nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2019‒04‒08
nine papers chosen by
Karl Petrick
Western New England University

  1. Building blocks for the macroeconomics and political economy of housing By Engelbert Stockhammer; Christina Wolf
  2. Kalecki’s critique of wicksellianism and the miss-specification of negative interest rates By Jan Toporowski
  3. Demand Drives Growth all the Way By Taylor, Lance; Foley, Duncan K.; Rezai, Armon
  4. Post-Truth: An Alumni Economist’s Perspective By Ben Fine
  5. The Myth of Political Reason - The Moral and Emotional Foundations of Political Cognition and US Politics By Ryan Wilson
  6. Of Ecosystems and Economies: Re-connecting Economics with Reality By Spash, Clive L.; Smith, Tone
  7. Does Consumer Microfinance Expand Financial Inclusion in the UK? By Gisela Mann
  8. Promoting sustainable and inclusive growth and convergence in the European Union By Maria Demertzis; André Sapir; Guntram B. Wolff
  9. Central Bank Mandates, Sustainability Objectives and the Promotion of Green Finance By Simon Dikau and Ulrich Volz; Ulrich Volz

  1. By: Engelbert Stockhammer; Christina Wolf
    Abstract: Housing has played an essential part in the global financial crisis 2007-08 and the Euro crisis. Large parts of bank lending go to mortgages. Housing wealth is the largest part of wealth for most households and is, at the same time, more dispersed than other forms of wealth. House prices exhibit pronounced fluctuations that are closely linked to credit growth. Housing thus plays a crucial role in the macroeconomy, which has become even more pronounced under neoliberalism. We scrutinise different theoretical approaches to housing. Despite its theoretical shortcomings mainstream economics has pioneered empirical research on wealth effects in consumption and recently documented the role of house prices in financial cycles. Post-Keynesian theory emphasises endogenous money creation, cycles in asset prices and debt, and have formalised the notion of a debt-driven demand regime. Comparative Political Economy research has recently developed the concept of the varieties of residential capitalism, which has different structures of house ownership and housing finance at the core of political coalitions. Marxist political economy has long established the intrinsic link between ownership of land and economic rent and notes that homeownership can act as force of working class fragmentation. Wealth surveys can be used to trace the extent of conflicting interests in a class-relational approach.
    Keywords: housing, household debt, finance, real estate prices, class analysis
    Date: 2019–03
  2. By: Jan Toporowski (Faculty of Law & Social Sciences SOAS, University of London)
    Abstract: This paper examines the logic of the arguments for negative interest rates. These arise from a Wicksellian theoretical framework that attributes low investment to a ‘natural’ or ‘real’ rate of interest (that is the rate of profit on real investments) that is below the money rate of interest. At near zero money rates of interest the low investment is presumed to be caused by a negative natural rate of interest. The paper outlines Kalecki’s reasons for believing that in fact the rate of profit for the economy as a whole is in general positive and, in any case, the rate of profit is differentiated in the economy by industry and firm. This removes the Wicksellian rationale for negative interest rates.
    Keywords: Kalecki, monetary theory, rate of interest
    JEL: E12 E32 E43 E52
    Date: 2018
  3. By: Taylor, Lance; Foley, Duncan K.; Rezai, Armon
    Abstract: A demand-driven alternative to the conventional Solow-Swan growth model is analyzed. Its medium run is built around Marx-Goodwin cycles of demand and distribution. Long-run income and wealth distributions follow rules of accumulation stated by Pasinetti in combination with a technical progress function for labor productivity growth incorporating a Kaldor effect and induced innovation. An explicit steady state solution is presented along with analysis of dynamics. When wage income of capitalist households is introduced, the Samuelson-Modigliani steady state "dual" to Pasinetti's cannot be stable. Numerical simulation loosely based on US data suggests that the long-run growth rate is around two percent per year and that the capitalist share of wealth may rise from about forty to seventy percent due to positive medium-term feedback of higher wealth inequality into its own growth.
    Date: 2018–03
  4. By: Ben Fine (Department of Economics, SOAS University of London, UK)
    Abstract: Drawing upon fifty years as an academic economist, this lecture to alumni of SOAS’s Department of Economics reflects upon the continual “post-truth†aspects of mainstream economics, ranging over its substantive, if shifting, content, its methodology, and its treatment of methodology and interdisciplinarity. It draws upon a wide range of theory, empirical analysis, policy and anecdote to highlight both the need for alternatives and the continuing, even increased, failure of the mainstream to engage with criticism and alternatives.
    Keywords: Heterodox economics, economics imperialism, pluralist economics
    JEL: B2 B4 B5
    Date: 2019–03
  5. By: Ryan Wilson
    Abstract: The current ascendancy of right-wing populists across western democracies is a concerning trend, and so far, the left has not managed to mount an effective counterstrategy to arrest its momentum. Much of the rhetoric of these right-wing populists has focused on evoking fear and suspicion, verging on hatred, of outsiders and fellow countrymen and women with opposing political ideologies, to great effect. The importance of understanding why certain rhetoric is effective cannot be understated, and the works of George Lakoff, Jonathan Haidt, and Drew Westen that illuminate the moral and emotional factors behind how individuals interpret and respond to inputs of a political nature are reviewed and synthesised. IndividualsÂ’ underlying moral mental structures and the emotional responses that they can trigger must be understood in order to generate political messaging that resonates strongly with its target audience and consequently increases the likelihood of their actuation to vote. The recent phenomenon of individualisation, stemming from the current era of reflexive modernity is analysed within the context of divergent conservative and liberal moral matrices, and is found to be disproportionately ailing the liberal side of politics. In delineating the key elements of liberal and conservative morality, the existence of liberal moral tenets that are discordant with longstanding liberal communitarian ideals were revealed. In contrast, conservative morality appears to exhibit an inherent coherence that may contribute to conservatismÂ’s resilience in the face of reflexive modernity and disparate policy priorities of its constituents. The importance of understanding the moral and emotional foundations of political cognition is emphasised not only for its potential to bolster the efficacy of left-wing political parties, but also to provide an avenue by which the increasing hostility across the political spectrum can be subdued.
    Date: 2019
  6. By: Spash, Clive L.; Smith, Tone
    Abstract: This discussion paper looks at the connections between economies and ecosystems, or more generally biophysical reality. The term "economies" is used, rather than "the economy", because of the prevalent false claim that there is only one type of economic system that is possible. We outline how the ecological crises is linked to the dominant drive for economic growth and the tendency to equate growth with progress and development; common even amongst those apparently critical of the need for continued growth in the materially rich countries. The unreality of mainstream economics is epitomised by the accolades given to those justifying mild reformist policy in response to human induced climate change in order to continue the pursuit of economic growth. We emphasise the structural aspects of economies as emergent from and dependent upon the structure and functioning of both society and ecology (energy and material flows). Finally, that the structure of the global economy must change to avoid social ecological collapse, poses the questions of how that can be achieved and what sort of economics is necessary? We explain the need for: (i) a structural change that addresses the currently dysfunctional relationships between economic, social and ecological systems, and (ii) an economics that is interdisciplinary and realist about its social and natural science relations.
    Keywords: growth, development, economics, ecosystems, thermodynamics, political economy, critical realism
    Date: 2019
  7. By: Gisela Mann
    Abstract: The aim of this research is to examine if consumer microfinance reduces levels of financial exclusion in the UK and to explore its impact on social inclusion. Despite an abundance of research on microfinance, it is largely based on lending for enterprise, with a developing country focus. There is a dearth of research in Europe which this study addresses by looking at a consumer microfinance institution (MFI) in the UK and assessing its ability (or not) to promote social and financial inclusion. Furthermore, what little research has been carried out has concluded that UK consumer microfinance offers ‘insignificant’ benefit (Lenton and Mosley, 2012:87), however this was based on poverty reduction, not financial inclusion. This work fills the gap in knowledge regarding European consumer microfinance and contributes to its ongoing debate (Corbucci, 2016). This original research, which is based on new data, leads to a greater understanding of the topic hitherto under- studied which others can subsequently build upon.Grounded Theory (GT) methodology was used, focussing on in-depth interviews with 31 participants from a UK-based MFI. GT generates understanding in fields with little prior literature (Glaser and Strauss, 1967). It is especially apt for reaching the aims because it approaches the field with no a priori assumptions. Instead, it accesses the opinions and experiences from service users who are best placed to ascertain if they feel more or less financially included and why. Also, its core analytical tool ensures that findings are rooted in data which is useful to counteract the assertion that the design of most microfinance research is flawed because it is looking for positive social outcomes (Bateman, 2010).The main findings are that participants experienced considerable improvements in financial and social inclusion despite poverty-line incomes and poor credit scores thus improving financial capacity and money management. The majority of lending is used for consumer consumption which meets core social needs and contributes to ‘lead(ing) a normal social life in the society in which they belong’ (European Commission, 2008:9). This leads to a higher standard of living resulting in important mental and physical health improvements as well as increasing self-esteem. These results provide empirical evidence demonstrating microfinance’s ability to promote financial and social inclusion. The limitation of the results are that they are not generalizable because of sample size. But it could be extended to include customers from a range of consumer-lending MFIs in the United Kingdom and across Europe to ascertain if the findings can be replicated. These findings represent cutting edge research in an unexplored field of European microfinance so will make a significant contribution upon which others can build future impact studies.
    Keywords: Consumption, Financial inclusion, Impact, Microfinance
    Date: 2019
  8. By: Maria Demertzis; André Sapir; Guntram B. Wolff
    Abstract: The European Union can look ahead at the next five years from a good economic position. Employment is comparatively high, the recovery has been uninterrupted for several years and income inequality remains less pronounced than elsewhere in the world. But the EU faces nevertheless formidable economic challenges. In the short-term, there is the potential for strong macroeconomic weakening, resulting partly from uncertainty generated by the global trade conflict. The EU also has a long-term growth and productivity weakness. Finally, the EU, especially the euro area, suffers from a lack of convergence and its social cohesion is threatened. The EU must put together a European growth strategy that focuses on innovation while addressing climate change and improving social cohesion. Growth requires investment, research and innovation. While the current debate on industrial policy is welcome, the EU should be careful to maintain, or even improve, the conditions for growth in Europe and must avoid falling into the protectionism trap. To achieve its climate goals, the EU must ensure that its consumption and its production become greenhouse-gas emission neutral by 2050 or earlier, implying a massive transformation of all economic activities. This will pose major economic and social challenges. Distributional concerns will therefore have to figure prominently in this transformation. More generally, the benefits of growth need to be distributed more fairly in our societies. While social policy is and should remain a national responsibility, the EU needs to ensure that the single market, a key asset to promote growth and economic well-being, does not undermine the ability of countries to raise taxes on capital income, wealth and inheritance. A rising tax burden on the working middle class might have already become incompatible with Europe’s social market economy. Convergence in the EU and in the euro area is a necessity - the European growth strategy cannot be blind to sustained regional growth differences. An EU in which economic growth does not spread through all of its major regions will be politically challenged. The paradox is that many of the policy instruments to address this problem remain in the hands of national policymakers, even though the way they use them has significant implications for the rest of the EU. The EU supports convergence through its budget and technical support but the fundamentals of this paradox remain. In the euro area, further measures are needed to address some of the systemic causes of divergence. In particular, it is imperative to complete banking union and for capital markets to become more integrated, since a well-functioning financial system is fundamental for growth. A euro-area safe asset would bring benefits but is difficult to establish. EU fiscal rules need to be reformed to improve the macroeconomic management of the euro area. A euro-area budget and more responsive national fiscal policies are important tools to better respond to cyclical downturns. Finally, the relationship between the euro area and non-euro area countries needs to be addressed.
    Date: 2019–04
  9. By: Simon Dikau and Ulrich Volz; Ulrich Volz (Department of Economics, SOAS University of London, UK)
    Abstract: This paper examines to what extent climate-related risks and mitigation policies fit into the current set of central bank mandates and objectives. To this end, we conduct a detailed analysis of central bank mandates and objectives, using the IMF's Central Bank Legislation Database, and compare these to current arrangements and sustainability responsibilities that central banks have adopted in practice. To scrutinise the alignment of mandates with climate-related policies, we differentiate between the impact of environmental factors on the conventional core objectives of central banking, and a potential promotional role of central banks with regard to green finance and sustainability. Of the 133 central banks in our sample, only 12% have explicit sustainability mandates while 29% are mandated to support the government's policy priorities, which in most cases includes sustainability goals. However, given that climate risks can directly impact on traditional core responsibilities of central banks, most notably monetary and financial stability, even central banks without explicit or implicit sustainability mandate ought to incorporate climate- and mitigation-risks into their core policy implementation frameworks in order to efficiently and successfully safeguard price and financial stability.
    Keywords: Central banks, central bank mandates, green finance
    JEL: Q5 E5
    Date: 2019–03

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