nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2017‒11‒26
eight papers chosen by
Karl Petrick
Western New England University

  1. From Wicksell to Le Bourva to Modern Monetary Theory: A Wicksell connection By Ehnts, Dirk; Barbaroux, Nicolas
  2. ‘Alternatives’ to austerity: a critique of financialized infrastructure in India and beyond By Bear, Laura
  3. The rise and fall of the Brazilian economy (2004-2015): the economic antimiracle By Fernando Rugitsky
  4. The Greek dra(ch)ma: 5 years of austerity. The three economists’ view and a comment. By Karanasos, Menelaos G.; Koutroumpis, Panagiotis; Hatgioannides, John; Karanassou, Marika; Sala, Hector
  5. Demographics will reverse three multi-decade global trends By Goodhart, Charles; Pradhan, Manoj
  6. A Central Bank’s optimal balance sheet size? By Goodhart, Charles
  7. Populism and central bank independence By Goodhart, Charles; Lastra, Rosa
  8. Economics: the architecture of inequality By Reeves, Aaron

  1. By: Ehnts, Dirk; Barbaroux, Nicolas
    Abstract: In the aftermath of the Great Financial Crisis (GFC), and within the context of significant macroeconomic imbalances in the world economy, economists have shown renewed interest in the way central banks and financial systems work. The rise of Modern Monetary Theory (MMT) has relied on the examination of balance sheets, which has led to advancements in the understanding of the nuts and bolts of the financial system and the fundamental role of taxes, reserves, and deposits. While the school is associated with Post-Keynesian economics, we make the case that it could just as well be called Post-Wicksellian. The aim is not to argue for or against some label, but to make explicit the Wicksellian connection. In doing this, we bring forward old discussions and insights, which can be integrated into recent debates. MMT authors emphasize the importance of endogenous money and the examination of assets and liabilities in balance sheets. In our inquiry, we demonstrate that a horizontalist approach - adopted by MMT scholars - was already present in Wicksell (1898) and in the writings of French economist Jacques Le Bourva (1959, 1962). We examine the essential publications of the two authors and compare their views with the insights of MMT. By doing this, we hope to show continuity in monetary thought. MMT should not be seen as an intruder from the outside of monetary theory, but rather as a continuation and expansion of certain ideas that have long been part of the discipline. Identifying areas of disagreement between the three views should help bring clarity to the issues that are still disputed.
    Keywords: central banking,monetary policy,discretionary practices,Wicksell,Modern Monetary Theory,MMT
    JEL: E4 E51 E58
    Date: 2017
  2. By: Bear, Laura
    Abstract: Current infrastructure development across the globe is described as an ‘alternative’ to austerity and as a nationalist riposte to globalization. From the UK to India to the US, it is represented as a way of reviving the fortunes of the ‘common man’ and a dispossessed, male working class. This article, based on research in the waterscape of the Hooghly River in India and World Bank initiatives, argues that current policies of financialized infrastructure are a false alternative to austerity and are a continuation of a longer historical process. These policies have emerged from the gradual movement of fiscal control from governments to central banks, commercial banks and financial markets. This began with the financialization of sovereign debt in the 1980s–90s, which led to fiscal constraint within the public sector. Such policies eroded the material forms of state-provided public works and led to private sector accumulation through public-private partnerships and financial market speculation. Now governments are turning to commercial banks and financial markets to solve the problem of infrastructures starved of capital, even though it is the governance of the economy through these networks that has generated the current ‘infrastructure deficit’. Anthropologists now need to take part in public debates by revealing the financial predation on infrastructures and arguing for a renaming of them as citizens' commons for the public good. Ultimately, it is through a combination of ethnographies of austerity and analyses of the political economy of finance that anthropologists can challenge current inequalities.
    JEL: N0 F3 G3
    Date: 2017–10–03
  3. By: Fernando Rugitsky
    Abstract: The aim of this paper is to interpret the recent trajectory of the Brazilian economy, from around 2004 to 2015, focusing on the interaction between demand, income distribution, and the productive structure. An interpretative hypothesis is formulated within a framework that combines an effective demand schedule from the Kaleckian growth and distribution literature and a distributive schedule of Goodwin heritage (following Taylor, 2004, and Barbosa-Filho and Taylor, 2006). Such hypothesis indicates the determinants of the growth acceleration and of the increase of the wage share on income that started around 2004, as well as the determinants of their later reversal. Then, the framework is modified to incorporate sectoral heterogeneity, as suggested by Rugitsky (2016), and a modified hypothesis points out that a cumulative process involving reductions of wage inequality and changes of the productive structure may explain part of the recent Brazilian trajectory. Both hypotheses are examined empirically. The contrast of the cumulative process suggested with the one that seems to have taken place during Brazil’s “economic miracle” (1968-1973) allows it to be called an economic antimiracle.
    Keywords: aggregate demand; income distribution; productive structure; Kalecki; Goodwin; Brazilian economy
    JEL: E11 N16 O11 O54
    Date: 2017–11–14
  4. By: Karanasos, Menelaos G.; Koutroumpis, Panagiotis; Hatgioannides, John; Karanassou, Marika; Sala, Hector
    Abstract: In this paper, we summarize the opinion of three renowned economists,namely Paul De Grauwe, Paul Krugman and Joseph Stiglitz, on the Eurozone crisis as well as on the Greek case. All three expressed in one way or another their reservations about the single currency. On the one hand, De Grauwe and Stiglitz highlighted the design failures of the Eurozone, and on the other Krugman argued that the creation of the common currency was a terrible mistake. In support of their claims we provide evidence of the negative consequences of the austerity measures that were implemented by the troika on the Greek economy for a period covering 2010-2014. After five years of austerity, Greece among others experienced significant deflationary dynamics, deep recession, high unemployment rates that are among the highest in Europe, and an increase of the percentage of the people at risk of poverty or social exclusion. More specifically, GDP per capita growth shrank on average by 5.85 percent in the period 2010-2013 while the unemployment rate reached 25.5 percent in 2015. Even more remarkable is the fact that the youth unemployment rate reached 52.4 percent in 2014. Finally, 14 percent of the population cannot meet its medical needs due to the high cost of treatment.
    Keywords: Eurozone crisis; Greece; Austerity measures; GREXIT
    JEL: F3 G3
    Date: 2017–08
  5. By: Goodhart, Charles; Pradhan, Manoj
    Abstract: Between the 1980s and the 2000s, the largest ever positive labour supply shock occurred, resulting from demographic trends and from the inclusion of China and eastern Europe into the World Trade Organization. This led to a shift in manufacturing to Asia, especially China; a stagnation in real wages; a collapse in the power of private sector trade unions; increasing inequality within countries, but less inequality between countries; deflationary pressures; and falling interest rates. This shock is now reversing. As the world ages, real interest rates will rise, inflation and wage growth will pick up and inequality will fall. What is the biggest challenge to our thesis? The hardest prior trend to reverse will be that of low interest rates, which have resulted in a huge and persistent debt overhang, apart from some deleveraging in advanced economy banks. Future problems may now intensify as the demographic structure worsens, growth slows, and there is little stomach for major inflation. Are we in a trap where the debt overhang enforces continuing low interest rates, and those low interest rates encourage yet more debt finance? There is no silver bullet, but we recommend policy measures to switch from debt to equity finance.
    Keywords: demography; global labor supply; ageing; real interest rates; inequality
    JEL: N0
    Date: 2017–08
  6. By: Goodhart, Charles
    Abstract: Unlike other facets of monetary policy renormalisation, there has been little discussion yet of what principles should determine the optimum size of a Central Bank's balance sheet, the end-point to which on-going portfolio reductions should approach. In this note I start by addressing the arguments of those who would leave this balance sheet very large, much as now; and then continue with the counter-arguments, also stressing the nature of the relationships between monetary and fiscal policies, and between the Central Bank and the Treasury's Debt Management Office.
    Keywords: Central Bank balance sheet; monetary policy renormalisation; debt management; interest rate risk; auction risk
    JEL: F3 G3
    Date: 2017–09
  7. By: Goodhart, Charles; Lastra, Rosa
    Abstract: The consensus that surrounded the granting of central bank independence in the pursuit of a price stability oriented monetary policy has been challenged in the aftermath of the global financial crisis, in the light of the rise of populism on the one hand and the expanded mandates of central banks on the other hand. After considering the economic case for independence and the three Ds (distributional, directional and duration effects), the paper examines three different dimensions in the debate of how the rise in populism - or simply general discontent with the status quo - affects central bank independence. Finally, the paper examines how to interpret the legality of central bank mandates, and whether or not central banks have exceeded their powers. This analysis leads us in turn to consider accountability and, in particular, the judicial review of central bank actions and decisions. It is important to have in place adequate mechanisms to "guard the guardians" of monetary and financial stability.
    Keywords: accountability; central bank independence; Judicial review; Legitimacy; Mandates; populism
    JEL: N0 F3 G3 E6
    Date: 2017–06
  8. By: Reeves, Aaron
    Abstract: Aaron Reeves surveys five books on the defining social, political and economic issue of our times. Review of 5 books on inequality: 1. Toxic Inequality: How America’s Wealth Gap Destroys Mobility, Deepens the Racial Divide, and Threatens Our Future by Thomas M. Shapiro 2. The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century by Walter Scheidel 3. Basic Income: A Radical Proposal for a Free Society and a Sane Economy by Phillipe Van Parijs and Yannick Vanderborght 4. The Broken Ladder: How Inequality Affects the Way We Think, Live, and Die by Keith Payne 5. After Piketty: The Agenda for Economics and Inequality edited by Heather Boushey, J. Bradford DeLong and Marshall Steinbaum
    JEL: N0
    Date: 2017–03–16

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