nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2018‒11‒12
twelve papers chosen by
Karl Petrick
Western New England University

  1. Varieties of Capitalism and post-Keynesian economics on Eurocrisis By Engelbert Stockhammer; Syed Mohib Ali
  2. The debunking the granular origins of aggregate fluctuations : from real business cycles back to Keynes By Giovanni Dosi; Mauro Napoletano; Andrea Roventini; Tania Treibich
  3. Managing the Discontent of the Losers By Mark Setterfield
  4. “The laws of economics.” Economic devices, economics, economists, and the making of the economy By Olivier Godechot
  5. Structural Change and the Wage Share: a Two-Sector Kaleckian Model By Beqiraj, Elton; Fanti, Lucrezia; Zamparelli, Luca
  6. Conclusion: What finance manufactures By Olivier Godechot
  7. Beyond behavioral economics: who is the economic man By Obregón, Carlos
  8. From Classes to Individuals: Standardizing a Link Between Personal and Functional Distribution By Arthur Brackmann Netto
  9. Macroeconomic in the age of secular stagnation By Gilles Le Garrec; Vincent Touze
  10. Everyone’s a Collector! By Olivier Godechot
  11. New Technologies, Global Value Chains, and Developing Economies By Dani Rodrik
  12. From Prosperity into the Crisis and Back. On the Role of Economic Theories in the Long Cycle By Stephan Schulmeister

  1. By: Engelbert Stockhammer; Syed Mohib Ali
    Abstract: The 2008 global financial crisis that began in the US housing sector mutated into a sovereign debt crisis and an economic depression for countries in southern Europe, threatening the very existence of the Eurozone. The paper contrasts analyses of the eurocrisis based on the Varieties of Capitalism (VoC) approach and post-Keynesian analysis. The VoC analysis has argued that the eurocrisis is ultimately a crisis of incompatible institutional settings, in particular wage bargaining institutions, tied together in a monetary union. The Mediterranean Market Economies lack the institutional capacities to restrain wage growth. The Coordinated Market Economies (in northern Europe) have managed to maintain modest wage growth and inflation because export-oriented sectors play the role of wage leader. Post-Keynesian analysis has interpreted the crisis as the outcome of the unsustainable growth models and neoliberal policies in Europe; i.e. a neo-mercantilist export-led demand regime in the North and a debt-driven demand regime in the South and the EMU policies of financial deregulation that accompanied European economic integration. What is specific to the Euro area is the absence of adequate central fiscal stabilization or effective lender of last resort facility for the member countries. The ECB was hesitant in its unconventional monetary policy and began buying government bonds of countries under pressure only at a late stage of the crises. The imbalances resulted in a full blown sovereign debt crisis. We argue that the VoC analysis has important shortcomings as it focuses excessively on labour market institutions and that the post-Keynesian approach integrates financial factors and economic policy in explaining the crisis.
    Keywords: Varieties of Capitalism, Post-Keynesian economics, Eurocrisis
    JEL: B00 E02 E12 E60 G01 P50
    Date: 2018–10
  2. By: Giovanni Dosi (Laboratory of Economics and Management); Mauro Napoletano (Observatoire français des conjonctures économiques); Andrea Roventini (Laboratory of Economics and Management (LEM)); Tania Treibich (Observatoire français des conjonctures économiques)
    Abstract: In this work we study the granular origins of business cycles and their possible underlying drivers. As shown by Gabaix (2011), the skewed nature of firm size distributions implies that idiosyncratic (and independent) firm-level shocks may account for a significant portion of aggregate volatility. Yet, we question the original view grounded on “supply granularity”, as proxied by productivity growth shocks – in line with the Real Business Cycle framework–, and we provide empirical evidence of a “demand granularity”, based on investment growth shocks instead. The role of demand in explaining aggregate fluctuations is further corroborated by means of a macroeconomic Agent-Based Model of the “Schumpeter meeting Keynes” family (Dosi et al., 2015). Indeed, the investigation of the possible microfoundation of RBC has led us to the identification of a sort of microfounded Keynesian multiplier.
    Keywords: Business cycles; Granular residual; Granularity hypothesis; Agent-based model; Firm dynamics; Productivity growth; Investment growth
    JEL: C63 E12 E22 E32 O4
    Date: 2018–09
  3. By: Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: In the early-mid 1990s, Social Structure of Accumulation (SSA) theorists identified the solidification of a neoliberal SSA that included a capital-citizen accord based on “managing the discontent of the losers”. This created social stability by reconciling working households to material hardships emanating form the neoliberal labour market by means of either coercion or non-economic distraction. This paper argues that there was, in fact, a fundamentally material basis to the neoliberal capital-citizen accord, including the ability of households to accumulate debt in order to limit the growth of consumption inequality in the face of burgeoning income inequality. The material basis of the capital-citizen accord broke down during the financial crisis of 2007-09, destabilizing the accord itself. The result is that an SSA that has resisted top-down reform is now threatened by bottom-up “reform” in the shape of rising populism. The outcomes of this process are highly uncertain – a key characteristic of the periods of inter regnum that separate successful SSAs.
    Keywords: Social structure of accumulation, capital-citizen accord, household debt, consumption inequality, populism
    JEL: E21 B51 B52 P16
    Date: 2018–11
  4. By: Olivier Godechot (Observatoire sociologique du changement)
    Abstract: Twenty years ago, Michel Callon edited The Laws of the Markets, a groundbreaking volume that substantially redefined economic sociology by resetting the relationship between sociology and economics (Callon 1998). Many articles in economic sociology at that time started (and still do today) with sharp criticism of neoclassical economics. The latter was censured for being overly simplistic and complex, overly reductionist and irrelevant. [First lines]
    Keywords: Laws of economics; Economic devices; Economics; Economists; Making of the economy
    Date: 2018–03
  5. By: Beqiraj, Elton; Fanti, Lucrezia; Zamparelli, Luca
    Abstract: In this paper, we look at structural change, and in particular at the shrinking size of manufacturing in favor of the service sector, as one additional source of decline in the wage share. To the purpose, we build on Dutt (1988) to develop a two-sector Kaleckian model of growth and distribution, where the economy consists of the service and manufacturing sectors. The service good is only used for consumption while the manufacturing good is used both for consumption and accumulation of the capital stock. We assume that structural change is exogenous as it arises from a shift in consumers' preferences. We show that, when mark-ups are relatively higher in the service sector, a shift in the sectoral composition of demand in favor of the service sector good generates a rise in the pro
    Keywords: structural change, functional income distribution, manufacturing, service
    JEL: D33 E11 O14
    Date: 2018
  6. By: Olivier Godechot (Observatoire sociologique du changement)
    Abstract: Why should we approach the study of finance in an alternative way when other disciplines – such as economics and financial theory – which are older, more legitimate and endowed with more substantial backing, have already been tackling this subject for over fifty years? Admirably, despite any misgivings, the rapid and varied development of a collection of studies on finance has nonetheless originated over the last fifteen years from a variety of disciplines (sociology, anthropology, political science, history, management sciences, geography). This has resulted from the dynamic academic practice of diversifying and reviving research subjects, though also because of a dissatisfaction with the inadequacy of standard approaches. But that is not all, as it has equally stemmed from a desire to understand a much deeper phenomenon: the sudden emergence of finance in social life. [First paragraph]
    Keywords: Study of finance; Social life; Finance; Research subjects
    Date: 2019
  7. By: Obregón, Carlos
    Abstract: There are two reasons to go beyond Behavioral Economics. The first reason is that humans, as presented by this school, do not explain many critical economic problems. Behavioral Economics is not an alternative paradigm to traditional economics. It is only one of the New Schools of thought, that has risen due to the failure of the contemporary Neoclassical School to show that markets have a unique maximum welfare full employment equilibrium. Therefore, in order to delimit Behavioral Economics ́ contributions we need to look at the whole paradigm in economics, which today includes: the contemporary neoclassical paradigm plus all the New Schools of thought. The second reason is that humans, as described by Behavioral Economics, are not a good representation of mans ́ evolutionary characteristics. For Behavioral Economics, humans are emotional beings which often do not know what is best for them, and need the help of the government to make the choices which are truly convenient; and they display altruistic and social cooperative behavior, even in monetary transactions. But evolutionarily we are neither design to be emotional or rational, nor to be selfish or altruistic and socially cooperative. We are design to be flexible for survival purposes, and to display a wide range of behaviors.
    Keywords: Behavioral Economics
    JEL: A1 A12 A13 B0 D0 D00 D1 D10 D11 G1 G10
    Date: 2018–10–22
  8. By: Arthur Brackmann Netto
    Abstract: Although Post-Keynesian growth models have been already extensively extended, the issue of personal inequality has only recently started to be dealt with. The strategy, however, has been the insertion of additional functional classes or the observation of intra-class inequality. While theoretically credible, these strategies are empirically questionable and formally complex. This hampers the spread of their conclusions, which are normally of important changes in the main results of traditional models. In this context, this paper proposes a simpler formulation of the issue, both as a didactic introduction and as a way of disseminating the discussion. In this regard, the paper aims to provide intuitive and graphical tools for understanding and reading personal distribution in post-Keynesian growth models. The objective will be pursued by construing the model from the tautological fact that the total income of the economy can be represented by the sum of the income of all individuals in that economy. The functional form representing this sum is the Pareto distribution. This strategy provides two different interpretations for the model: class-conflict and earnings-composition. The second interpretation presents innovative non-linear results for post-Keynesian growth models, given that in it personal inequality may be beneficial for growth.
    Keywords: Personal Distribution, Functional distribution, Inequality, Post-Keynesian GrowthModels
    JEL: D31 E25
    Date: 2018–10–30
  9. By: Gilles Le Garrec (Observatoire français des conjonctures économiques); Vincent Touze (Observatoire français des conjonctures économiques)
    Abstract: The “Great Recession” that began in 2008 plunged the economy into longlasting stagnation with high unemployment, depressed output and very low inflation. This crisis, whose exceptional duration is difficult to explain using the theoretical tools of contemporary macroeconomics, invites us to enrich fundamental analysis. Conceptualizing secular stagnation is then based on the introduction of market imperfections such as credit rationing on the financial market as well as nominal rigidities on the labour market. The resulting equilibrium is characterized by the underemployment of factors of production (high unemployment, low capital accumulation) associated with a fall in prices (deflation) and monetary policy that is inactive because of the zero lower bound constraint on the key rate. In a period of secular stagnation, the impact of economic policies is affected, and many Keynesian properties appear: a deflationary impact of supply policies, ineffective conventional monetary policy and a positive effect of public spending, although limited by the crowding out of private investment.
    Keywords: Secular stagnation; Accumulation of capital; Budget policy; Zero lower bound
    Date: 2018–09
  10. By: Olivier Godechot (Observatoire sociologique du changement)
    Abstract: Luc Boltanski and Arnaud Esquerre invite us to rethink the social mechanisms that produce value and underline the important role collections play in the dynamics of inequalities characterising contemporary societies. By questioning the forms and stakes of commodification and price making in today’s society, they show that inserting goods in a collection increases their value.
    Keywords: Social mechanisms; Value production; Collections; Dynamics of inequalities; Price making
    Date: 2018–04
  11. By: Dani Rodrik
    Abstract: Many of the exports of developing countries are channeled through global value chains (GVCs), which also act as conduits for new technologies. However, new capabilities and productive employment remain limited so far to a tiny sliver of globally integrated firms. GVCs and new technologies exhibit features that limit the upside and may even undermine developing countries’ economic performance. In particular, new technologies present a double whammy to low-income countries. First, they are generally biased towards skills and other capabilities. This bias reduces the comparative advantage of developing countries in traditionally labor-intensive manufacturing (and other) activities, and decreases their gains from trade. Second, GVCs make it harder for low-income countries to use their labor cost advantage to offset their technological disadvantage, by reducing their ability to substitute unskilled labor for other production inputs. These are two independent shocks that compound each other. The evidence to date, on the employment and trade fronts, is that the disadvantages may have more than offset the advantages.
    JEL: O30 O40
    Date: 2018–10
  12. By: Stephan Schulmeister
    Abstract: This essay reconsiders the interaction between the development of economic theories and economic reality since the 1920ies. I begin with the systemic cause of the financial crisis, the coincidence of three "bear markets" (stocks, real estate, commodities) which followed three parallel "bull markets". I then sketch the macroeconomic effects of the "manic-depressive" fluctuations of asset prices and show how they paved the road into the present crisis. As next step, I explain how "bulls" and "bears" are brought about. Then I sketch how the treatment of financial markets in economic theory and policy has shaped the long cycle from the financial boom of the 1920ies, the Great Depression, the post-war prosperity under "realcapitalistic" framework conditions to the "finance-capitalistic" regime since the 1970ies. The paper concludes with proposals how Europe could find roads to new prosperity. After the upcoming financial crisis there will be a window of opportunity to implement these proposals.
    Keywords: Asset price dynamics
    Date: 2018–11–02

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