nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2018‒08‒20
eleven papers chosen by
Karl Petrick
Western New England University

  1. Government Spending and the Income-Expenditure Model: The Multiplier, Spending Composition, and Job Guarantee Programs By Thomas Palley
  3. Employment protection and labour market performance in European Union countries during the Great Recession By Jesus Ferreiro; Carmen Gómez
  4. The Fisher Body Case and Organizational Economics By Richard N. Langlois
  5. The labour-augmented K+S model: a laboratory for the analysis of institutional and policy regimes By Giovanni Dosi; Marcelo C. Pereira; Andrea Roventini; Maria Enrica Virgillito
  6. An Evolutionary Perspective on the British Banking Crisis By Neill Marshall; Stuart Dawley; Andy Pike; Jane Pollard; Mike Coombes
  7. Past Income Scarcity and Current Perception of Financial Fragility By Massimo Baldini; Giovanni Gallo; Costanza Torricelli
  8. Did Austerity Cause Brexit? By Thiemo Fetzer
  9. Was Higher Education a Major Channel through which the US Became an Economic Superpower in the 20th Century? By Cook, Adam; Ehrlich, Isaac
  10. Bounded Rationality, Satisficing and the Evolution of Economic Thought By Clement A. Tisdell
  11. The Well-being of the Overemployed and the Underemployed and the Rise in Depression in the UK By David N.F. Bell; David G. Blanchflower

  1. By: Thomas Palley
    Abstract: This paper reconstructs the income - expenditure (IE) model to include a distinction between government purchases of output versus government production. The distinction has important consequences for output and employment multipliers. The paper also extends the IE model to incorporate a government job guarantee program (JGP), and the extended model illuminates the automatic stabilizer properties of a JGP. The model is then extended to include Kaleckian income distribution effects. That generates a novel Kaleckian balanced budget multiplier driven by changed composition of government spending. The paper concludes with some economic and political economy concerns about a JGP that are flagged by the model.
    Keywords: Government spending, spending composition, balanced budget multiplier, job guarantee program
    JEL: E10 E12 E62
    Date: 2018
  2. By: Walter Paternesi Meloni; Matteo Deleidi
    Abstract: Mature European countries have recently experienced a slackening in output growth and stagnating labour productivity, which may result both from poor ‘within sector’ growth and/or ‘structural change’. In this regard, the contribution of the paper is twofold. First, we assess the weight of ‘structural change’ versus ‘within sector’ growth in affecting overall productivity dynamics by means of a shift-share analysis. Second, we investigate the impact of demand factors on ‘within sector’ productivity growth by estimating the Kaldor-Verdoorn long-run coefficients in response to the dynamics of autonomous demand (1980-2015). We find that: (i) productivity growth is mainly driven by the ‘within sector effect’, with a relatively smaller role played by structural change; (ii) autonomous demand growth is relevant in determining productivity dynamics, especially in manufacturing. A major policy implication is that coordinated expansionary policies would matter for productivity growth in the EU, and at the same time contribute to sustain employment.
    Keywords: Structural Change; Tertiarisation; Shift-Share Analysis; Labour Productivity; Kaldor-Verdoorn Law.
    JEL: E24 L16 O47
    Date: 2018–07
  3. By: Jesus Ferreiro; Carmen Gómez
    Abstract: For mainstream economics, rigidities in the labour market are the primary determinants of high and persistent long-term unemployment rates, leading to the need to reform labour market institutions and make them more flexible. Flexible labour markets would not only help to smooth normal business cycle fluctuations (implying a small impact of these fluctuations on employment and unemployment) but also to reduce the negative impacts on labour market of structural shocks. If we focus on the labour market performances in the European Union during the Great Recession, we can easily detect the existence of significant differences in the impact of this common structural shock on the domestic labour markets. For mainstream economics, the countries with the best results in terms of unemployment and employment would have been those that had a more flexible labour market at the beginning of the crisis and/or those having implemented reforms to increase this flexibility.The aim of this paper is to determine the validity of this argument, that is, whether labour reforms making the labour market more flexible effectively ensure macroeconomic stability by reducing the impact on the labour market of economic shocks. Using panel data techniques, we investigate whether, as mainstream studies argue, the evolution of employment and unemployment in the EU labour markets is explained, and to what extent, by the levels and changes registered in the indicators of employment protection legislation. Conversely, we examine whether, as heterodox and post-Keynesian studies suggest, this evolution is explained by the changes registered in economic activity (i.e., GDP growth).
    Keywords: employment, unemployment, Great Recession, employment protection
    JEL: C23 E24 J21 J64 J88
    Date: 2018
  4. By: Richard N. Langlois (University of Connecticut)
    Abstract: In 1919, General Motors acquired a non-controlling equity interest in the Fisher Body Company and signed a ten-year contract stipulating the terms under which Fisher would be the exclusive supplier of car bodies to GM. In 1926, GM acquired the remaining equity in Fisher Body. In 1978, Benjamin Klein, Robert Crawford, and Armen Alchian used the GM acquisition of Fisher Body as an illustration of the asset-specificity or “holdup” theory of vertical integration. Their paper became widely influential, and the Fisher case quickly developed into an omnipresent meme in the economics of organization. In the year 2000, however, the meme suddenly exploded into a cause célèbre. No fewer than five papers appeared attacking both the theory and the history in the Klein et al. account – including a paper by Nobel Laureate Ronald Coase, who entered into an often-contentious debate with Klein. This paper tells the story of the Fisher Body acquisition and of the academic controversy it spawned. The controversy has lessons – including some surprising and ironic lessons – for the economic history of the American automobile industry, for the economics of organization, and for the conduct of inquiry in economics.
    Keywords: transaction costs, vertical integration, asset specificity, automobile industry
    JEL: B2 D23 D86 L14 L24 L62 N62
    Date: 2018–07
  5. By: Giovanni Dosi; Marcelo C. Pereira; Andrea Roventini; Maria Enrica Virgillito
    Abstract: In this work we discuss the research findings from the labour-augmented Schumpeter meeting Keynes (K+S) agent-based model. It comprises comparative dynamics experiments on an artificial economy populated by heterogeneous, interacting agents, as workers, firms, banks and the government. The exercises are characterised by different degrees of labour flexibility, or by institutional shocks entailing labour market structural reforms, wherein the phenomenon of hysteresis is endogenous and pervasive. The K+S model constitutes a laboratory to evaluate the effects of new institutional arrangements as active/passive labour market policies, and fiscal austerity. In this perspective, the model allows mimicking many of the customary policy responses which the European Union and many Latin American countries have embraced in reaction to the recent economic crises. The obtained results seem to indicate, however, that most of the proposed policies are likely inadequate to tackle the short-term crises consequences, and even risk demoting the long-run economic prospects. More objectively, the conclusions offer a possible explanation to the negative path traversed by economies like Brazil, where many of the mentioned policies were applied in a short period, and hint about some risks ahead.
    Keywords: Labour market, Policy evaluation, Agent-based model
    Date: 2018–08–05
  6. By: Neill Marshall; Stuart Dawley; Andy Pike; Jane Pollard; Mike Coombes
    Abstract: Developing an evolutionary perspective towards the changing anatomy of the banking sector reveals the enduring tensions and contradictions between spatial centralisation and the possibilities for decentralisation before, during and after the British banking crisis. The shift from banking boom to crisis in 2007 is conceptualised as a significant and on-going moment in the long-term evolution of the historical institutional-spatial dominance of London over other city-regions in Britain. The analysis demonstrates the importance of the institutional and geographical legacies of the British national political economy and variegation of capitalism established in the later nineteenth and early twentieth centuries in shaping contemporary geographical outcomes. Regulatory changes combined with financial innovation in the latter years of the twentieth century to create an opportunity for English regional and Scottish banks excluded from previous institutional-spatial centralisation to expand excessively and consequently several failed in the banking crisis. The paper considers the future trajectory of institutional-spatial centralisation in the banking sector amidst the continued spatial restructuring of the banking crisis, involving a re-drawing of organisational boundaries, overlapping institutional and technological changes and unprecedented uncertainty about the impact of Brexit on Britain?s wider political and economic landscape.
    Keywords: Banking crisis, evolutionary geographical political economy, cities and regions, uneven development
    JEL: R10 R12 R23 J21 J24
    Date: 2018–08
  7. By: Massimo Baldini; Giovanni Gallo; Costanza Torricelli
    Abstract: The aim of this paper is to test whether a temporary experience of income scarcity in the recent past affects the individual’s assessment of financial fragility over time. Using EU-SILC (European Union Statistics on Income and Living Condition) longitudinal data in 2010-2013 period, our results highlight that individuals who transited out of a short spell of scarcity tend to record a lower subjective ability to make ends meet than those who never experienced it during the reference period, even after two years and controlling for the current level of household income. When a more objective measure of household financial health is taken, the effect is weaker and disappears when current income is accounted for. Our results, which are robust to various robustness checks, have implications for public policies since they question the idea that helping people to leave an objective condition of income scarcity is enough to address poverty and social exclusion.
    Keywords: Scarcity; Financial fragility; Perception; Coarsened ExactMatching
    JEL: C25 D60 I32
    Date: 2017–12
  8. By: Thiemo Fetzer
    Abstract: Did austerity cause Brexit? This paper shows that the rise of popular support for the UK Independence Party (UKIP), as the single most important correlate of the subsequent Leave vote in the 2016 European Union (EU) referendum, along with broader measures of political dissatisfaction, are strongly and causally associated with an individual’s or an area’s exposure to austerity since 2010. In addition to exploiting data from the population of all electoral contests in the UK since 2000, I leverage detailed individual level panel data allowing me to exploit within-individual variation in exposure to specific welfare reforms as well as broader measures of political preferences. The results suggest that the EU referendum could have resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms. Further, auxiliary results suggest that the welfare reforms activated existing underlying economic grievances that have broader origins than what the current literature on Brexit suggests. Up until 2010, the UK’s welfare state evened out growing income differences across the skill divide through transfer payments. This pattern markedly stops from 2010 onwards as austerity started to bite.
    Keywords: political economy, austerity, globalization, voting, EU
    JEL: H20 H30 H50 P16 D72
    Date: 2018
  9. By: Cook, Adam (State University of New York); Ehrlich, Isaac (University at Buffalo, SUNY)
    Abstract: This paper offers a thesis for why the US overtook the UK and other European countries in the 20th century in both aggregate and per capita GDP as a case study of recent models of endogenous growth, where "human capital" is the engine of growth. By human capital we mean an intangible asset, best thought of as a stock of embodied and disembodied knowledge comprising education, information, entrepreneurship, and productive and innovative skills, which is formed through investments in schooling, job training, and health as well as through research and development projects and informal knowledge transfers (cf. Ehrlich and Murphy 2007). The conjecture is that the ascendancy of the US as an economic superpower in the 20th century owes considerably to its faster human capital formation relative to that of the UK and "old Europe." This paper assesses whether the thesis has legs to stand on through both stylized facts and a supplementary quasi-experimental empirical analysis. The stylized facts indicate that the US led other major developed countries in schooling attainments per adult population member, beginning in the latter part of the 19th century and lasting throughout the 20th century, especially at the secondary and tertiary levels. The quasi-experimental analysis constitutes the first attempt to test the hypothesis that the US's ascendancy to a major economic power stems largely from the impact of the first Morrill Act of 1862, which launched the public higher education movement in the US through the establishment of land grant colleges and universities across the nation during the latter part of the 19th century. The higher education movement appears to have spearheaded a higher long-term rate of growth in per capita income in the US relative to the UK and other major European countries.
    Keywords: human capital, endogenous growth, Morrill Act, higher education, treatment effects, US
    JEL: H1 I2 N1 N3 O0 O4 C21
    Date: 2018–06
  10. By: Clement A. Tisdell
    Abstract: Provides a sketch of the development of the concept of bounded rationality in economic thought. The concept of rationality has several meanings. These different meanings are taken into account in considering the further development of economic thought. Different views of ecological rationality are critically examined in the light of these concepts. Whether or not various theories of behavioral economics can be classified as exhibiting bounded rationality is discussed. Satisficing behavior is commonly associated with bounded rationality but as demonstrated, it is not the only reason for adopting such behavior. The idea of some authors that optimization models under constraints are of little or no relevance to bounded rationality is rejected. Bounded rationality is an important contributor to the diversity of (economic) behaviors. This is stressed. Whether or not a behavior is rational depends to a considerable extent on the situation (the constraints) that decision-makers or actors face. The time-constraint is very important as an influence on the rationality of decisions. Aspects of this are covered.
    Keywords: Institutional and Behavioral Economics
    Date: 2017–11–13
  11. By: David N.F. Bell; David G. Blanchflower
    Abstract: In this paper we build on our earlier work on underemployment using data from the UK. In particular, we explore their well-being based on hours preferences rather than on involuntary part-time work used in the prior literature. We make use of five main measures of well-being: happiness; life satisfaction; whether life is worthwhile; anxiety and depression. The underemployed have higher levels of well-being than the unemployed and disabled but lower levels than any other group of workers, full or part-time. The more that actual hours differ from preferred hours the lower is a worker's well-being. This is true for those who say they want more hours (the underemployed) and those who say they want less (the over employed). We find strong evidence of a rise in depression and anxiety (negative affect) in the years since the onset of austerity in 2010 that is not matched by declines in happiness measures (positive affect). The fear of unemployment obtained from monthly surveys from the EU has also been on the rise since 2015. We find evidence of an especially large rise in anxiety and depression among workers in general and the underemployed in particular. The underemployed don't want to be underemployed.
    JEL: I20 I31 J64
    Date: 2018–07

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