nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2020‒05‒18
ten papers chosen by
Karl Petrick
Western New England University

  1. The Economics and Politics of Social Democracy: A Reconsideration By Servaas Storm
  2. Three Comments on Storm “The Economics and Politics of Social Democracy: A Reconsideration” By Joseph Halevi; Peter Kriesler; Duncan Foley; Thomas Ferguson
  3. Modigliani Meets Minsky: Inequality, Debt, and Financial Fragility in America, 1950-2016 By Alina K. Bartscher; Moritz Kuhn; Moritz Schularick; Ulrike I. Steins
  4. Income Inequality in Mexico 1895-1940: Industrialization, Revolution, Institutions By Castañeda Garza, Diego; Bengtsson, Erik
  5. Quantifying Goodwin Growth Cycles with Minimum Wage Shares By Sasaki, Hiroaki; Asada, Yasukuni
  6. The EUÕs Green Deal: Bismarck`s `what is possible` versus Thunberg`s `what is imperative` By Servaas Storm
  7. The behavioral and neoliberal foundations of randomizations By Jean-Michel Servet; Bruno Tinel
  8. Varieties of deindustrialization and patterns of diversification: why microchips are not potato chips By Giovanni Dosi; Federico Riccio; Maria Enrica Virgillito
  9. High Finance, Political Money, and the U.S. Congress: A Quantitative Assessment of the Campaign to Roll Back Dodd-Frank By Thomas Ferguson; Paul Jorgenson; Jie Chen
  10. "Class Size, Cognitive Abilities, Bullying, and Violent Behavior: Evidence from West Bank Schools" By Sameh Hallaq

  1. By: Servaas Storm (Delft University of Technology)
    Abstract: Questions about the decline of Social democracy continue to excite wide interest, even in the era of Covid-19. This paper takes a fresh look at topic. It argues that social democratic politics faces a fundamental dilemma: short-term practical relevance requires it to accept, at least partly, the very socio-economic conditions which it purports to change in the longer run. Bhaduri’s (1993) essay which analyzes social democracy’s attempts to navigate this dilemma by means of ‘a nationalization of consumption’ and Keynesian demand management, was written before the rise of New (‘Third Way’) Labor and before the Great Financial Crisis of 2007-8. This paper provides an update, arguing that New Labor’s attempt to rescue ‘welfare capitalism’ entailed a new solution to the dilemma facing social democracy based on an expansion of employment, i.e. an all-out emphasis on “jobs, jobs, jobs”. The flip-side (or social cost) of the emphasis on job growth has been a stagnation of productivity growth—which, in turn, has put the ‘welfare state’ under increasing pressure of fiscal austerity. The popular discontent and rise of ‘populist’ political parties is closely related to the failure of New Labor to navigate social democracy’s dilemma.
    Keywords: social democracy, wage-led growth, profit-led growth, NAIRU economics, Europe 1945- , New Labor.
    JEL: E6 E10 E12 N10 P11
    Date: 2020–04
  2. By: Joseph Halevi (International University College of Turin); Peter Kriesler (University of New South Wales); Duncan Foley (New School for Social Research); Thomas Ferguson (Institute for New Economic Thinking)
    Abstract: This Working Paper presents three separate comments on Servaas Storm’s “The Economics and Politics of Social Democracy: A Reconsideration”. The first is by Joseph Halevi and Peter Kriesler; the second is by Duncan Foley; and the third is by Thomas Ferguson.
    Keywords: social democracy, wage-led growth, profit-led growth, NAIRU economics, Europe 1945- , New Labor.
    JEL: E6 E10 E12 N10 P11
    Date: 2020–05
  3. By: Alina K. Bartscher (University of Bonn); Moritz Kuhn (University of Bonn); Moritz Schularick (University of Bonn); Ulrike I. Steins (University of Bonn)
    Abstract: inequality and financial fragility. We exploit a new household-level dataset that covers the joint distributions of debt, income, and wealth in the United States over the past seven decades. The data show that increased borrowing by middle-class families with low income growth played a central role in rising indebtedness. Debt-to-income ratios have risen most dramatically for households between the 50th and 90th percentiles of the income distribution. While their income growth was low, middle-class families borrowed against the sizable housing wealth gains from rising home prices. Home equity borrowing accounts for about half of the increase in U.S. household debt between the 1970s and 2007. The resulting debt increase made balance sheets more sensitive to income and house price fluctuations and turned the American middle class into the epicenter of growing financial fragility.
    Keywords: household debt, inequality, household portfolios, financial fragility
    JEL: E21 E44 D14 D31
    Date: 2020–04
  4. By: Castañeda Garza, Diego; Bengtsson, Erik (Department of Economic History, Lund University)
    Abstract: This paper, building on new archival research, presents the first comprehensive estimates of income inequality in Mexico before 1950.We usethe social tables method of combining census information with group-level income data to reconstructMexican incomesand their distributionfor four benchmark years, 1895,1910,1930 and 1940.The Gini coefficient for incomes is 0.48in 1895, 0.47in 1910, 0.41in 1930 and 0.51in 1940.The evidence points to inequality as a multi-faceted phenomenon. Mexican incomeinequalitywas shaped by the economic policies of the various regimes, as well as the growth possibilities of various sectors. The revolution of the 1910s entailed reforms(of the labormarket and of land ownership) which equalized incomes, but when these reforms were substantially reversed, inequality rose again.The developments are in line with a new branch of the literature that recognizesthe importance for inequality dynamics of land ownership.The levelsof inequality in the long term display ratherstrong persistence, in line with institutionalist arguments.
    Keywords: Income inequality; Income distribution; Socialtables; Mexico; Mexican revolution; Political economy
    JEL: D63 E01 N36 O15
    Date: 2020–03–06
  5. By: Sasaki, Hiroaki; Asada, Yasukuni
    Abstract: This study extends Goodwin's (1967) growth cycle model to consider two types of workers, low- and high-skilled workers. Using Japanese data from 1989 to 2018, we theoretically and empirically investigate how the introduction of the minimum wage share affects the wage shares and employment rates. Introducing the minimum wage share diminishes the amplitude of fluctuations of both the wage shares and the employment rates, and in this sense, it has a stabilizing effect. Reducing the wage gap between low- and high-skilled workers increases the amplitude of fluctuations of the wage shares and employment rates.
    Keywords: growth cycles; low-skilled and high-skilled workers; minimum wage share
    JEL: E11 E24 E25 E32 J31
    Date: 2020–04–28
  6. By: Servaas Storm (Delft University of Technology)
    Abstract: The European UnionÕs Green Deal, a Û1 trillion, 10-year investment plan to reduce greenhouse gas emissions by 55% in 2030 (relative to 1990 levels), has been hailed as the first comprehensive plan to achieve climate neutrality at a continental scale. The Deal also constitutes the UnionÕs new signature mission, providing it with a new raison dÕetre and a shared vision of green growth and prosperity for all. Because the stakes are high, a dispassionate, realistic look at the Green Deal is necessary to assess to what extent it reflects Ôwhat is politically attainableÕ and to what degree it does Ôwhat is requiredÕ in the face of continuous global warming. This paper considers the ambition, scale, substance and strategy of the Deal. It finds that the Green Deal falls short of Ôwhat is imperativeÕ but also of Ôwhat is politically possibleÕ. By choosing to make the Green Deal dependent on global finance, the European Commission itself closes down all policy space for systemic change as well as for ambitious green macroeconomics and green industrial policies, which would enable achieving climate neutrality in a socially and economically inclusive manner. Hence, Otto von Bismarck would have been as unpersuaded by the Green Deal proposal as Greta Thunberg, who dismisses it as mere Òempty wordsÓ.
    Keywords: European Green Deal; green finance; climate transition; green macroeconomics
    JEL: E60 H50 O52 Q54
    Date: 2020–03
  7. By: Jean-Michel Servet (IHEID - Institut de hautes études internationales et du développement - University of Geneva [Switzerland]); Bruno Tinel (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: One-sentence summary : Randomized controlled trials by behavioural economists pretend to be pragmatic and only interested in what really works to solve practical problems but in reality they have notorious normative and ideological aspects. Key points: Behavioural RCTs ignore contexts and composition effects and reflect the biases of those who perform assessments. Behavioural randomizers presume without demonstrating that market exchanges are the most effective form of regulation for societies in all situations of social life. The positive or negative incentives ("nudges") offered by behavioural economics aim to normalize the behaviour of consumers, users, employees or small/independent producers. They are part of a set of power devices by which individual behaviours are shaped and forced, without their knowledge, to conform to dominant class interests.
    Date: 2020–05
  8. By: Giovanni Dosi; Federico Riccio; Maria Enrica Virgillito
    Abstract: Contrarily to the notion of a natural tendency of deindustrialization, this paper, documenting the existence of a variety of patterns of deindustrialization, performs a cross-country, long-term analysis. Looking at industrial sectors and their technological characteristics, categorised on the ground of the Pavitt (1984) taxonomy, we do find a markedly uneven process of deindustrialization with Science Based and Specialised Suppliers not presenting any inverted U-shaped pattern, neither in employment nor in value added. The heterogeneity holds both for the four Pavitt aggregates and under further disaggregation at industry level. We then study whether the uneven sectoral composition might have exerted an impact on the timing of deindustrialization. Overall, our analysis brings support to the notion that "microchips" are not "potato chips" in their influence on the patterns of long-term economic development of different countries. Moreover, during the phase of globalisation the probability for low-income countries to be stuck to produce "potato chips" has increased and that of transition toward the production of "microchips" has been reducing.
    Keywords: Deindustrialization; Structural Change; Diversification; Technological Change.
    Date: 2020–05–13
  9. By: Thomas Ferguson (Institute for New Economic Thinking); Paul Jorgenson (University of Texas Rio Grande Valley); Jie Chen (UMass Boston)
    Abstract: The extent to which governments can resist pressures from organized interest groups, and especially from finance, is a perennial source of controversy. This paper tackles this classic question by analyzing votes in the U.S. House of Representatives on measures to weaken the Dodd-Frank financial reform bill in the years following its passage. To control as many factors as possible that could influence floor voting by individual legislators, the analysis focuses on representatives who originally cast votes in favor of the bill but then subsequently voted to dismantle key provisions of it. This design rules out from the start most factors normally advanced by skeptics to explain vote shifts, since these are the same representatives, belonging to the same political party, representing substantially the same districts. Our panel analysis, which also controls for spatial influences, highlights the importance of time-varying factors, especially political money, in moving representatives to shift their positions on amendments such as the “swaps push out†provision. Our results suggest that the links between campaign contributions from the financial sector and switches to a pro-bank vote were direct and substantial: For every $100,000 that Democratic representatives received from finance, the odds they would break with their party’s majority support for the Dodd-Frank legislation increased by 13.9 percent. Democratic representatives who voted in favor of finance often received $200,000–$300,000 from that sector, which raised the odds of switching by 25–40 percent.
    Keywords: banking and financial regulation, political economy, financial crisis, political parties, political money.
    JEL: G20 L5 N22 D72 G38 P16 K22
    Date: 2020–01
  10. By: Sameh Hallaq
    Abstract: This study uses rich administrative and survey data to investigate the effects of class size on students' cognitive tests as well as bullying and violent behavior. I use the maximum class size rule to create a regression discontinuity (RD) relation between cohort enrollment size and class size in the public and the United Nations Relief and Works Agency (UNRWA) school system in the West Bank. In addition, I provide evidence that there is no violation of the RD assumptions resulting from discontinuities in the relationship between enrollment and students' household background at cutoff points induced by a maximum class size rule. The main findings suggest that class size has no direct impact on students' cognitive skills except for those in grade six. However, class size reduction improves the quality of life for children by mitigating the bullying and violent behavior among pupils that may negatively affect their achievements. Finally, I point to peer relations and mental health problems as a potential mechanism through which class size affects children's self-reported bullying-victim instances and violent behavior.
    Keywords: Class Size; Cognitive Abilities; Bullying; West Bank
    JEL: I20 I12

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