nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2018‒07‒16
thirteen papers chosen by
Karl Petrick
Western New England University

  1. Distribution-led growth through methodological lenses By Michaelis Nikiforos
  2. Varieties of Capitalism, Increasing Income Inequality, and the Sustainability of Long-Run Growth By Mark Setterfield; Yun K. Kim
  3. The role of autonomous demand growth in a neo-Kaleckian conflicting-claims framework By Won Jun Nah; Marc Lavoie
  4. Recovering Keynesian Phillips curve theory By Thomas Palley
  5. Unemployment and growth By Thomas Palley
  6. Liquidity Traps and Large-Scale Financial Crises By Giovanni Caggiano; Efrem Castelnuovo; Olivier Damette; Antoine Parent; Giovanni Pellegrino
  7. Taxonomy of Chilean Financial Fragility Periods from 1975 By Juan Francisco Martínez; José Miguel Matus; Daniel Oda
  8. "External Instability in Transition: Applying Minsky's Theory of Financial Fragility to International Markets" By Liudmila Malyshava
  9. The Supermultiplier-Cum-Finance. Economic Limits of a Credit Driven System By Dejuán, Óscar; McCombie, John S.L.
  11. Nudgital: Critique of Behavioral Political Economy By Julia M. Puaschunder
  12. Income shares, secular stagnation, and the long-run distribution of wealth By Luke Petach; Daniele Tavani
  13. Could a national wage rule stabilize the current account and functional income distribution in the Euro area? By Camille Logeay; Heike Joebges

  1. By: Michaelis Nikiforos
    Abstract: This paper presents a methodological discussion of two recent "endogeneity" critiques of the Kaleckian model and the concept of distribution-led growth. From a neo-Keynesian perspective, it is criticized because it treats distribution as quasi-exogenous, while in Skott (2017), distribution is viewed as endogenously determined by a series of (exogenous) institutional factors and social norms, and therefore one should focus on these instead of the functional distribution of income per se. The paper discusses how abstraction is used in science and economics, and uses the criteria proposed by Lawson (1989) for what constitutes an appropriate abstraction. Based on this discussion, it concludes that the criticisms are weak, although the issues raised by Skott provide some interesting directions for future work within the Kaleckian framework.
    Keywords: Kaleckian model, distribution-led, abstraction, closure
    JEL: B22 B41 B50 E11 E12
    Date: 2018
  2. By: Mark Setterfield (Department of Economics, New School for Social Research); Yun K. Kim (Department of Economics, University of Massachusetts-Boston)
    Abstract: We model US household debt accumulation during the neoliberal boom as a response to emulation e ects and the decline of the social wage, which has "privatized" an increasing share of the costs of providing for services such as health and education. The debt dynamics of the US economy are then studied under alternative assumptions about the con guration of distributional variables, which is shown to differ across varieties of capitalism that have "neoliberalized" to di erent degrees. A key result is that distributional change alone will not make US neoliberal capitalism financially sustainable due, in part, to the paradoxical nature of inequality as a spur to household borrowing, and hence a source of both demand-formation and financial fragility. Achieving sustainability requires, instead, more wide-ranging reform.
    Keywords: Varieties of capitalism, neoliberalism, inequality, growth, financial fragility, financial sustainability
    JEL: E12 E44 O41
    Date: 2018–07
  3. By: Won Jun Nah; Marc Lavoie
    Abstract: This paper incorporates the role of an independently growing autonomous demand component into a neo-Kaleckian model of growth and distribution where the distribution of income reacts to changes in the employment rate. A peculiar feature of these autonomous expenditures is that in contrast to investment they are non-capacity creating. The model combines the Sraffian multiplier, a conflicting-claims theory of inflation, a Harrodian instability mechanism and effects tied to the size of the reserve army of labor. The long-run version of the model converges conditionally to stable rates of employment and inflation, at the normal rate of capacity utilization. The model vindicates some of the main Keynesian or Kaleckian tenets, in the sense that an increase in the marginal propensity to save out of profits or in the bargaining power of firms generate lower average rates of capital accumulation and capacity utilization during the traverse.
    Keywords: neo-Kaleckian; wage-led growth; autonomous expenditures; conflicting claims
    JEL: E11 F41 O41
    Date: 2018
  4. By: Thomas Palley
    Abstract: Economic theory is prone to hysteresis. Once an idea is adopted, it is difficult to change. In the 1970s, the economics profession abandoned the Keynesian Phillips curve and adopted Milton Friedman's natural rate of unemployment (NRU) hypothesis. The shift was facilitated by a series of lucky breaks. Despite much evidence against the NRU, and much evidence and theoretical argument supportive of the Keynesian Phillips curve, the NRU hypothesis remains ascendant. The hypothesis has had an enormous impact on macroeconomic theory and policy. 2018 is the fiftieth anniversary of Friedman's introduction of the NRU hypothesis. The anniversary offers an opportunity to challenge, rather than celebrate it.
    Keywords: Natural rate of unemployment, Keynesian Phillips curve, Friedman, Tobin
    JEL: E00 E12 E20 E30 E60
    Date: 2018
  5. By: Thomas Palley
    Abstract: Post Keynesian (PK) growth models typically fail to model unemployment. That shows up in the absence of any equilibrium condition requiring the growth of employment equal effective labor supply growth. Consequently, the models can have an imploding or exploding unemployment rate. The underlying analytical problem is failure to resolve the Harrod (1939) knife edge problem. This paper shows how the knife-edge problem can be resolved via a Kaldor - Hicks technological progress function. The paper applies the concept to several different PK growth models. In the Harrod, super-multiplier, Cambridge, and neo-Kaleckian models the warranted rate rules the roost and natural rate forces have no impact on the equilibrium growth rate. However, in a modified neo-Kaleckian model with labor market distribution conflict both warranted rate and natural rate forces impact steady state growth.
    Keywords: Growth, unemployment, Harrod Knife-edge, endogenous technical progress, Hicks, Kaldor
    JEL: O4 O41 O33 E12
    Date: 2018
  6. By: Giovanni Caggiano; Efrem Castelnuovo; Olivier Damette; Antoine Parent; Giovanni Pellegrino
    Abstract: This paper estimates a nonlinear Threshold-VAR to investigate if a Keynesian liquidity trap due to a speculative motive was in place in the U.S. Great Depression and the recent Great Recession. We find clear evidence in favor of a breakdown of the liquidity effect after an unexpected increase in M2 in the 1921-1940 period. This evidence, which is consistent with the Keynesian view on a liquidity trap, is shown to be state contingent. In particular, it emerges only when a speculative regime identified by high realizations of the Dow Jones index is considered. A standard linear framework is shown to be ill-suited to test the hypothesis of a Keynesian liquidity trap. An investigation performed with the same data for the period 1991-2010 confirms the presence of a liquidity trap just in the speculative regime. This last result emerges significantly only when we consider the federal funds rate as the policy instrument and we model the Divisia M2 measure of liquidity.
    Keywords: Keynesian liquidity trap, Threshold-VAR, monetary and financial cliometrics, Great Depression, Great Recession
    JEL: B22 C52 E52 N12 N22
    Date: 2018
  7. By: Juan Francisco Martínez; José Miguel Matus; Daniel Oda
    Abstract: The measurement of financial fragility is a key element but still an ongoing task for monetary, financial authorities and international financial institutions. This is specially relevant when applying financial policies that are contingent on the behavior of a particular economy or try to anticipate disruptive events. However, there are several dimensions that complicate the precise definition of financial fragility and the identification of these periods; some examples are: the distinction of causes, symptoms, effects and policy management measures. The current literature points out to a few key elements that have a broad impact on the financial system. In particular, it highlights the role of materialized credit risk, profits and credit activity of banks as signs of instability. In this paper, we combine these elements to identify and delimit historical financial fragility periods for the Chilean economy. In doing so, we build a novel monthly database that includes the 1980's local banking crisis period.
    Date: 2018–06
  8. By: Liudmila Malyshava
    Abstract: This inquiry argues that the successful completion of the transition process in the post-Soviet economies is constrained by the prevailing social structure and low levels of technological progress, both of which require institutional reforms aimed at increasing growth in national income, productivity, and the degree of export competitiveness. Domestic policy implementation has not shown significant improvements on these fronts, given its short-term orientation, but instead resulted in stagnating growth rates, continuously accumulating levels of external debt, and decreasing living standards. The key to a successful completion of the transition process is therefore a combination of policies targeted at the dynamic transformation of production structures within an environment of financial stability and favorable macroeconomic conditions.
    Keywords: Transition Economies; Soviet Mode of Production; Technological Decay; International Capital Flows; External Instability; Debt Repayment
    JEL: B25 F13 F34 G15 P30
    Date: 2018–07
  9. By: Dejuán, Óscar (University of Castilla – La Mancha (UCLM)); McCombie, John S.L. (University of Cambridge, Cambridge, UK)
    Abstract: Credit explosion, debt overhang and asset bubbles, of the size observed in the period 1995-2008, have been a recurrent problem of advanced capitalism. In this paper we analyse the causes and consequences of over-indebtedness from a supermultiplier model that takes into account the debt-service. We contend that the accelerator of investment is a stable and stabilizing mechanism when investment depends on the expected increases in “permanent” demand. The problems of instability are rooted in the consumption-multiplier when it does not depend on fixed parameters (like the tax rate) but on coefficients that evolve endogenously; namely the debt-burden and the debt service. To control the financial sources of this instability, monetary authorities should prevent that credit rises systematically above the growth of nominal GDP.
    Keywords: Financial Instability; Supermultiplier; Post-Keynesian Economics; Sraffian Economics
    JEL: E11 E12 E32
    Date: 2018–07
  10. By: George McMillan III (Aegis Defense Services)
    Abstract: This research design overcomes the three problems of coordinating the micro and macro behavioral sciences of Gintis defined as: (1) the identification of an overarching casual theme, (2) the identification of an integrative methodology, and (3) the identification of a series of a series of compatible frameworks. This is achieved by the comparison of the competing Hume-Smith versus Marx-Engels foundational-political-economic philosophical theories in relation to the outcome of the 20th Century Ideological Experiments. This paper contends that the range of valid foundational-political-economic philosophical theories, and the corresponding series of psychological, political, economic theoretical frameworks in the social sciences, can be reduced considerably across the board considerably, and then integrated laterally.
    Keywords: Unification of the behavioral sciences; Unified Theory of the Social Sciences
    JEL: F59 A12 B00
    Date: 2017–10
  11. By: Julia M. Puaschunder (The New School, Department of Economics)
    Abstract: Behavioral Economics revolutionized mainstream neo-classical economics. A wide range of psychological, economic and sociological laboratory and field experiments proved human beings deviating from rational choices as standard neo-classical profit maximization axioms failed to explain how human actually behave. Human beings rather use heuristics in their day-to-day decision making. These mental short cuts enable to cope with a complex world yet also often leave individuals biased and falling astray to decision making failures. What followed was the powerful extension of these behavioral insights for public administration and public policy making. Behavioral economists proposed to nudge and wink citizens to make better choices for them and the community. Many different applications of rational coordination followed ranging from improved organ donations, health, wealth and time management, to name a few. Yet completely undescribed remains that the implicit hidden persuasion opens a gate to deception and is an unprecedented social class division means. Social media forces are captures as unfolding a class dividing nudgital society, in which the provider of social communication tools can reap surplus value from the information shared of social media users. The social media provider is outlined as capitalist-industrialist, who benefits from the information shared by social media users, or so-called consumer-workers, who share private information in their wish to interact with friends and communicate to public.
    Keywords: Behavioral Economics, Behavioral Political Economy, Democratisation of information, Education, Exchange value, Governance, Libertarian Paternalism, Nudging
    Date: 2018–05
  12. By: Luke Petach; Daniele Tavani
    Abstract: Four alarming stylized facts have characterized the recent economic history of the United States: (i) a fall in labor productivity; (ii) a fall in the labor share, (iii) an increase in the capital income ratio, and (iv) an increase in the wealth share owned by top income earners. In this paper, we offer a non-Neoclassical explanation for these facts that merges the Pasinetti (1962) approach to differential saving propensities among classes with the theory of induced technical change (ITC) by Kennedy (1964). First, we provide a simple microeconomic rationale for workers' saving propensity being lower than capitalists' based on the empirically-supported argument that consumption peer effects are more prevalent at lower brackets of the income distribution (Petach and Tavani, 2018). We then show that institutional changes that lower the labor share - a decline in unionization, an increase in monopsony power in the labor market, the so-called 'race to the bottom' fostered by a hyper-competitive global environment, or the exhaustion of path-breaking scientific discoveries as argued by Gordon (2015) - can explain the decline in labor productivity growth because of the reduced incentives to innovate to save on labor costs. Combined with ITC, differential savings delivers a direct relationship between the capitalist share of wealth and the capital-income ratio independent of the elasticity of substitution between capital and labor. Finally, we argue that these tendencies are not inevitable: tax policy can be used to implement any wealth distribution, similarly to Zamparelli (2016); while worker-crushing institutional arrangements can be reversed through counteracting policy changes. However, both policy changes appear unlikely given the current institutional and global climate.
    Keywords: Capital-Income Ratio, Secular Stagnation, Factor Shares, Wealth Inequality.
    JEL: D31 E24 E25
    Date: 2018
  13. By: Camille Logeay; Heike Joebges
    Abstract: Since the introduction of the euro, divergent nominal wage developments in member countries contributed to economic imbalances, prominently visible in the current account. Wages are factor costs and as such key determinants of the price competitiveness of the tradable sector and the domestic price level of the whole economy in a monetary union. As income, they are an important determinant of domestic demand and imports. Building on the work of Horn/Logeay (2004), Herr/Horn (2012), and Onaran/Stockhammer (2016), this paper discusses how the adoption of a wage rule in member countries can help address the problem of economic imbalances. Yet, in contrast to the debate about wage?led vs. profit?led countries, and the overall growth effect of wage developments, we focus on the relationship between wages and the current account as well as the one between wages, prices, and functional income distribution. While we recommend the wage rule for all member countries, this article focuses on selected crisis countries. We first assess two conditions which are necessary in order for the wage rule to be valid: 1) demand aspects (the increase in domestic demand resulting from increased wages) outweigh cost aspects (the decrease in price competitiveness resulting from higher wages), 2) distributional effects do not prevent the transmission from wages to prices. We conclude that the implementation of the wage rule in member countries would have dampened economic divergences in the euro area, including current account imbalances. To promote the inclusion of the wage rule in all member countries, we recommend including the wage rule as a relevant indicator for the MIP?scoreboard of the European Commission, alongside support for labour market institutions. Furthermore, in order to stabilize the functional income distribution, profits (and taxes) would have to follow a similar rule.
    Date: 2018

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