s views together, this paper emphasizes that, although there are clear differences between them, a careful examination reveals valuable complementarity which yields a better understanding of the rise of household debt in the US and the Great Recession. |
| Keywords: | household debt, the Great Recession, relative income hypothesis, inequality, securitization, subprime mortgage |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:mab:wpaper:2017_03&r=pke |
| By: | Evelyn Dietsche |
| Abstract: | Industrial policy is back. Advocates for industrial policy argue that the important question is not whether such policies should be applied at all, but how to design and implement them. For the extractive industries this development poses a challenge. First, there is the argument that host countries should reduce their dependence on the extractive resources sector and diversify their economies. But there is little consensus over how countries should go about this. Second, there is the universal climate agreement reached at the Paris COP21 in November 2015 which mandates that all economies have to move towards more sustainable and resource-efficient growth, with (green) industrial policy playing a critical part in achieving this structural transformation. Third, the liberal capitalist system underpinning the current global economy is under pressure with some political forces now making the case for more inward-looking economic policies and protectionism. This paper explores the new debate on industrial policy in relation to the extractive industries and the extractives-led development agenda. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2017-161&r=pke |
| By: | Ning Mao (China-ASEAN International College Dhurakij Pundit University, Thailand.); Michael McAleer (Department of Quantitative Finance National Tsing Hua University, Taiwan and Econometric Institute Erasmus School of Economics Erasmus University Rotterdam, The Netherlands and Department of Quantitative Economics Complutense University of Madrid, Spain And Institute of Advanced Sciences Yokohama National University, Japan.); Shuyu Bai (Limian Material Technology Corporation, China.) |
| Abstract: | This paper examines the impact of psychological needs on luxury consumption. Veblen’s Theory of the Leisure Class (1899) invented the term “conspicuous consumption” to describe luxury goods and services, in which Veblen indicated the purpose of luxury consumption was to display wealth and social status. This paper integrates the following two papers: (1) Han and Zhou (2002), who proposed an integrative model, and argued that three variables, namely Country-of-Origin, Brand Name, and Price, were major predictors for overall product evaluation and purchase intentions; and (2) Han, Nunes and Dreze (2010), who proposed a taxonomy called The Luxury 4Ps, to explain the inductive and deductive psychological needs of luxury consumption. |
| Keywords: | Psychological needs; Luxury consumption; Consumer behavior. |
| JEL: | N35 Z12 Z13 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:1719&r=pke |
| By: | Yann Giraud (Université de Cergy-Pontoise, THEMA) |
| Abstract: | Historians of economics rarely consider textbooks as more than passive receptacles of previously validated knowledge. Therefore, their active role in shaping the discipline and its image is seldom addressed. In this paper, I study the making of Paul Samuelson’s successive editions of Economics from 1967 to 1976 as an instance of how textbooks stand at the crossroads between disciplinary knowledge, pedagogy and larger political and societal concerns. In the mid-1960s, Economics, now at its sixth edition, was at the height of its success. Considered one cornerstone of modern economics, it was also the center of a number of criticisms dealing with the current state of the economic discipline and its teaching in the universities. While the profession expressed its concern over the lack of relevance of economics to address the pressing issues of the day and pleaded for a new “problem-solving” approach to economic education, the late 1960s witnessed the emergence of a new generation of “radical” economists criticizing the economics orthodoxy. Their contention that mainstream theory had neglected the issues of class struggle and capitalist exploitation, found a favorable echo among an increasingly politicized population. Using archival materials, I show how Samuelson, helped by his editorial team at McGraw-Hill, attempted to take into account these changes in order to ensure the continuing success of subsequent editions of his text in an increasingly competitive market. While this study emphasizes Samuelson’s ambiguous attitude toward his contenders, revealing on the one hand his belief in a free marketplace of ideas and, on the other hand, his attachment to mildly liberal politics and aversion to Marxism, unchanged through revisions, it also shows that the textbook is a collective endeavor, embodying different stakeholders’ views and market forces. Therefore, those who are interested in studying textbooks as a way to retrace the development of economic knowledge should not necessarily postulate authorial intent. |
| Keywords: | Paul Samuelson, economics textbooks, economic education, radical economics |
| JEL: | A14 B20 B3 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2017-19&r=pke |
| By: | Joseph E. Stiglitz |
| Abstract: | This paper provides a critique of the DSGE models that have come to dominate macroeconomics during the past quarter-century. It argues that at the heart of the failure were the wrong microfoundations, which failed to incorporate key aspects of economic behaviour, e.g. incorporating insights from information economics and behavioural economics. Inadequate modelling of the financial sector meant they were ill-suited for predicting or responding to a financial crisis; and a reliance on representative agent models meant they were ill-suited for analysing either the role of distribution in fluctuations and crises or the consequences of fluctuations on inequality. The paper proposes alternative benchmark models that may be more useful both in understanding deep downturns and responding to them. |
| JEL: | A1 A2 E0 E1 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23795&r=pke |
| By: | De Koning, Kees |
| Abstract: | August 9, 2007 is often regarded as the starting date of the global financial crisis. BNP Paribas stopped trading in three of its investment funds exposed to the U.S. sub-prime mortgage markets as the liquidity in these markets had all but dried up. Liquidity considerations are a symptom of the supply side of funds: the lenders’ side. The latter could be banks, hedge funds, asset managers or pension funds, but equally rich individuals who would invest directly in these markets. The financial crisis of 2007-2008 was a lenders’ crisis. Generally, banks had insufficient capital to absorb the losses created by the reduced liquidity levels in the financial markets. Central banks had to step in to rescue quite a few of them. The fact was, however, that the underlying cause of the financial crisis was a borrowers’ crisis. In the U.S., over the years 1997-2007, households had to borrow an ever-growing percentage of their earnings in order to get themselves on the property ladder or rent a home. Long before 2007, in fact by 2003, the additional amount that a household had to borrow to get a home was equal to a full year of earnings. Average income growth and mortgage volume growth were on a collision course. Borrowers had to allocate increasing percentages of their earnings to servicing mortgage debts or renting a home. The notion that lenders will rein in their lending as a consequence of free market competition is a fallacy. The key is not the price of funds borrowed, but the volume of funds lend per time period in comparison to average household’ nominal income growth. The consequences of a borrowers’ crisis are different from a financial markets’ liquidity one. When households have to allocate an increasing share of their income to either buy or rent a home, fewer funds are available to spend on other goods and services. When households are subsequently confronted with foreclosure and ultimately repossession of homes, they lose most or all past savings accumulated in the home. The poor get poorer, both in income and asset values terms. The gap between the haves and the have-nots widens dramatically. Volume of lending control and to some extent rent controls can prevent a new financial crisis occurring. More measures are needed to overcome a borrowers’ crisis. |
| Keywords: | financial crisis, lenders' crisis, borrowers' crisis, income-house price gap, U.S. mortgage lending levels 1996-2016, annual U.S.housing starts, average U.S. home sales price, median U.S. annual household' income, economic versus legal solutions |
| JEL: | E3 E4 E44 E5 E58 |
| Date: | 2017–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81508&r=pke |