nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2018‒11‒26
eleven papers chosen by
Karl Petrick
Western New England University

  1. The Financial Innovation Hypothesis: Schumpeter, Minsky and the sub-prime mortgage crisis By Eugenio Caverzasi; Daniele Tori
  2. Making sense of Piketty's 'Fundamental Laws' in a Post-Keynesian Framework: The transitional dynamics of wealth inequality By Stefan Ederer; Miriam Rehm
  3. Human Capital Accumulation, Income Distribution and Economic Growth: A Neo-Kaleckian Analytical Framework By Gilberto Tadeu Lima; Laura Carvalho, Gustavo Pereira Serra
  4. "A Citizenship Question on the US Census: What's New?" By Joel Perlmann
  5. Reaganomics: A Historical Watershed By John Komlos
  6. The Heckscher—Ohlin—Samuelson Trade Theory and the Cambridge Capital Controversies: On the Validity of Factor Price Equalisation Theorem By Kurose, Kazuhiro; Yoshihara, Naoki
  7. Do Globalization, Deregulation and Financialization Imply a Convergence of Contemporary Capitalisms? By Robert Boyer
  8. Is wage labor in highly developed capitalism today still a force of social transformation? By Kronauer, Martin
  9. The Theory of Exploitation as the Unequal Exchange of Labour By Veneziani, Roberto; Yoshihara, Naoki
  10. American Radical Economists in Mao’s China: From Hopes to Disillusionment By Isabella M Weber; Gregor Semieniuk
  11. Growth without Expectations:The Original Sin of Neoclassical Growth Models By Michaël Assous; Muriel Dal Pont Legrand

  1. By: Eugenio Caverzasi; Daniele Tori
    Abstract: Neo-Schumpeterian economics inspired by the work of Schumpeter and the financial Keynesianism of Minsky are often regarded as unrelated theoretical strands. In this paper, we try to combine these two literatures building on a parallelism between non-financial and financial firms. We focus on recent financial innovations, highlighting how the evolution experienced by US financial institutions led them to transcend their traditional role of credit providers, shaping as 'producers' of financial products, through securitization. This allows on the one hand to broaden the application of Neo-Schumpeterian insights to the financial sector and, on the other, to provide an original explanation of the so-called sub-prime crisis by applying the Financial Instability Hypothesis of Minsky to the alternative context of financial production. We maintain that the 2007-8 crisis was not the result of an innovation in the real sector, but came from an innovation (or a series of innovations) intrinsic to the financial system itself, which fostered credit creation. We argue that this 'cluster of innovations' can be placed under the label 'securitization', defined as the business of packaging and reselling loans, with repo agreements as the main source of funds.
    Keywords: Minsky, Schumpeter, securitization, financial firms, Great Financial Crisis
    Date: 2018–11–22
  2. By: Stefan Ederer; Miriam Rehm
    Abstract: If Piketty's main theoretical prediction (r>g leads to rising wealth inequality) is taken to its radical conclusion, then a small elite will own all wealth if capitalism is left to its own devices. We formulate and calibrate a Post-Keynesian model with an endogenous distribution of wealth between workers and capitalists which permits such a corner solution of all wealth held by capitalists. However, it also shows interior solutions with a stable, non-zero wealth share of workers, a stable wealth-to-income ratio, and a stable and positive gap between the profit and the growth rate determined by the Cambridge equation. More importantly, simulations show that the model conforms to Piketty's empirical findings during a transitional phase of increasing wealth inequality, which characterizes the current state of high-income countries: The wealth share of capitalists rises to over 60%, the wealth-to-income ratio increases, and income inequality rises. Finally, we show that the introduction of a wealth tax as suggested by Piketty could neutralize this rise in wealth concentration predicted by our model.
    Keywords: Post-Keynesian, model, wealth, saving, inequality, Piketty, simulation
    JEL: C63 D31 E12 E21
    Date: 2018
  3. By: Gilberto Tadeu Lima; Laura Carvalho, Gustavo Pereira Serra
    Abstract: This paper incorporates human capital accumulation through provision of universal public education by a balanced-budget government to a Neo-Kaleckian analytical framework of distribution and growth. Human capital accumulation positively impacts on workers’ productivity in output production and their bargaining power in wage negotiations. Differences in tax rates on wage and profit income have distributive implications for consumption and investment and so shape how effective demand varies with income distribution. In the long-run equilibrium, a rise in workers’ (capitalists’) bargaining power raises (lowers) the pre- and after-tax wage share, which raises (reduces) the rates of physical capital utilization, employment (which also measures the rate of human capital utilization) and output growth. Meanwhile, a rise in a uniform tax rate (which also denotes the share of tax spending in public education in output) lowers the long-run equilibrium values of the pre- and after-tax wage share and the rates of physical capital utilization, employment and output growth. Paradoxically, in the long-run equilibrium, a higher share of investment in human capital in output lowers the rate of human capital accumulation, with which output growth varies positively. A strengthening in the bargaining power of workers is output growth-enhancing in the long-run equilibrium, and it does so by raising the rates of accumulation of both physical and human capital.
    Keywords: Human capital; income distribution; economic growth; employment
    JEL: E12 E24 E25 O41
    Date: 2018–11–12
  4. By: Joel Perlmann
    Abstract: The Trump administration is facing a legal challenge to its efforts to add a citizenship question to the 2020 decennial census-a question that was first included in 1890, but has not been asked of the entire population since 1950. If the citizenship question was asked in the past, why not reinstate it? Senior Scholar Joel Perlmann explains how the characteristics of both immigration and the census itself have changed radically since 1890 and, as a result, how the inclusion of this question on the once-a-decade census would not only be redundant, but would threaten the integrity of the census count.
    Date: 2018–11
  5. By: John Komlos
    Abstract: The socio-economic impact of Reaganomics and its long-run deleterious legacy is documented. The preponderance of data indicate that economic growth was not particularly impressive in the wake of the tax cuts of 1981 or 1986. GDP did snap back to potential but failed to accelerate beyond the rates achieved in prior or subsequent decades. The supposed incentives of supply-side economics failed to materialize. People did not work more, they did not save or invest more than they did before, and the benefits trickled down like molasses and got stuck at the very top of the income distribution. Instead, Reagan’s presidency was a watershed in U.S. economic development in the sense that it reversed many of the accomplishments of the New Deal and inaugurated an era in which low-skilled men’s wages began a long period of decline, and labor’s share of GDP continued to fall. Reagan’s true legacy is a dual economy that accompanied the hollowing out of the middle class, a more business-friendly regulatory and oversight framework for Wall Street that ultimately led to the financial crisis, a stupendous increase in the national debt from 30% to 50% of GDP that put it on a path such that by 2012 it exceeded 100%, anti-statism that contributed to the rise of Trumpism, a remarkable rise in inequality that gave rise to an oligarchy, and the benign neglect of blue-collar workers who eventually became Hillary Clinton’s “deplorables.” Reagan put the economy on a trajectory to ultimately, even if not inevitably, led to the triumph of Trumpism and an economy of malaise.
    Keywords: reaganomics, Trumpism, tax cuts, supply-side economics, trickle-down economics
    JEL: B52 D69 H29 H69 N12 P16
    Date: 2018
  6. By: Kurose, Kazuhiro; Yoshihara, Naoki
    Abstract: This paper examines the validity of the factor price equalisation theorem (FPET) in relation to capital theory. First, it presents a survey of the literature on Heckscher—Ohlin—Samuelson (HOS) models that treat capital as a primary factor, beginning with Samuelson (1953). In addition, by consulting the Cambridge capital controversies, this paper observes that the validity of the FPET relies crucially on this setting. It does no longer hold whenever capital is assumed to be a bundle of reproducible commodities. This paper also refers to the recent literature on the dynamic HOS trade theory and argues that such studies ignore the difficulties posed by the capital controversies. It thereby concludes that the FPET holds even when capital is modelled as a reproducible factor. In conclusion, the paper suggests the necessity of reconstructing basic theories of international trade without relying on the FPET.
    Keywords: factor price equalisation, global univalence, capital as a bundle of reproducible commodities, reswitching of techniques, capital reversing
    JEL: B51 D33 F11
    Date: 2018–10
  7. By: Robert Boyer (PJSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, IDA - Institut des Amériques - M.E.N.E.S.R. - Ministère de l'Éducation nationale, de l’Enseignement supérieur et de la Recherche)
    Abstract: Distinctive political compromises prevailed and explained various brands of capitalism observed from WWII to the early 1990s. Is this key finding by régulation research been still valid given the wide diffusion of common structural changes since the 2000s: slow productivity in the industrialized world, overwhelming impact of finance, rise of inequalities within many Nation-States in response to deregulation, social and political polarization, open conflict between capitalism and democracy, the trading place between mature and emerging economies? These stylized facts challenge most economic theories but they can be explained by an institutionalist and historical approach that also helps in redesigning a relevant macroeconomic approach. Each capitalism brand displays specific complementarities among institutional forms and their growing interactions imply more their complementarity than their frontal competition. Consequently, all capitalisms have been transformed but they do not converge towards a canonical configuration. The rise of nationalist movements may challenge the present international relations but they should not underestimate the economic and social costs of their protectionist strategy.
    Keywords: Capitalism variety,Institutional complementarity,Global finance,Internationalization,Deregulation,National and international inequality,Capitalism and democracy,International relations
    Date: 2018–09
  8. By: Kronauer, Martin
    Abstract: The article deals with the question why in many European countries as well as in the USA significant parts of the working classes today support nationalistic and xenophobic political parties and movements. It reviews two different answers which are currently hotly debated in the political left. One answer refers to an imperial mode of living in highly developed capitalist countries which cuts across class divisions and also includes the working classes. The argument holds that the latter, too, defend their (relative) privileges based on the social and ecological exploitation of the global South. Another answer points to the political and symbolic marginalization of the working classes due to the reign of neoliberalism and the failure of the left to fight it. The turn to the right seems in this light to be a misguided response to the effects of neoliberal globalization on the working-class conditions and the lack of a credible left alternative. The article discusses merits and shortcomings of both answers. It then takes another approach to the issue of the marginalization of the working class, suggests to enlarge the social and political perspective to include a much broader variety of wage labor, and to address their common grievances in order to form new alliances for social transformation. Struggling for a more egalitarian society, the article holds, would also be a necessary step to address the pressing issues of global social exploitation and ecological devastation.
    Keywords: working class,right-wing tendencies,social transformation,wage-labor alliance
    Date: 2018
  9. By: Veneziani, Roberto; Yoshihara, Naoki
    Abstract: This paper explores the foundations of the theory of exploitation as the unequal exchange of labour (UEL). The key intuitions behind all of the main approaches to UEL exploitation are explicitly analysed as a series of formal axioms in a general economic environment. Then, a single domain condition called Labour Exploitation is formulated, which summarises the foundations of UEL exploitation theory, defines the basic domain of all UEL exploitation forms, and identifies the formal and theoretical framework for the analysis of the appropriate definition of exploitation.
    Keywords: Exploitation, Unequal Exchange of Labour, axiomatic analysis
    Date: 2018–10
  10. By: Isabella M Weber; Gregor Semieniuk (Institute of Management Studies, Goldsmiths, University of London, UK)
    Abstract: American radical economists in the 1960s perceived China under Maoism as an important experiment in creating a new society, aspects of which they hoped could serve as a model for the developing world. But the knowledge of ‘actually existing Maoism’ was very limited due to the mutual isolation between China and the US. This paper analyses the First Friendship Delegation of American Radical Political Economists (FFDARPE) to the People’s Republic of China in 1972, consisting mainly of Union for Radical Political Economics (URPE) members, which was the first visit of a group of American economists to China since 1949. Based on interviews with trip participants as well as archival and published material, this paper studies what we can learn about the engagement with Maoism by American radical economists from their dialogues with Chinese hosts, from their on-the-ground observations, and their reflection upon return. We show how the visitors’ own ideas conflicted and intersected with their perception of the Maoist practice on gender relations; workers’ management and life in the communes. We also shed light on the diverging conceptions of the role for economic expertise between URPE and late Maoism. As the first in-depth study on the FFDARPE we provide rich empirical insights into an ice-breaking event in the larger process of normalization in the Sino- U.S relations, that ultimately led to the disillusionment of the Left with China.
    Keywords: China; socialism and capitalism; transition economics; Maoism
    JEL: B24 N15 N45 O10 P21 P32
    Date: 2018–10
  11. By: Michaël Assous (Université Lyon 2, CNRS, Triangle); Muriel Dal Pont Legrand (Université Côte d'Azur, CNRS, GREDEG, France)
    Abstract: Early developments of growth theory are seen widely as the result of a two-step process – the first represented by Harrod's Essay in Dynaamic Theory, and the second by Solow's 1956 model. Harrod is considered to be the first to highlight the pervasive instability in macrodynamics, which Solow showed disappeared with the inclusion of flexible-coefficient production functions. It has been recognized since that this is a misreading (Besomi 1995, 1998, Bruno and Dal-Pont Legrand 2014). Hoover and Halsmayer (2016) examined how this "culture of misunderstanding" guided both Solow's modelling work and his reading of Harrod. Our paper pays attention to the specific issue of the introduction of an (independent) investment function in those early growth models. Using new archival material, we examine this complex issue and show how macroeconomists of that period dealt with problems related to incorporating expectations, an a priori unavoidable step in order to build robust investment functions. Those elements were indeed discussed at length, in the early 1960s, by economists such as Sen, Samuelson and Solow as shown in his correspondence with Hahn. Our paper sheds light on some hidden foundations of growth models and examines the nature of the break Solow’s model introduced in the growth research program as initially defined by Harrod.
    Keywords: : growth, expectations, investment function, (in-)stability
    JEL: B2 B22 E1
    Date: 2018–11

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