nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2019‒06‒24
thirteen papers chosen by
Karl Petrick
Western New England University

  1. Inequality and Stagnation by Policy Design By Thomas I. Palley
  2. Welfare models and demand-led growth regimes before and after the financial and economic crisis By Eckhard Hein; Walter Paternesi Meloni; Pasquale Tridico
  3. What's Wrong With Modern Money Theory (MMT): A Critical Primer By Thomas I. Palley
  4. Keynes's Investment Theory as a Micro-foundation for his Grandchildren By Sergio Nisticò
  5. Economic Theory ten years after the crisis: Just tweaking around the edges? and/or A bit of repair at the seams? By Vassilis Droucopoulos
  6. Reconsidering the natural rate hypothesis By Robert Calvert Jump; Engelbert Stockhammer
  7. New Structuralism and the Balance-of-Payments Constraint. By Gabriel Porcile; Giuliano Toshiro Yajima
  8. Capital, technical progress and international trade By Rahim, Sikander
  9. The Rise of Populist Movements in Europe: A Response to European Ordoliberalism? By David Cayla
  10. Peripheral Europe beyond the Troika. Assessing the 'success' of structural reforms in driving the Spanish recovery By Luis Cárdenas; Paloma Villanueva; Ignacio Álvarez; Jorge Uxó
  11. How Much Do We Save If We Move From Commercial to Social Insurance? By Nizam, Ahmed Mehedi
  12. Why and how the western economists should reorient their thinking? By Jakhotiya, Girish
  13. Understanding market failure in the developing country context. By Jackson, Emerson Abraham; Jabbie, Mohamed

  1. By: Thomas I. Palley
    Abstract: This paper argues the mainstream economics profession is threatened by theories of the financial crisis and ensuing stagnation that attribute those events to the policies recommended and justified by the profession. Such theories are existentially threatening to the dominant point of view. Consequently, mainstream economists resist engaging them as doing so would legitimize those theories. That resistance has contributed to blocking the politics and policies needed to address stagnation, thereby contributing to a political vacuum which is being filled by odious forces. Those ugly political consequences are unintended, but they are still there and show the dangerous consequences of the death of pluralism in economics. The critique of mainstream economists is not about "values" or lack of "change": it is about academic practice that suppresses ideas which are existentially threatening.
    Keywords: Income inequality, stagnation, neoliberalism, Keynesianism, pluralism
    JEL: A0 A11 B50 E00 E12
    Date: 2019
  2. By: Eckhard Hein; Walter Paternesi Meloni; Pasquale Tridico
    Abstract: Recently, several interesting attempts have been made at connecting comparative political economy (CPE) approaches, as the Varieties of Capitalism (VoC) theory, with post-Keynesian (PK) research on different demand-led growth regimes in modern capitalism, and for the period of finance-dominated capitalism since the early 1980s in particular. However, we find several problems in the way Kaleckian and PK approaches are interpreted and integrated in modern CPE approaches. Therefore, we first clarify several ambiguities and misunderstandings of PK demand-led growth regimes and their empirical indicators in the recent CPE literature, and, following the recent PK literature, we provide a theoretically consistent and empirically applicable classification of demand and growth regimes under the conditions of finance-dominate capitalism. Second, instead of using the traditional VoC dual classification, we link and confront the PK demand and growth regimes with the recent evolution of Esping-Andersen's (1990) taxonomy which considers five welfare models. Third, we examine the relationships between demand-led growth regimes and welfare models, both before and after the 2007-9 global crisis. For this purpose, we share the qualitative taxonomy suggested by Hay and Wincott (2012), and additionally we quantitatively assess the degree of welfare of each country and its evolution by means of a 'principal component analysis' (PCA), which allows us to synthesize four socio-economic indicators in a multidimensional measure of welfare.
    Keywords: Demand-led growth, welfare models, comparative political economy, post-Keynesian economics, Varieties of Capitalism
    JEL: E02 P16 P51
    Date: 2019
  3. By: Thomas I. Palley
    Abstract: Recently, there has been a burst of interest in modern money theory (MMT). The essential claim of MMT is sovereign currency issuing governments do not need taxes or bonds to finance government spending and are financially unconstrained. MMT rests on a triad of arguments concerning: (i) the macroeconomics of money financed budget deficits, (ii) the employer of last resort or job guarantee program, and (iii) the history of money. This primer analyzes that triad and shows each element involves suspect economic arguments. That leads MMT to underestimate the economic costs and exaggerate the capabilities of money financed fiscal policy. MMT's analytic shortcomings render it poor economics. However, its simplistic printing press economics is proving a popular political polemic, countering the equally simplistic and wrong-headed household economics of neoliberal austerity polemic.
    Keywords: Modern money theory (MMT), budget deficits, job guarantee program
    JEL: E00 E12 E40 E58 E60
    Date: 2019
  4. By: Sergio Nisticò (University of Cassino and Lazio Meridionale)
    Abstract: In contrast with the ‘missing micro-foundations’ argument against Keynes’s macroeconomics, the paper argues that it is the present state of microeconomics that needs more solid ‘Keynesian foundations’. It is in particular Keynes’s understanding of investors’ behaviour that can be fruitfully extended to consumption theory, in a context in which consumers are considered as entrepreneurs, buying goods and services to engage in time-consuming activities. The paper emphasizes that the outcome in terms of enjoyment is particularly uncertain for those innovative and path-breaking activities, which Keynes discussed in his 1930 prophetic essay about us, the grandchildren of his contemporaries. Moreover, the Keynes-inspired microeconomics suggested in the paper provides an explanation of why Keynes’s prophecy about his grandchildren possibly expanding leisure did not materialize yet. The paper finally points at the need for appropriate economic policies supporting consumers’ propensity to enforce innovative forms of time use.
    JEL: B41 D11 D81
    Date: 2019–06
  5. By: Vassilis Droucopoulos (Emeritus Professor of the Department of Economics of the University of Athens.)
    Abstract: It is my intention to address, primarily within the scope of mainstream macroeconomic theory, three of the questions making up the main theme of the conference, namely: How a very problematic theory continues to survive and dominate both the policy and the academic scene. What are the processes in the economy and the society that sustain its dominance? What is the condition of the economic Orthodoxy (particularly under its current form of the New Macroeconomic Consensus, that is the hybrid of mild neoliberalism with conservative New Keynesianism)? A good many orthodox economists hold the view that there is no necessity for a paradigm shift. On the contrary, a mere evolution towards a more pluralistic discipline would suffice. Hence the title of my talk.
    Keywords: Economic Pluralism, Macroeconomic Theory
    JEL: A20 B40 B50
    Date: 2018–12
  6. By: Robert Calvert Jump; Engelbert Stockhammer
    Abstract: The natural rate hypothesis states that there exists an unemployment rate at which inflation is stable, and that this unemployment rate is independent of aggregate demand shocks. The hysteresis hypothesis, in contrast, states that the long run unemployment rate can be affected by aggregate demand shocks. While policy makers have warned of the risk of hysteresis since the 2008 financial crash, hysteresis effects are not incorporated into the macroeconometric models used by policy making institutions. This paper presents Bayesian estimates of hysteresis effects using unobserved components models of the type used by the European Commission and OECD. We demonstrate that the posterior probability of the natural rate hypothesis holding in Germany, France, and the UK is very low, lending empirical support to the hysteresis hypothesis. We suggest that the models used by the European Commission and OECD should be amended to reflect policy makers' views on hysteresis.
    Keywords: Unemployment, Hysteresis, NAIRU, Business Cycles
    JEL: E24 E60 E61
    Date: 2019
  7. By: Gabriel Porcile (Economic Affairs Officer, ECLAC and UFPR (Brazil)); Giuliano Toshiro Yajima (Department of Social Sciences and Economics, Sapienza University of Rome (IT).)
    Abstract: Structuralists and Post-Keynesians share the perspective that in the long run economic growth is shaped by the income elasticity of exports and imports, and that such elasticities are a positive function of the degree of diversification and technological intensity of the pattern of specialization. Since the mid-seventies, New Structuralists began to stress the role of two set of variables in driving the pattern of specialization: a stable and competitive real exchange rate, and the relative intensity of innovation / diffusion of technology in center and periphery. In this paper we modify the Balance-of-Payments constrained growth model to include these two set of variables. The model provides a mechanism that ensures the validity of the original Thirlwall’s perspective, namely that adjustment to the Balance-of-Payments-constrained equilibrium takes place through changes in the rate of growth of aggregate demand rather than through changes in relative prices. In addition, it shows that a macroeconomic policy aimed at sustaining a competitive real exchange rate is a necessary complement to an active industrial policy for fostering international convergence.
    Keywords: BOP-constrained growth models, Technological innovation, Structural Change.
    JEL: F43 O40 O41
    Date: 2019–06
  8. By: Rahim, Sikander
    Abstract: (Abstract) CAPITAL, TECHNICAL PROGRESS AND INTERNATIONAL TRADE Much has been written about the objection originally formulated by Piero Sraffa to the use of production functions and aggregate capital and of the disputes that ensued, but there seems to be no systematic explanation in one place of why this objection is crucial to the foundations of economic theory and why the various attempts to escape it fail. This paper is an attempt provide one. First, it presents the reasoning of the objection and shows how the arguments against it are either fallacious or too restricted to be useful. Second, it shows how technical progress and international trade give two more reasons for the same objection, which, though logically independent, only became apparent because of the first. From these it follows that neither technical progress nor international trade can be plausibly described or explained if capital goods are not treated as heterogeneous goods manufactured with the use of capital goods. This leads to a more realistic depiction of technical progress as the outcome of the R&D of competing firms. (For brevity, government activities are left out.) The implications for international trade are described briefly. This paper is not a survey; it is confined to the minimum needed to establish its contentions. Its discussion of the disputes has mostly been said before, but it covers some gaps that seem to have been overlooked. It adds to the discussion in that the disputes did not take up the implications of technical progress and international trade.
    Keywords: Capital theory, technical progress, R&D, international trade
    JEL: B51 F10 F11 O31 O32 O34
    Date: 2018–12–21
  9. By: David Cayla (GRANEM - Groupe de Recherche Angevin en Economie et Management - UA - Université d'Angers - AGROCAMPUS OUEST - Institut National de l'Horticulture et du Paysage)
    Abstract: This article aims to explain the contemporary emergence of populism in the European Union. According to Polanyi's double movement framework, the emergence of these political forces can be understood as the result of protective responses from societies weakened by difficult market adjustments. Since the Single Act treaty (1986), the European economy took a path that intended to create a supranational self-adjusting markets economy based on the ordoliberal philosophy. However, by detaching the economic sphere from the reach of politics, the European Single Market has injured some important social institutions. The rise and the diversity of populisms in the European Union can therefore be explained by an attempt to preserve some national institutions that were diversely impacted by the market forces.
    Abstract: Cet article vise à expliquer l'émergence récente du populisme dans l'Union européenne. Dans le cadre du double mouvement de Polanyi, l'émergence de ces forces politiques peut être interprétée comme le résultat des réponses protectrices de sociétés affaiblies par de difficiles ajustements de marché. Depuis l'Acte unique (1986), l'économie européenne s'est engagée sur la voie d'une économie de marché supranationale autorégulatrice fondée sur la philosophie ordolibérale. Cependant, en détachant la sphère économique de la sphère politique, le marché unique européen a endommagé certaines institutions sociales de premier plan. La montée et la diversité des populismes dans l'Union européenne s'expliquent donc par une tentative de préserver certaines institutions nationales qui ont été affectées par les forces du marché.
    Keywords: European Single Market,institutional economics,Ordoliberalism,populism,marché unique européen,institutionalisme,ordolibéralisme,Polanyi,populisme
    Date: 2019–06–01
  10. By: Luis Cárdenas; Paloma Villanueva; Ignacio Álvarez; Jorge Uxó
    Abstract: Since 2014 the Spanish economy has recovered positive GDP growth, and the country has been growing well above the Eurozone average. This recovery has sparked an academic and political debate concerning the role that structural reforms, prescribed by the 'Troika', have played in peripheral Europe. For certain scholars and institutions, these structural reforms have allowed the market, through greater wage flexibility, to make the necessary adjustments to restore economic growth, resulting in a 'healthy' economic recovery. But, to what extent is this mainstream narrative solidly backed up by the empirical evidence? Can Spain be held up as an international example of the success of these reforms? The aim of this paper is to shed light on this debate. We consider that labor market reforms and wage devaluation policy are not the drivers of economic recovery. Instead, we offer an alternative explanation for recovery based on the theory of demand-led growth.
    Keywords: Spain, demand-led growth, structural reforms, wage devaluation
    JEL: E60 E12 J38
    Date: 2018
  11. By: Nizam, Ahmed Mehedi
    Abstract: Commercial insurance system acts like a memoryless system in a way that the premiums paid by the policyholders in one accounting period will be of no avail to them during subsequent periods. Here, we argue that if the insurance scheme is implemented as a not-for-profit trust fund (social insurance) instead of a for-profit limited liability company (commercial insurance) then it will effectively and less expensively hedge against unforeseen losses. If the profit of the insurance company is retained instead of being distributed to the stockholders and there is no agency commission then after a certain number of years, all upcoming claims can be addressed from the interest income of the accumulated profit and the policyholders do not need to pay any premium afterwards. Here, we algebraically calculate the time period required to achieve such a perpetual insurance system as the policyholders after a certain period of time, do no longer need to pay any premium in order to get coverage from losses. In the next step, we empirically calculate the required time period to attain a perpetual zero premium insurance scheme for some 20 (twenty) general insurance companies incorporated in Bangladesh.
    Keywords: insurance; social insurance; commercial insurance; welfare
    JEL: G20 G22 H53 H55 I31 I38
    Date: 2019–06–03
  12. By: Jakhotiya, Girish
    Abstract: Most of the good and bad economic events of last three decades have proven that the western economists some where have lost a macro-logic essential for resolving the critical socio-economic issues. This was partly due to excessive attempt of quantifying the subjective elements of economic analysis. The other reason for their collective failure is a simple negligence of the bigger canvas that presents an integrated view of many complex and interdependent economic factors. Especially after the global economy started impacting the western countries, the western economists lost their way and started focusing on only oversimplified reasons of the economic debacle of western economies. They also underemphasised the need of horizontal and qualitative economic analysis to support the vertical and quantitative dissection of economic facts. The third world countries (and especially China) complicated the global exercise of economic activism. Western economists need to look at the present socio-economic and geo-political uncertainties with a fresh and revised perspective. They should also realize and admit that some of the old western economic doctrines are no more workable in a new global economy. Therefore, they need to reorient their economic thinking.
    Keywords: Development Index, Qualitative analysis, Economic Modelling, Economic Equilibrium
    JEL: E6
    Date: 2019–06–04
  13. By: Jackson, Emerson Abraham; Jabbie, Mohamed
    Abstract: Market failure makes it difficult to achieve the condition of economic efficiency by distorting price mechanisms and normal distribution of goods and services thereby, leading to welfare loss. They are entrenched in the socio-economic fabrics of most developing countries, underpinned by the lack of well-functioning market structures and economic systems – which are supposed to make the market economy resilient to such economic shortcomings.
    Keywords: Market Failure; Developing Countries
    JEL: H0 H44
    Date: 2019–04–29

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