nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2018‒10‒01
nine papers chosen by
Karl Petrick
Western New England University

  1. The Behavioral Economics of John Maynard Keynes By Ronald Schettkat
  2. Varieties of Capitalism, Increasing Income Inequality, and the Sustainability of Long-Run Growth By Mark Setterfield; Yun K. Kim
  3. Race and Economic Opportunity in the United States: An Intergenerational Perspective By Raj Chetty; Nathaniel Hendren; Maggie R. Jones; Sonya R. Porter
  4. The history of the financial markets group By Goodhart, Charles
  5. Shackle: an enquirer into choice By Marina Bianchi; Sergio Nisticò
  6. Debt dilution in 1920s America: lighting the fuse of a mortgage crisis By Postel-Vinay, Natacha
  7. BSE: A Minimal Simulation of a Limit-Order-Book Stock Exchange By Dave Cliff
  8. The Intertemporal Keynesian Cross By Adrien Auclert; Matthew Rognlie; Ludwig Straub
  9. Child well-being and the Sustainable Development Goals: How far are OECD countries from reaching the targets for children and young people? By David Marguerit; Guillaume Cohen; Carrie Exton

  1. By: Ronald Schettkat
    Abstract: After the publication of Keynes’ “General Theory,” economics was frequently described as schizophrenia: (neo-) classical at the micro-level, but Keynesian at the macro-level. In actuality, Keynes’ revolution was, to a substantial part, based on the behavioral micro-foundations of the world we live in, which has been dismissed as ad hocery, or simply ignored or reclassified in the neoclassical synthesis. Keynes’ General Theory is truly general. It includes the full-employment equilibrium as a special case. In addition, its microeconomic foundations are broader than the extremely narrow behavioral assumption of the neoclassical model. Consequently, we argue that Keynes’ microeconomics – although not fully worked out - is actually revolutionary. This may be difficult for (neo-) classical economists to accept, but it is strongly confirmed by the recent results in behavioral economics. Keynes’ macroeconomics is the result of his microeconomics. Keynes’ theory is a criticism of (neo-) classical economics, where he offers alternatives from micro to macro. It is truly a general theory, micro and macro.
    Date: 2018–09
  2. By: Mark Setterfield; Yun K. Kim
    Abstract: We model US household debt accumulation during the neoliberal boom as a response to emulation effects 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 configuration of distributional variables, which is shown to differ across varieties of capitalism that have “neoliberalized" to different 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: 2018–08
  3. By: Raj Chetty; Nathaniel Hendren; Maggie R. Jones; Sonya R. Porter
    Abstract: We study the sources of racial and ethnic disparities in income using de-identified longitudinal data covering nearly the entire U.S. population from 1989-2015. We document three sets of results. First, the intergenerational persistence of disparities varies substantially across racial groups. For example, Hispanic Americans are moving up significantly in the income distribution across generations because they have relatively high rates of intergenerational income mobility. In contrast, black Americans have substantially lower rates of upward mobility and higher rates of downward mobility than whites, leading to large income disparities that persist across generations. Conditional on parent income, the black-white income gap is driven entirely by large differences in wages and employment rates between black and white men; there are no such differences between black and white women. Second, differences in family characteristics such as parental marital status, education, and wealth explain very little of the black-white income gap conditional on parent income. Differences in ability also do not explain the patterns of intergenerational mobility we document. Third, the black-white gap persists even among boys who grow up in the same neighborhood. Controlling for parental income, black boys have lower incomes in adulthood than white boys in 99% of Census tracts. Both black and white boys have better outcomes in low-poverty areas, but black-white gaps are larger on average for boys who grow up in such neighborhoods. The few areas in which black-white gaps are relatively small tend to be low-poverty neighborhoods with low levels of racial bias among whites and high rates of father presence among blacks. Black males who move to such neighborhoods earlier in childhood earn more and are less likely to be incarcerated. However, fewer than 5% of black children grow up in such environments. These findings suggest that reducing the black-white income gap will require efforts whose impacts cross neighborhood and class lines and increase upward mobility specifically for black men.
    Date: 2018–09
  4. By: Goodhart, Charles
    JEL: F3 G3
  5. By: Marina Bianchi (University of Cassino and Lazio Meridionale); Sergio Nisticò (University of Cassino and Lazio Meridionale)
    Abstract: Despite the several attempts to rework Shackle’s ideas using alternative non-mainstream approaches, Shackle was and has remained an outsider in the economic discipline. Shackle, however, is not a man alone if we take seriously what he thought of economics, as a discipline concerned with a subject that is not self-contained but open-ended and impermanent. Starting from an assessment of Schackle’s understanding of choice as creative, an uncaused cause that happens in a present in which the future must be imagined and for which the past provides no satisfyingly complete anticipations, the paper argues that Shackle should be rescued from the role of a nihilist where he is often relegated. In this perspective, a fundamental key to assessing the richness, originality and anticipatory character of Shackle’s contribution can be found in the recent developments of several “friendly” disciplines such as the psychology of motivations and of self-rewarding actions, narrative as the “science’ of the possible and the role of calendar time in choice theory. In fact, all these novel re-thinkings can contribute and to the understanding of Shackle’s main point, that human (and therefore economic) agents are active, creative enterprisers, who cut the deterministic thread by injecting the new in history to come, in making a difference in the future courses of action.
    JEL: B31 D81 D91
    Date: 2018–03
  6. By: Postel-Vinay, Natacha
    Abstract: The idea that real estate could have contributed to banking crises during the Great Depression has been downplayed due to the conservatism of mortgage contracts at the time. For instance, loan-to-value ratios often did not exceed 50 per cent. Using newly discovered archival documents and data from 1934, this article uncovers a darker side of 1920s US mortgage lending: the so-called ‘second mortgage system’. As borrowers often could not make a 50 per cent down payment, a majority of them took second mortgages at usurious rates. As theory predicts, debt dilution, even in the presence of seniority rules, can be highly detrimental to both junior and senior lenders. The probability of default on first mortgages was likely to increase, and commercial banks were more likely to foreclose. Through foreclosure they would still be able to retrieve 50 per cent of the property value, but often after a protracted foreclosure process. This would have put further strain on banks during liquidity crises. This article is thus a timely reminder that second mortgages, or ‘piggyback loans’ as they are called today, can be hazardous to lenders and borrowers alike. It provides further empirical evidence that debt dilution can be detrimental to credit.
    JEL: N0 F3 G3
    Date: 2017–04–19
  7. By: Dave Cliff
    Abstract: This paper describes the design, implementation, and successful use of the Bristol Stock Exchange (BSE), a novel minimal simulation of a centralised financial market, based on a Limit Order Book (LOB) such as is common in major stock exchanges. Construction of BSE was motivated by the fact that most of the world's major financial markets have automated, with trading activity that previously was the responsibility of human traders now being performed by high-speed autonomous automated trading systems. Research aimed at understanding the dynamics of this new style of financial market is hampered by the fact that no operational real-world exchange is ever likely to allow experimental probing of that market while it is open and running live, forcing researchers to work primarily from time-series of past trading data. Similarly, university-level education of the engineers who can create next-generation automated trading systems requires that they have hands-on learning experience in a sufficiently realistic teaching environment. BSE as described here addresses both those needs: it has been successfully used for teaching and research in a leading UK university since 2012, and the BSE program code is freely available as open-source on GitHuB.
    Date: 2018–09
  8. By: Adrien Auclert; Matthew Rognlie; Ludwig Straub
    Abstract: We demonstrate the importance of intertemporal marginal propensities to consume (iMPCs) in disciplining general equilibrium models with heterogeneous agents and nominal rigidities. In a benchmark case, the dynamic response of output to a change in the path of government spending or taxes is given by an equation involving iMPCs, which we call the intertemporal Keynesian cross. Fiscal multipliers depend only on the interaction between iMPCs and public deficits. We provide empirical estimates of iMPCs and argue that they are inconsistent with representative-agent, two-agent and one-asset heterogeneous-agent models, but can be matched by models with two assets. Quantitatively, models that match empirical iMPCs predict deficit-financed fiscal multipliers that are larger than one, even if monetary policy is active, taxation is distortionary, and investment is crowded out. These models also imply larger amplification of shocks that involve private borrowing, as we illustrate in an application to deleveraging.
    JEL: D1 E21 E22 E23 E32 E62
    Date: 2018–09
  9. By: David Marguerit (OECD); Guillaume Cohen (OECD); Carrie Exton (OECD)
    Abstract: This paper summarises available evidence on the distance that OECD countries need to travel in order to reach the Sustainable Development Goal (SDG) targets for children and young people. More than 50 indicators are included in this analysis, covering 43 of the 169 targets, and 11 of the 17 Goals. The analysis finds that, on average, OECD countries are still far from reaching the targets pertaining to Goals 4 “Quality education”, and 8 “Decent work and economic growth”. Goals 1 “No poverty”, 2 “Zero hunger” and 16 “Peace, justice and strong institutions” are also highlighted as priority areas. However, the results vary widely across OECD countries, and among specific targets within each of the goals. Yet, all of these findings need to be considered in light of what it is not currently possible to measure. In particular, there are large data gaps for Goals 1 (“No poverty”), 5 (“Gender equality”), 11 (“Sustainable cities and communities”), and 16 (“Peace, justice and strong institutions”).
    Keywords: children, measurement, SDGs, Sustainable Development Goals, well-being
    JEL: C10 O20 O21 Q01 Y20
    Date: 2018–09–27

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