nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2018‒08‒27
nine papers chosen by
Karl Petrick
Western New England University

  1. "Stagnating Economic Well-Being and Unrelenting Inequality: Post-2000 Trends in the United States" By Ajit Zacharias; Thomas Masterson; Fernando Rios-Avila
  2. Short and medium term financial-real cycles: An empirical assessment By Engelbert Stockhammer; Rob Jump; Karsten Kohler; Julian Cavallero
  3. Zur mathematischen Struktur der Wertformen von Karl Marx in "Das Kapital" By Schneider, Herbert
  4. Rethinking fiscal policy : lessons from the european monetary union By Francesco Saraceno
  5. Inequality, Social Distance, and Giving By Nicolas J. Duquette; Enda Hargaden
  6. Fiscal Policy, Redistribution and Inequality in Africa By Odusola, Ayodele
  7. Inequality Aversion, Populism, and the Backlash Against Globalization By Lubos Pastor; Pietro Veronesi
  8. Escaping Unemployment Traps By Sushant Acharya; Julien Bengui; Keshav Dogra; Shu Lin Wee
  9. Friedman and Phelps on the Phillips Curve Viewed from a Half Century's Perspective By Robert J. Gordon

  1. By: Ajit Zacharias; Thomas Masterson; Fernando Rios-Avila
    Abstract: Ajit Zacharias, Thomas Masterson, and Fernando Rios-Avila update the Levy Institute Measure of Economic Well-Being (LIMEW) for US households for the period 2000-13. The LIMEW--which comprises base income, income from wealth, net government expenditures, and the value of household production--is aimed at achieving a more comprehensive understanding of trends in living standards. This policy brief analyzes developments during this period at all levels of the LIMEW distribution, with a particular focus on the significant role played by net government expenditures. The overall trend for 2000-13 was one of historic stagnation in the growth of economic well-being for US households, but an examination of the different components of the measure reveals significant shifts taking place behind this headline trend. A companion document, the Supplemental Tables, features additional data referenced in the policy brief.
    Date: 2018–06
  2. By: Engelbert Stockhammer (Kingston University); Rob Jump; Karsten Kohler; Julian Cavallero
    Abstract: Theories such as Minsky’s financial instability hypothesis or New Keynesian financial accelerator models assign a key role to financial factors in business cycle dynamics. We present descriptive statistics and a simple estimation framework to examine the financial-real interaction mechanisms that are at the core of these theories. Specifically, we examine cycle frequencies in seven OECD countries over the period 1970 to 2015, and find that interest rates, business debt, and household debt exhibit cycle lengths of 4-6, 8-11, and 14-26 years, respectively. We then estimate bivariate VAR models which provide evidence for financial-real interaction mechanisms, (i) at high frequencies between interest rates and GDP, and (ii) at low frequencies between business debt and GDP. In contrast, there is no evidence for a cycle mechanism between household debt and GDP.
    Keywords: Minsky, financial accelerator, financial cycle, business cycle
    JEL: E32 G01
    Date: 2018–10
  3. By: Schneider, Herbert
    Abstract: In the first section of Das Kapital by Karl Marx different forms of values are analysed. From a mathematical point of view one can find therein structures, which correspond to elements of the mathematical theory of categories. These are especially the limit of cones and the definition of subobjects as morphisms. Using the limit cone, the concept of money contains the categorial product of commodities. The concept of the value of a commodity contains the categorial definition of a subobject.
    Keywords: Marx, Kapital,capital, Ware,commodity, Geld, Money, Tauschsphäre, exchange space, Tausch, Exchange, Tauschwert, exchange-value, exchange value, Gebrauchswert, use-value, use value, Wertform, value-form, form of value, Äquivalentform, universal equivalent form, Äquivalentware, universal equivalent commodity, Wert, value, Arbeitsproduktivität, labour productivity, Mathematik, mathematics, Kategorientheorie, category theory, Kategorie, category, kategoriales Produkt, categorical product, Limeskegel, limit cone, Unterobjekt, subobject
    JEL: A12 B14 B16 B51 C02 C60 C65 P16
    Date: 2018–07–26
  4. By: Francesco Saraceno (Observatoire français des conjonctures économiques)
    Abstract: This paper gives an assessment of the current state of the debate on fiscal policy effectiveness. I begin with an account of the theory of fiscal policy, and how it has evolved from the pre-Keynesians to the emergence of a “New Consensus” that dominated theory (and policy-making) until the crisis of 2008. Fiscal policy, a critical underpinning behind the full employment policies of the Post-WWII period, was removed from the policy-makers’ toolbox by the New Consensus, and preference given to rules over discretion in government interventions. The paper then highlights how the Economic and Monetary Union of the European Union (EMU) is an incarnation of the New Consensus, and argues that this had a rather negative impact on the growth performance of the Eurozone. The Stability and Growth Pact, the EMU fiscal rule, is then dissected to conclude that it is far from optimal even if it was never really applied. The paper then shows how the crisis has shaken the Consensus, and is leading to a reassessment of the utility of fiscal policy
    Keywords: Fiscal rules; Fiscal policy; EMU; Multipliers; History of economic thought; United States
    Date: 2017–01
  5. By: Nicolas J. Duquette (Sol Price School of Public Policy, University of Southern California); Enda Hargaden (Department of Economics, University of Tennessee)
    Abstract: This paper demonstrates that economic inequality has a negative, causal effect on prosocial behavior, specifcally, charitable giving. Standard theories predict that greater inequality increases giving, though income tax return data suggest the opposite may be true. We develop a new theory which, incorporating insights from behavioral economics and social psychology, predicts when greater inequality will lower charitable giving. We test the theory in an experiment on donations to a real-world charity. By randomizing the income distribution, we identify the effect of inequality on giving behavior. Consistent with our model, heightened inequality causes total giving to fall. Policy agendas that rely on charitable giving and other voluntary, prosocial behaviors to mitigate income and wealth inequality are likely to fail.
    Keywords: Inequality; charitable giving; social distance; lab experiments
    JEL: C91 D31 D64 H23 N32
    Date: 2018–07
  6. By: Odusola, Ayodele
    Abstract: Over the past five decades, substantial attention has been placed on the role of economic growth in reducing poverty. This is premised on the trickle-down effect of long-term economic growth on poverty and inequality, based on Simon Kuznets’ theory. However, evidence across the world has shown that high economic growth and rapid reduction in poverty do not automatically translate into accelerated reduction in inequality (Stiglitz, 2015; Reid-Henry, 2015; Piketty, 2015). China and Rwanda provide some good examples of the lack of trickle-down effect on inequality where rapid economic growth has been accompanied by rising income inequality. The global inequality crisis – where the richest 1 per cent of the world’s population has more wealth than the rest of the world combined – has disproved Kuznets’ theory and has further questioned the efficacy of fiscal policies in promoting economic efficiency and development effectiveness.
    Keywords: Financial Economics, International Development
    Date: 2017–08–01
  7. By: Lubos Pastor; Pietro Veronesi
    Abstract: Motivated by the recent rise of populism in western democracies, we develop a model in which a populist backlash emerges endogenously in a growing economy. In the model, voters dislike inequality, especially the high consumption of the “elites.” Economic growth exacerbates inequality due to heterogeneity in risk aversion. In response to rising inequality, rich-country voters optimally elect a populist promising to end globalization. Redistribution is of limited value in containing the backlash against globalization. Countries with more inequality, higher financial development, and current account deficits are more vulnerable to populism, both in the model and in the data. Evidence on who voted for Brexit and Trump in 2016 also largely supports the model.
    JEL: D72 G11 G12 G18 P16
    Date: 2018–08
  8. By: Sushant Acharya (Federal Reserve Bank of New York); Julien Bengui (Université de Montréal); Keshav Dogra (Federal Reserve Bank of New York); Shu Lin Wee (Carnegie Mellon University Tepper School of Business)
    Abstract: We present a model in which temporary shocks can permanently scar the economy's productive capacity. Unemployed workers lose skill and are expensive to re-train, generating multiple steady state unemployment rates. Large temporary shocks push the economy into a liquidity trap, generating deflation. With nominal wages unable to adjust freely, real wages rise, reducing hiring and catapulting the economy towards the high-unemployment steady state. Even after a short-lived liquidity trap, the economy recovers slowly at best; at worst, it falls into a permanent unemployment trap. Because monetary policy may be powerless to escape such a trap ex-post, it is especially important to avoid it ex-ante: policy should be preventive rather than curative. The model can quantitatively account for the slow recovery in the U.S. following the Great Recession. The model also suggests that lack of swift monetary accommodation by the ECB can help explain stagnation in the European periphery.
    Date: 2018
  9. By: Robert J. Gordon
    Abstract: In the late 1960s the stable negatively sloped Phillips Curve (PC) was overturned by the Friedman-Phelps natural rate model. Their PC was vertical in the long run at the natural unemployment rate, and their short-run curve shifted up whenever unemployment was pushed below the natural rate. This paper criticizes the underlying assumption of the Friedman-Phelps approach that the labor market continuously clears and that changes in unemployment down or up occur only in response to “fooling” of workers, firms, or both. A preferable and resolutely Keynesian approach explains quantity rationing by inertia in price and wage setting. The positive correlation of inflation and unemployment in the 1970s and again in the 1990s is explained by joining the negatively sloped Phillips Curve with a positively sloped dynamic demand curve. For any given growth of nominal GDP, higher inflation caused by adverse supply shocks implies slower real GDP growth and higher unemployment. This “triangle” model based on inflation inertia, demand, and supply worked well to explain why inflation and unemployment were both positively and negatively correlated between the 1960s and 1990s, but in the past decade the slope of the short-run Phillips Curve has flattened as inflation exhibited a muted response to high unemployment in 2009-13 and low unemployment in 2016-2018. It remains to be seen whether a continuation of low unemployment will cause a modest and fixed extra amount of inflation, thus reviving the stable Phillips curve of the early 1960s, or whether inflation will continuously accelerate as Friedman and Phelps would have predicted.
    JEL: B22 C22 E24 E31 E64
    Date: 2018–08

This nep-pke issue is ©2018 by Karl Petrick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.