nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2018‒10‒22
six papers chosen by
Karl Petrick
Western New England University

  1. Wages, income distribution and economic growth in Scandinavia By Bengtsson, Erik; Stockhammer, Engelbert
  2. Development paths: A case for public investment as the alternative to the Washington Consensus By Lauka, Earta
  3. Bringing the helicopter to ground: a historical review of fiscal-monetary coordination to support economic growth in the 20th century By Josh Ryan-Collins; Frank van Lerven
  4. The Role of Comparative Advantage and Endowments in Structural Transformation By Giovanni Dosi; Matteo Tranchero
  5. Reconciling Orthodox and Heterodox Views on Money and Banking By Andolfatto, David
  6. A New Theory of Demand-Restricted Growth By Gries, Thomas

  1. By: Bengtsson, Erik (Department of Economic History, Lund University); Stockhammer, Engelbert (Department of European & International Studies, King's College, London)
    Abstract: Wage restraint plays an important role in the conventional economic history explanation of the post-war golden growth experience of industrialized economies. Conversely, wage increases harming investment and increasing unemployment have been proffered as explanations for some of the high unemployment during the interwar period. This article argues that the conventional account implicitly only considers effects of wage growth on investment and not the advantageous effects on consumption. Thus, the evaluation of the effects on GDP growth is lop-sided. We employ a Post-Keynesian model to estimate effects of growth in the wage share of national income on consumption, investment, exports and imports separately, and weigh the effects together to estimate total effects on GDP growth, in Scandinavia (Denmark, Norway and Sweden) 1900–2010. Furthermore, we estimate the positive effects of wage pressure on productivity, showing it to be significant and positive in all three countries. We show that the postwar wage push had small positive effects on GDP growth in Denmark and Sweden, and a small negative effect in Norway. Thus, wage restraint is not a valid explanation for the postwar growth miracle. We propose a more comprehensive macroeconomic framework for understanding the implications of labour-capital distribution.
    Keywords: functional income distribution; inequality; consumption; investment; Scandinavia; Bhaduri-Marglin model; economic history
    JEL: E12 N14
    Date: 2018–10–11
  2. By: Lauka, Earta
    Abstract: This paper's aim is to provide a different standpoint in the development debate, by focusing on the short-sightedness of the international institutions when they propose a development agenda. Focusing on macroeconomic performance and on privatisation, they have found a solution in PPPs, which offer financing opportunities for public investment and at the same time they reduce the burden on governments budgets. As an alternative this paper proposes a model based on investment and self-dependency with combining elements from post- Keynesian theory as well as the Beijing Consensus. The model rests on the importance of SOEs to use industrial policy as a tool to achieve independence from western powers as well as to increase investment. The theoretical claims are supported by empirical analysis based on 98 developing countries over a 15 year period.
    Keywords: development state,PPP,Washington Consensus,privatization,public investment,Beijing Consensus,SOEs
    JEL: F14 F52 O21 O25 O38
    Date: 2018
  3. By: Josh Ryan-Collins; Frank van Lerven (None)
    Abstract: In the face of the perceived high public and private debt levels and sluggish recovery that has followed the financial crisis of 2007-08, there have been calls for greater fiscal-monetary coordination to stimulate nominal demand. Policy debates have been focused upon the inflationary expectations that may be generated by monetary financing or related policies, consistent with New Consensus Macroeconomics theoretical frameworks. Historical examples of fiscal-monetary policy coordination have been largely neglected, along with alternative theoretical views, such as post-Keynesian perspectives that emphasise uncertainty and demand rather than rational expectations. This paper begins to address this omission. First, we provide an overview of the holdings of government debt by both central banks and commercial banks as an imperfect but still informative proxy for fiscal-monetary coordination in advanced economies in the 20th century. Second, we develop a new typology of forms of fiscal-monetary coordination that includes both direct and less direct forms of monetary financing, illustrating this with case-study examples. In particular, we focus on the 1930s-1970s period when central banks and ministries of finance cooperated closely, with less independence accorded to monetary policy and greater weight attached to fiscal policy. We find a number of cases where fiscal-monetary coordination proved useful in stimulating economic growth, supporting industrial policy objectives and managing public debt without excessive inflation.
    Keywords: monetary policy, monetary financing, inflation, central bank independence, fiscal policy, debt, credit creation
    JEL: B22 B25 E02 E12 E31 E42 E51 E52 E58 E63 N12 N22 O43
    Date: 2018–10
  4. By: Giovanni Dosi; Matteo Tranchero
    Abstract: In this chapter we discuss the role of country's given conditions and endowment structures according to two theoretical perspectives. While `pure' theories of trade have mainly seen specialization according to one's comparative advantages as the key route to development, we outline a `heretic' point of view on the role of technological learning and absolute advantages for structural transformation. Such a theory will provide useful guidance to interpret the eects of unbridled globalization and the role of natural resources vis-a-vis industrial and trade policies in shaping the process of structural change.
    Keywords: structural change ; endowments; technological gaps; catching-up
    Date: 2018–10–18
  5. By: Andolfatto, David (Federal Reserve Bank of St. Louis)
    Abstract: A wide range of heterodox theories claim that banks are special because they create money in the act of lending. Put another way, banks can create the funding they need ex nihilo, whereas all other agencies must first acquire the funding they need from other parties. Mainstream economic theory largely agrees with this assessment, but questions its theoretical and empirical relevance, preferring to view banks as one of many potentially important actors in the financial market. In this paper, I develop a formal economic model in an attempt to make these ideas precise. The model lends some support to both views on banking.
    Keywords: Heterodox view; Money; Banking
    JEL: E4 E5
    Date: 2018–10–09
  6. By: Gries, Thomas
    Abstract: Mainstream growth theory is dominated by variations of the neoclassical approach. Growth is explained fully by elements of the supply side. In this paper we examine the general mechanism of technology growth and capital accumulation. However, instead of following a fully supply-side driven neoclassical approach we suggest a hybrid approach that allows for growth restrictions induced by demand-side elements. We obtain a demand-restricted growth by suggesting an unconventional equilibrium concept in a stochastic environment. We define macroeconomic equilibrium as stationary no-expectation-error equilibrium. This equilibrium concept relates to the Nash idea of individual stationary behavior as long as expectations prove to be realized. No rigidities are introduced. Even if potential growth is generated by technical change and capital accumulation, the level of the path and the growth rate are restricted by effective earnings. Both can be stable below the neoclassical potential growth. The growth rate in the demand restricted regime is semi-endogenous and determined by entrepreneurial conditions and activities. However, the growth process mutates to the neoclassical process if effective earnings are sufficient and the earnings ratio turns to one. As a result, the demand side cannot generate growth, but the demand side can permanently restrict growth which could have been generated by the supply side. Our hybrid model could help to bridge a gap between Keynesian and neoclassical ideas of economic growth.
    Keywords: Demand restricted growth,no-expectation-error equilibrium,neoclassical growth theory
    JEL: E12 E13 O40 E60
    Date: 2018

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