nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2018‒03‒26
eighteen papers chosen by
Karl Petrick
Western New England University

  1. "Guaranteed Jobs through a Public Service Employment Program" By L. Randall Wray, Stephanie A. Kelton, Pavlina R. Tcherneva, Scott Fullwiler, and Flavia Dantas
  2. Challenges for post-Keynesian macroeconomics By Peter Skott
  3. Demand-Led Growth Theory in a Classical Framework: Its Superiority, Its Limitations, and Its Explanatory Power By Smith, Matthew
  4. Re-theorizing the welfare state and the political economy of neoliberalism's war against it By Thomas I. Palley
  5. The frame of reference for new economic thinking By Leiashvily, Paata
  6. Ellsberg’s Decision Rules and Keynes’s Long-Term Expectations By Marcello Basili; Carlo Zappia
  7. Karl Marx's thoughts on functional income distribution - a critical analysis By Herr, Hansjörg
  8. Distribution, wealth and demand regimes in historical perspective By Engelbert Stockhammer; Joel Rabinovich; Niall Reddy
  9. What drives the four decades-long decline in labour’s share of income? By Onaran, Özlem; Guschanski, Alexander
  10. Income distribution and economic growth; empirical results for Slovakia By Juraj Zeman
  11. The causes of falling wage share: sectoral and firm level evidence from developed and developing countries – what have we learned? By Onaran, Özlem; Guschanski, Alexander
  12. The commodification of knowledge and information By Rotta, Tomás N.; Teixeira, Rodrigo A.
  13. Measuring Labor Market Segmentation from Incomplete Data By Noe Wiener
  14. What Do Trade Agreements Really Do? By Dani Rodrik
  15. Demand-led growth and accommodating supply By Steven Fazzari; Piero Ferri; AnnaMaria Variato
  16. The labour share and financialisation: Evidence from publicly listed firms By Guschanski, Alexander; Onaran, Özlem
  17. A comment on 'Testing Goodwin: growth cycles in ten OECD countries' By Matheus R. Grasselli; Aditya Maheshwari
  18. The Economic Roots of the Rise of Trumpism By John Komlos

  1. By: L. Randall Wray, Stephanie A. Kelton, Pavlina R. Tcherneva, Scott Fullwiler, and Flavia Dantas
    Abstract: Amid a recent upsurge in support for a national job guarantee program, L. Randall Wray, Stephanie A. Kelton, Pavlina R. Tcherneva, Scott Fullwiler, and Flavia Dantas outline a new proposal for a federally funded program with decentralized administration. Their Public Service Employment (PSE) program would offer a job—paying a uniform living wage with a basic benefits package—to all who are ready and willing to work. In advance of an upcoming report detailing the economic impact of the PSE, this policy note presents an overview of the goals and structure of the program in the context of current labor market trends and the prospects of poverty reduction.
    Date: 2018–03
  2. By: Peter Skott (University of Massachusetts - Amherst)
    Abstract: Post-Keynesian macroeconomics faces several challenges. The labor market and the supply side, first, have not been getting the attention that they deserve in post-Keynesian growth theory. The failings of the Lucas-type microeconomic foundations, second, must not lead to a neglect of microeconomic behavior. Convincing macroeconomic theories must recognize and address the connections between macroeconomic relations and the microeconomic behavior whose aggregate manifestation the relations represent. Microeconomic behavior, third, takes place within an institutional structure that shapes economic behavior and economic outcomes. Macroeconomic theory must be both behavioral and structuralist.
    Keywords: Neo-Pasinetti theorem, mature economy, induced technical change, autonomous demand, instability, goal orientation
    JEL: E12
    Date: 2018
  3. By: Smith, Matthew (University of Sydney)
    Abstract: The main purpose of this paper is to show that the Keynesian-Kaleckian demand-led theory of growth proposed within the classical framework of prices and distribution as articulated by Sraffa (1960), is superior to the neoclassical supply-driven theory in explaining economic growth. After showing the fundamental theoretical problem with the neoclassical supply-driven approach to growth, we expound a demand-led model of growth that abandons ‘steady-state’ and, instead, adopts an ‘historical approach’ in which the data is specified for historical periods of time. The model incorporates the contribution of technical progress to demand-led growth and, thereby, provides the basis to identify the most important political, social, and institutional developments that historically explain growth and economic development since the advent of capitalism. Our historical analysis shows how demand-led growth theory can provide the foundation for a new and more coherent interpretation of the history of economic development.
    Keywords: Growth; J.M. Keynes; Classical Economics; Economic History; Development
    JEL: B51 N00 O40
    Date: 2018–03
  4. By: Thomas I. Palley
    Abstract: This paper argues neoliberalism is engaged in a war against the welfare state. At issue are competing views regarding the size of the welfare state and how it should be organized. In waging this war, neoliberalism seeks to politically discredit the traditional welfare state and change the economic structure so that the latter becomes unviable. The paper presents a new theoretical framework that distinguishes between modes of production and financing of the welfare estate. Neoliberalism's war rests on ideologically grounded criticisms drawn from mainstream economics; implementation of policies that undermine social solidarity toward the welfare state; exploiting pressures fostered by neoliberal globalization; and misrepresentations about affordability. The welfare state was critical in saving capitalism from itself after World War II. It is a way of embedding the market system so as to produce socially acceptable outcomes that are politically stable. Neoliberalism's war promises a body blow against shared prosperity. More ominously, it may so dis-embed the market system as to recreate conditions Polyani (1944) blamed for the rise of fascism in the 1930s.
    Keywords: Welfare state, neoliberalism, mode of production, mode of financing
    JEL: H1 H10 H50
    Date: 2018
  5. By: Leiashvily, Paata
    Abstract: After the crisis of 2018-2010, which led to the complete discrediting of neoclassical theory, the demand for new scientific ideas and an alternative vision of the most fundamental economic problems has sharply increased in economic science. At the same time, the discrediting of the neoclassical theory led to a critical attitude to the very idea of a general economic equilibrium, which is the central idea of neoclassical paradigm. The emphasis is increasingly shifting to the creation of disequilibrium models of economy. This book argues that this approach is incorrect. The wrong is not the very idea of equilibrium, but its neoclassical understanding and its concepts and equilibrium models, which are caused by false methodologies of neoclassicists. Without a preliminary dialectic analysis of economic categories and the operationally closed model of commodity-money flows of a market economy created on its basis, it is impossible to find out feedbacks that ensure the self-regulation of the economic system. The “Symmetrical model” of general economic equilibrium, which shows how economic forces arise, where they are directed and how interact with each other, which provide the homeostasis of a decentralized economic system, is proposed. This model shows the attractor of a real disequilibrium economy. It is shown that the evolution of market economy, which due to the immanent logic of intrasystem processes generates extreme inequality in income distribution, leads to a disruption in the harmony and symmetry of counter flows of commodity and money, thus destroying the system of positive and negative feedbacks that provide the homeostasis of economic system. This book is a collection of articles. Since each of them is a complete whole, the reader can get acquainted with the articles in any sequence, but after reading all of the articles, he will get a new non-standard understanding of functioning of a market economy. Although each article gives a complete analysis of a specific topic, nevertheless, all of them are arranged in such a sequence that they serve as different stages in the development of a single original concept, beginning with a methodology and ending with a mathematical model of a general economic equilibrium.
    Keywords: economics, dialectics, market economy, cost, utility, economic equilibrium, mathematical model
    JEL: A10 A13 B40 D50
    Date: 2018
  6. By: Marcello Basili; Carlo Zappia
    Abstract: This paper presents an intuitive way to represent Keynes’s notion of long-term expectations and its implications for decision-making, using the so-called e-contamination approach. Further to a suggestion by Ellsberg, a coherent Keynesian expectational function for decisions under uncertainty is derived. The paper draws on the similarities between the analyses of Keynes and Ellsberg and contends that much of current decision theory under ambiguity follows in Keynes’s footsteps
    Keywords: uncertainty, expectations, Keynes, consensus distribution, epsilon-contamination
    JEL: B26 D81
    Date: 2018–02
  7. By: Herr, Hansjörg
    Abstract: Keynes, following the tradition of Marx, argued that all values are created by labour and profits. However, functional income distribution between wages and profits is explained differently. In Marx's explanation of functional income distribution, wages are given as a basket of goods needed for the reproduction needs of the working class. Profits are then the remaining part of income creation. Given the capital stock, the profit rate can be calculated. The paper shows that Marx's explanation of functional income distribution has several theoretical and practical shortcomings. The Keynesian paradigm in the tradition of the original Keynes provides an alternative. Here the profit rate is given by processes in the financial market, and, among other things, by the interest rate. Monopolistic or oligopolistic structures, following the tradition of Kalecki, can also influence the profit rate. In addition, financialisation can push up the profit rate. Given the capital stock the consumption basket of workers depends on the level of productivity and the profit rate explained in a Keynesian and Kaleckian way.
    Keywords: Marxism,functional income distribution,Sraffa,Keynesianism
    JEL: B24 B51 E25
    Date: 2018
  8. By: Engelbert Stockhammer; Joel Rabinovich; Niall Reddy
    Abstract: Most empirical macroeconomic research limited to the period since World War II. This paper analyses the effects of changes in income distribution and in private wealth on consumption and investment covering a period from as early as 1855 until 2010 for the UK, France, Germany and USA, based on the dataset of Piketty and Zucman (2014). We contribute to the post-Keynesian debate on the nature of demand regimes, mainstream analyses of wealth effects and the financialisation debate. We find that overall domestic demand has been wage-led in the USA, UK and Germany. Total investment responds positively to higher wage shares, which is driven by residential investment. For corporate investment alone, we find a negative relation. Wealth effects are found to be positive and significant for consumption in the USA and UK, but weaker in France and Germany. Investment is negatively affected by private wealth in the USA and the UK, but positively in France and Germany.
    Keywords: historical macroeconomics, demand regimes, Bhaduri-Marglin model, wealth effects, financialisation
    JEL: B50 E11 E12 E20 E21 N10
    Date: 2018
  9. By: Onaran, Özlem; Guschanski, Alexander
    Abstract: Alexander Guschanski and Ozlem Onaran (2018) of the University of Greenwich Political Economy Research Centre provide evidence that changes in bargaining power, in particular the fall in union density and welfare state retrenchment, lie at the core of rising income inequality between labour and capital. The research challenges the established consensus that inequality is an unavoidable outcome of technological change or globalisation, and shows the importance of labour market institutions and social protection policies. The results of their recent project, funded by the Institute for New Economic Thinking, will be presented at the Royal Economics Society Annual Conference.
    Keywords: wage share; income distribution; union density; technology; offshoring
    JEL: J31 J51 J53
    Date: 2018–03–03
  10. By: Juraj Zeman (National Bank of Slovakia)
    Abstract: The relationship between income inequality and economic growth is an ambiguous one but most mainstream economists view real wage increases as a drag on economic growth as they lead to higher labor costs, lower competitiveness and reduction of employment. In this study we provide an alternative view and show that a labor income increase may also have a positive effect on growth. Which of these two effects dominates in a particular country depends on the institutional and legal environment of that country, its macroeconomic conditions and also its economic policies. We apply a general Keynesian growth model that combines demand and productivity regimes to test empirically two distinct economies – the small, very open economy of Slovakia and the large, relatively closed economy of the euro area. We find that an income rise increases domestic demand and reduces external trade in both economies. But the total effect of income inequality on economic activity is opposite in both economies in the short run. In the Slovak case the positive effect of lower income inequality on domestic demand is surpassed by its negative effect on net exports. Hence higher income inequality is associated with higher economic growth; the Slovak economy is profit-led. In the case of the euro area the positive effect of income rises on domestic demand is larger than the negative effect on net exports. Hence higher income inequality is associated with lower economic growth; the euro area is wage-led. In the long run, however, both economies are wage-led. The regime switch in the Slovak economy is caused by the inclusion of the positive impact of a wage increase on productivity. We also partially analyze the economies of the Slovak trading partners and doing so we get results for new EU member economies that are compared and contrasted with the old EU members.
    Keywords: Inequality, wage led growth, profit led growth, Slovakia
    JEL: E12 E25 E60
  11. By: Onaran, Özlem; Guschanski, Alexander
    Abstract: The last four decades have been characterised by drastic changes in the distribution of income between wages and profits in both OECD countries and emerging economies. We have recently analysed the causes of the decline in the wage share in the developed and developing countries for a project titled ‘The causes of falling wage share and prospects for growth with equality in a globalized economy’ for the Institute of New Economic Thinking, and this paper summarizes our findings. We provide evidence that changes in bargaining power, in particular the fall in union density and welfare state retrenchment, as well as financialization and offshoring lie at the core of rising income inequality between labour and capital in both developed and developing economies. We challenge the established consensus that inequality is an unavoidable outcome of technological change or globalisation, and show the importance of labour market institutions and social protection policies.
    Keywords: wage share; income distribution; union density; technology; offshoring; market concentration; financialisation
    JEL: J31
    Date: 2018–03–03
  12. By: Rotta, Tomás N.; Teixeira, Rodrigo A.
    Abstract: In this paper we present an analysis of the commodification of knowledge and information in contemporary capitalism. We provide a consistent account of how information as a commodity effects the workings of both capitalism and of Marxist theory. The first part of the paper critically revisits Marx’s own writings on the commodification of knowledge and how the immaterial labor hypothesis initially interpreted these writings. Based on the new categories knowledge-commodity and knowledge-rent, we then present our own approach in response to the challenges raised by the immaterial labor hypothesis. Lastly, we analyze the more recent contributions on the commodification of knowledge and information within the Marxist literature and present some empirical estimates of the magnitudes of knowledge-rents.
    Keywords: Knowledge-commodities; knowledge-rents; value theory; Marx; immaterial labor;
    JEL: B51 L00 O30
    Date: 2018–03–13
  13. By: Noe Wiener (Department of Economics, University of Massachusetts, Amherst and Department of Economics, The New School for Social Research, New York)
    Abstract: This paper proposes a measure of the intensity of competition in labor markets on the basis of limited data. Large-scale socioeconomic surveys often lack detailed information on competitive behavior. It is particularly difficult to determine whether a worker moves between the different segments of the labor market. Here, the Maximum Entropy principle is used to make inferences about the unobserved mobility decisions of workers in US household data. A class of models is proposed that reflects a parsimonious conception of competition in the Smithian tradition, as well as being consistent with a range of detailed behavioral models. The Quantal Response Statistical Equilibrium (QRSE) class of models can be seen to give robust microfoundations to the persistent patterns of wage inequality among equivalent workers. Furthermore, the QRSE effectively endogenizes the definition of labor market segments, allowing us to interpret the estimated competition intensities as partial measures of labor market segmentation. Models of this class generate predictions that capture between 97.5 and 99.5 percent of the informational content of the sample wage distributions. In addition to providing a very good fit to the wage data, the predictions are also consistent with bounded rationality of workers.
    Keywords: labor market competition, segmented labor markets, job mobility, wage inequality, statistical equilibrium, maximum entropy
    JEL: C18 J31 J42 J62
    Date: 2018
  14. By: Dani Rodrik
    Abstract: As trade agreements have evolved and gone beyond import tariffs and quotas into regulatory rules and harmonization, they have become more difficult to fit into received economic theory. Nevertheless, most economists continue to regard trade agreements such as the Trans Pacific Partnership (TPP) favorably. The default view seems to be that these arrangements get us closer to free trade by reducing transaction costs associated with regulatory differences or explicit protectionism. An alternative perspective is that trade agreements are the result of rent-seeking, self-interested behavior on the part of politically well-connected firms – international banks, pharmaceutical companies, multinational firms. They may result in freer, mutually beneficial trade, through exchange of market access. But they are as likely to produce purely redistributive outcomes under the guise of “freer trade.”
    JEL: F13
    Date: 2018–02
  15. By: Steven Fazzari; Piero Ferri; AnnaMaria Variato
    Abstract: This paper presents a "supermultiplier" model in which the growth of autonomous demand (demand independent of the state of the economy) determines the steady-state growth rate of output. With reasonable parameters, endogenous adjustment of labor supply and productivity causes supply to accommodate the demand-led growth path, reconciling Harrod's warranted rate of demand growth with the growth of supply. The model delivers a range of feasible aggregate growth paths and unemployment rates rather than a single "natural rate." The results explain how economies can become trapped with low growth due to weak demand or fiscal austerity and suggest policy responses to "secular stagnation."
    Keywords: demand-led growth, autonomous demand, supermultiplier, aggregate demand and supply reconciliation, secular stagnation
    JEL: E12 O40 E32
    Date: 2018
  16. By: Guschanski, Alexander; Onaran, Özlem
    Abstract: This paper provides international evidence for the effect of financialisation on the labour share at the firm level. We test different hypotheses about the impact of financialisation on functional income distribution, while also controlling for the effect of technological change, market concentration, labour market institutions and globalisation. We use panel data for publicly listed non-financial companies globally and with a particular focus on the EU15 for the period of 1995-2016. We find a negative effect of financialisation on the labour share due to increased shareholder value orientation in all countries, while there is also evidence of a negative effect due to an increase in mark-ups in France and the UK. Additionally, our findings cast doubt on the hypotheses that the decline in the labour share in European publicly listed firms is due to technological change. Similarly, market concentration did not play an important role for the decline in the labour share. In contrast, we find that concentration has declined among publicly listed firms in Europe, and that concentration is not associated with declining labour shares.
    Keywords: labour share; income distribution; financialisation; market concentration; technology
    JEL: J3
    Date: 2018–03–05
  17. By: Matheus R. Grasselli; Aditya Maheshwari
    Abstract: We revisit the results of Harvie (2000) and show how correcting for a reporting mistake in some of the estimated parameter values leads to significantly different conclusions, including realistic parameter values for the Philips curve and estimated equilibrium employment rates exhibiting on average one tenth of the relative error of those obtained in Harvie (2000).
    Date: 2018–03
  18. By: John Komlos
    Abstract: Donald Trump won the election in 2016 largely because enough voters in three states, all in the Rustbelt, who had voted for Barack Obama in both 2008 and 2012, switched their vote from Democratic to Republican. Economic dislocations played a crucial role in these swing states or democratic strongholds to persuade many voters to take the dramatic step to vote for an anti-establishment candidate even if that meant a leap of faith into the unknown. The sources of the dislocation were the development of a dual economy characterized at one end by low and stagnating wages, increasing debt, downward social mobility, declining relative incomes, and the hopelessness accompanying them while at the other end of the income distribution the economy was simply booming. This was longer than a three-decade process that started with Reaganomics and its tax cuts that privileged the rich and conferred immense wealth, and its concomitant, political power, on them. Reaganomics also accelerated the decline in the power of unions which had supported the middle class. The process continued under Bill Clinton’s administration and its continuing both financial deregulation and of hyper-globalization. George Bush continued to pamper the superrich with his tax policies. The process culminated with Barack Obama’s bailing out the superrich and his benign neglect of Mainstreet. Five administration’s disinterest in the social group Hillary Clinton referred to flippantly as “the deplorables” culminated in the revolt of the masses in favor of an incompetent strongman by overthrowing the establishment captured by such chants at Trump rallies as “Lock her up!”, “USA!”, “Build the wall”, or “Drain the swamp” (i.e., in Washington D.C.).
    Keywords: political economy of populism
    JEL: A10
    Date: 2018

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