nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2019‒07‒15
twelve papers chosen by
Karl Petrick
Western New England University

  1. Conflict as a closure: A Kaleckian model of growth and distribution under financialization By Srinivas Raghavendra; Petri T. Piiroinen
  2. Deductions and counter-deductions in South Africa By James, Deborah
  3. Teaching International Monetary Economics. Two different views By Luca Fantacci; Lucio Gobbi; Stefano Lucarelli
  4. Substantive Economics and Avoiding False Dichotomies in Advancing Social Ecological Economics By Spash, Clive L.
  5. Exploring the trade narrative in top economics journals By Matthias Aistleitner; Stephan Puehringer
  6. Strong firms, weak banks: The financial consequences of Germany's export-led growth model By Braun, Benjamin; Deeg, Richard
  7. The neo-Goodwinian model reconsidered By Michael Cauvel
  8. International Coordination of Economic Policies in the Global Financial Crisis: Successes, Failures, and Consequences By Edwin M. Truman
  9. A non-linear Keynesian Goodwin-type endogenous model of the cycle: Bayesian evidence for the USA By Mariolis, Theodore; Konstantakis, Konstantinos N.; Michaelides, Panayotis G.; Tsionas, Efthymios G.
  10. "Defaultnomics: Making Sense of the Barro-Ricardo Equivalence in a Financialized World" By Lorenzo Esposito; Giuseppe Mastromatteo
  11. The Urgent Need for an Economics of “Hategoatism” By Payson, Steven
  12. The Long-Run Effects of Recessions on Education and Income By Stuart, Bryan

  1. By: Srinivas Raghavendra (J.E. Cairnes School of Business & Economics, National University of Ireland Galway); Petri T. Piiroinen (School of Mathematics, Statistics & Applied Mathematics, National University of Ireland Galway)
    Abstract: In this paper, we show how the conflict between the shareholders (owners) and managers of firms in terms of profit rates generates dynamics between growth and distribution that results in a long-run variation in the capacity utilization rate. The model developed here generates oscillations in the rate of capacity utilization in the short run before settling down to its long-run value. Furthermore, the long-run value of the rate of capacity utilization falls within a range of plausible values and this range is determined by the conflict between shareholders and managers. The conflict as a closure, we believe, provides a more realistic microeconomic underpinning to study the impact of distribution on accumulation and long-run utilization. In doing so, we have not taken the approach of the existence of normal utilization rate that is relied upon by the Harrodian authors (Skott 2008, Skott and Ryoo, 2008) and the endogenization of animal spirits in such a way that the actual utilization influences the desired or normal rate of utilization by the Kaleckian authors (Hein 2012, Lavoie, 2003). The model yields hysteresis in that it generates two different disequilibrium growth paths when shareholders and managers struggle to gain control of the firm.
    Keywords: Capital accumulation, Rate of capacity utilization, Conflict, Rate of profit, Long run Equilibrium, Hysteresis, Efficient frontier, Finance frontier, Leverage ratio, Shareholders, Managers, Power struggle
    Date: 2019–07
  2. By: James, Deborah
    Abstract: The real economy as a concept has taken root not only in highly developed economies but also in those characterized by “the rapid growth of aspiration accompanied by massive incorporation of people into the current market economy, through the expansion of indebtedness and financial devices . . . [and] the impossibility to pay,” where plural and shifting scales coexist (Neiburg and Guyer, this volume), and where there “is interplay between different units of measure and scales” (Neiburg 2016: 82). This plurality, in the South African case, means official figures fail to capture the true extent of borrowing and lending and the way state salaries and grants serve as collateral for apparently informal loans. Attempts to regulate or improve the situation, aimed at controlling “reckless lending,” have problematized the debtor as unaccustomed to the idea of repayment. Rather than being excluded from the mainstream economy, however, debtors are in danger of being wholly incorporated into it—but with the disadvantage of having their finances under “external judicial control,” which enables creditors to exact repayment by making deductions directly from salaries. This essay explores the prevalence of these deductions, which have rendered the recent explosion of so-called “unsecured lending” profitable for South Africa’s big retailers and new microlenders alike. Nonetheless, debtors, and the legal and human rights practitioners who act on their behalf, do not unquestioningly accept such predations: this essay examines the various counter-deductions they have put in place.
    Keywords: South Africa; economic plurality; indebtedness; financialization; payments; deductions; counter-deductions
    JEL: N0 F3 G3
    Date: 2017–12–01
  3. By: Luca Fantacci; Lucio Gobbi; Stefano Lucarelli
    Abstract: This paper presents a critical analysis of the way in which international monetary economics is normally taught. The objective of this paper is twofold. On the one hand, we show how the most popular international economics manuals deal with exchange rate theory and its link with balance of payments equilibrium. In particular, we stress how the models proposed in these manuals cannot explain one of the biggest macroeconomic problems of our time, that of the imbalances of the balance of payments. On the other hand, we put forward an alternative Keynesian model. Assuming neither full employment nor balanced trade over the short or long run, the paper is intended as a new contribution to the post-Keynesian analysis of exchange rate theory. Finally, our model gives an original insight into the relationship between Liquidity Trap and structural economic imbalances in modern economies.
    Keywords: international monetary economics, exchange rate determination, endogenous money, global imbalances, post-Keynesian economics
    JEL: A20 B50 E12 F41
    Date: 2019
  4. By: Spash, Clive L.
    Abstract: The proposal has been put forward that ecological economics seek to become substantive economics (Gerber and Scheidel 2018). This raises important issues about the content and direction of ecological economics. The division of economics into either substantive or formal derives from the work of Karl Polanyi. In developing his ideas Polanyi employed a definition from Menger and combined this with Tönnies theory of historical evolution. In this paper I explore why the resulting substantive vs. formal dichotomy is problematic. In particular the article exposes the way in which trying to impose this dichotomy on history of economic thought and epistemology leads to further false dichotomies. Besides Polanyi, the positions of other important thinkers informing social ecological economics (SEE) are discussed including Neurath, Kapp and Georgescu-Roegen. The aim is to clarify the future direction of ecological economics and the role, in that future, of ideas raised under the topic of substantive economics.
    Keywords: Substantive economics; Karl Polanyi; Formal economics; History of thought; Epistemology; Social ecological economics; Economic anthropology
    Date: 2019
  5. By: Matthias Aistleitner (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria); Stephan Puehringer (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria)
    Abstract: In the aftermath of recent populist upheavals in Europe, the U.S., the UK and other areas around the world, nationalist economic policies challenge the overly positive view on economic integration and the reduction of trade barriers established by standard economic theory. For quite a long time the great majority of economists supported trade liberalization policies, at least those, who were actively engaged in policy advice or public debates. Yet it was hardly investigated whether this general support emerges from a consensus view among economists on this issue or whether only a partisan interpretation of economic expertise is used to serve a distinct political purpose. Against this background, in this paper we examine the elite economics discourse on trade and trade policies by applying a multilevel mixedmethod approach. In doing so we combine quantitative methods with a discourse analytical approach in order to examine dominant narratives and imaginaries present in high impact papers dealing with trade, globalization and related policy issues. Our analysis yields the following results: First, the hierarchical structure of economics is also present in the economic debate on trade. Second, the top economic discourse on trade is predominantly characterized by a normative bias in favor of trade liberalization policies leading to a systematically underestimation of negative effects of free trade policies. Third, we found that other-thaneconomic impacts and implications (political, social and cultural as well as environmental issues) of trade policies either remain unmentioned or are rationalized by means of pure economic criteria. To sum up, we conclude that the narrow perspective present in top economics discourse on trade prevents a more comprehensive understanding of the multifaceted gains and challenges related to the issue of international integration.
    Keywords: trade narratives, discourse analysis, sociology of economics, bibliometric analysis, top economic journals
    Date: 2019–07
  6. By: Braun, Benjamin; Deeg, Richard
    Abstract: The financial foundation of Germany's manufacturing success, according to the comparative capitalism literature, is an ample supply of long-term capital, provided to firms by a three-pillar banking system and "patient" domestic shareholders. This premise also informs the recent literature on growth models, which documents a shift towards a purely export-led growth model in Germany since the 1990s. We challenge this common assumption of continuity in the German financial system. Export-led growth, characterized by aggregate wage suppression and high corporate profits, has allowed non-financial corporations to increasingly finance investment out of retained earnings, thus lowering their dependence on external finance. This paper documents this trend and shows that business lending by banks has increasingly been constrained on the demand side, reducing the power - and relevance - of banks vis-à-vis German industry. The case study suggests a need for students of growth models to pay greater attention to the dynamic interaction between institutional sectors in general, and between the financial and the non-financial sectors in particular.
    Keywords: bank power,business lending,corporate finance,institutional change,non-financial corporations,Banken,exportorientiertes Wachstumsmodell,institutioneller Wandel,Kreditgeschäft,Unternehmensfinanzierung
    Date: 2019
  7. By: Michael Cauvel
    Abstract: This paper estimates the relationship between aggregate demand and the functional distribution of income in the U.S. economy using a series of aggregative VAR models. Like most previous aggregative studies, it finds evidence of Goodwin cycle effects—i.e. profit-led demand and a profit-squeeze effect—for the U.S. economy in baseline estimates using assumptions traditionally used in the aggregative literature. However, the results of other specifications suggest that these observed Goodwin cycle effects likely reflect a misinterpretation of procyclical variation in labor productivity—one of the main components of the wage share. When correcting for the cyclical effects of demand on productivity, the results differ dramatically; estimates are indicative of wage-led demand, and the effects of demand on distribution are mixed or insignificant. These findings suggest that evidence of Goodwin cycle effects is likely the result of biased estimates. Instead, it appears that the short-run relationship between the wage share and demand should be viewed as a combination of wage-led demand and procyclical productivity effects.
    Keywords: Functional distribution of income, neo-Kaleckian model, wage-led and profit-led demand regimes
    JEL: E11 E12 E25 E32
    Date: 2019–07
  8. By: Edwin M. Truman (Peterson Institute for International Economics)
    Abstract: The global financial crisis dominated the international financial landscape during the first 20 years of the 21st century. This paper assesses the contribution of the international coordination of economic policies to contain the crisis. The paper evaluates international efforts to diagnose the crisis and decide on appropriate responses, the treatments that were agreed and adopted, and the successes and failures as the crisis unfolded. International economic policy coordination eventually contributed importantly to containing the crisis, but the authorities failed to agree on a diagnosis and the consequent need for joint action until the case was obvious. The policy actions that were adopted were powerful and effective, but they may have undermined prospects for coordinated responses to crises in the future.
    Keywords: international economic policy coordination, Group of Seven (G-7), Group of Twenty (G-20), Federal Reserve, central banks, swap arrangements, International Monetary Fund, multilateral development banks, special drawing rights, global financial crisis, banking crises, financial crises, Bank for International Settlements, Financial Stability Forum, Financial Stability Board
    JEL: E50 E60 F00 F02 F30 F33 F42 F55
    Date: 2019–07
  9. By: Mariolis, Theodore; Konstantakis, Konstantinos N.; Michaelides, Panayotis G.; Tsionas, Efthymios G.
    Abstract: This paper incorporates the so-called Bhaduri-Marglin accumulation function in Goodwin's original growth cycle model and econometrically estimates the proposed model for the case of the US economy in the time period 1960-2012, using a modern Bayesian sequential Monte Carlo method. Based on our findings, the US economy follows an exhilarationist regime throughout our investigation period with the sole exception of an underconsumption regime for the time period 1974-1978. In general, the results suggest that the proposed approach is an appropriate vehicle for expanding and improving traditional Goodwin-type models.
    Keywords: Bayesian sequential Monte Carlo methods; Bhaduri-Marglin accumulation function; Goodwin type models; US economy
    JEL: B51 C11 C62 E32
    Date: 2019–02–01
  10. By: Lorenzo Esposito; Giuseppe Mastromatteo
    Abstract: The 2008 crisis created a need to rethink many aspects of economic theory, including the role of public intervention in the economy. On this issue, we explore the Barro-Ricardo equivalence, which has played a decisive role in molding the economic policies that fostered the crisis. We analyze the equivalence and its theoretical underpinnings, concluding that: (1) it declares, but then forgets, that it does not matter whether the nature of debt and investment is public or private; (2) its most problematic assumption is the representative agent hypothesis, which does not allow for an explanation of financialization and cannot assess dangers coming from high levels of financial leverage; (3) social wealth cannot be based on any micro-foundation and is linked to the role of the state as provider of financial stability; and (4) default is always the optimal policy for the government, and this remains true even when relaxing many equivalence assumptions. We go on to discuss possible solutions to high levels of public debt in the real world, inferring that no general conclusions are possible and every solution or mix of solutions must be tailored to each specific case. We conclude by connecting different solutions to the political balance of forces in the current era of financialization, using Italy (and, by extension, the eurozone) as a concrete example to better illustrate the discussion.
    Keywords: Barro-Ricardo Equivalence; Financialization; Default
    JEL: E62 H23
    Date: 2019–07
  11. By: Payson, Steven
    Abstract: The word “scapegoat” is defined as “a person made to bear the blame for others,” and similarly, “scapegoatism” refers to “the act or practice of assigning blame or failure to another, as to deflect attention or responsibility away from oneself” (Collins English Dictionary and, respectively.) While these definitions do not mention economics specifically, in most cases the blame on the scapegoat is economic in nature. Scapegoatism also provides a convenient, though extremely inferior, substitute for valid analyses of economic problems. Scapegoatism, however, has a partner, dehumanization, which is the process of demonizing certain people as less than human and unworthy of humane treatment. Scapegoatism is not only accompanied by dehumanization, but it is often motivated by it. Thus, “scapegoatism” is a euphemism and it is understudied as a result, because there is no single term of art that combines scapegoatism and dehumanization. This paper offers a solution to this semantic dilemma by proposing the new term, “HATEGOATISM,” for the simultaneous existence of scapegoatism and dehumanization. Only one subfield of economics regularly embraces hategoatism, which is Libertarianism (where the “HATEGOAT” is government workers). Economists must lead by example by combating hategoatism, and that requires cleaning their own house first.
    Keywords: scapegoat,Libertarianism,hate,discrimination,prejudice,government,ethics,economics,labor,blame,fairness,responsibility,economists,demonization,dehumanization
    JEL: B25 B53 D72 D73 H11 H12 I18 I28 I38 J16 J17 J45 J71 P16 P17 Z13
    Date: 2019
  12. By: Stuart, Bryan (George Washington University)
    Abstract: This paper examines the long-run effects of the 1980-1982 recession on education and income. Using confidential Census data, I estimate difference-in-differences regressions that exploit variation across counties in recession severity and across cohorts in age at the time of the recession. For individuals age 0-10 in 1979, a 10 percent decrease in earnings per capita in their county of birth reduces four-year college degree attainment by 10 percent and income in adulthood by 3 percent. Simple calculations suggest that, in aggregate, the 1980-1982 recession led to 0.8-1.8 million fewer college graduates and $42-$87 billion less earned income per year.
    Keywords: human capital, education, income, recessions
    JEL: E32 I20 I30 J13 J24
    Date: 2019–06

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