nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2020‒08‒17
fifteen papers chosen by
Karl Petrick
Western New England University

  1. "The "Kansas City" Approach to Modern Money Theory" By L. Randall Wray
  2. Stability issues in Kaleckian models driven by autonomous demand growth – Harrodian instability and debt dynamics By Eckhard Hein; Ryan Woodgate
  3. The role of liquidity preference in a framework of endogenous money By Marco Missaglia; Alberto Botta
  4. Understanding Dollarization: a Keynesian/Kaleckian Perspective By Marco Missaglia
  5. Women’s empowerment and economic development: a feminist critique of story telling practices in ‘Randomista' economics By Kabeer, Naila
  6. Comparing economic theories or: Pluralism in economics and the need for a comparative approach to scientific research programmes By Heise, Arne
  7. Borrowing to Keep Up (with the Joneses) : Inequality, Debt, and Conspicuous Consumption By Banuri,Sheheryar; Nguyen,Ha Minh
  8. Updates of Empirical Estimates of Marxian Categories: The Philippines 1961-2012 By Victor S. Venida
  9. Is “The General Law of Capitalist Accumulation” Still Valid? An Analysis Based on Direct and Indirect Marxian Effects By Bahçe, Serdal
  10. "Some Empirical Models of Japanese Government Bond Yields Using Daily Data" By Tanweer Akram; Huiqing Li
  11. Can the World Get Along Without Natural Resources? By Fix, Blair
  12. The contradictions of Piketty’s thought By Filippo Gusella
  13. In Search of the Roots of American Inequality Exceptionalism: An Analysis Based on Luxembourg Income Study (LIS) Data By , Stone Center; Gornick, Janet C.; Milanovic, Branko; Johnson, Nathaniel
  14. How do you feel about going green? By Marwil J. Dávila-Fernández; Alessia Cafferata; Serena Sordi
  15. A tale of two wage subsidies: The American and Australian fiscal responses to COVID-19 By Steven Hamilton

  1. By: L. Randall Wray
    Abstract: Modern money theory (MMT) synthesizes several traditions from heterodox economics. Its focus is on describing monetary and fiscal operations in nations that issue a sovereign currency. As such, it applies Georg Friedrich Knapp's state money approach (chartalism), also adopted by John Maynard Keynes in his Treatise on Money. MMT emphasizes the difference between a sovereign currency issuer and a sovereign currency user with respect to issues such as fiscal and monetary policy space, ability to make all payments as they come due, credit worthiness, and insolvency. Following A. Mitchell Innes, however, MMT acknowledges some similarities between sovereign and nonsovereign issues of liabilities, and hence integrates a credit theory of money (or, "endogenous money theory," as it is usually termed by post-Keynesians) with state money theory. MMT uses this integration in policy analysis to address issues such as exchange rate regimes, full employment policy, financial and economic stability, and the current challenges facing modern economies: rising inequality, climate change, aging of the population, tendency toward secular stagnation, and uneven development. This paper will focus on the development of the "Kansas City" approach to MMT at the University of Missouri-Kansas City (UMKC) and the Levy Economics Institute of Bard College.
    Keywords: Modern Money Theory (MMT); Functional Finance; Chartalism; State Theory of Money; Sectoral Balances; Kansas City Approach; Job Guarantee; Sovereign Currency
    JEL: B1 B2 B52 E12 E5
  2. By: Eckhard Hein (Berlin School of Economics and Law (DE)); Ryan Woodgate
    Abstract: Sraffian supermultiplier models, as well as Kaleckian distribution and growth models making use of non-capacity creating autonomous demand growth in order to cope with Harrodian instability, have paid little attention to the financial side of autonomous demand growth as the driver of the system. Therefore, we link the issue of Harrodian instability in Kaleckian models driven by non-capacity creating autonomous demand growth with the associated financial dynamics. For a simple model with autonomous government expenditure growth, zero interest rates and no consumption out of wealth, we find that adding debt dynamics does not change the results obtained by Lavoie (2016) for a model without debt, i.e. the long-run equilibrium is stable if Harrodian instability is not too strong and the autonomous growth rate does not exceed a maximum given by the long-run equilibrium saving rate. Introducing interest payments on government debt as well as consumption out of wealth into the model, however, changes the stability requirements: First, the autonomous growth rate of government expenditures should not fall short of the exogenous monetary interest rate. Second, this growth rate should not exceed a maximum given by the saving rate in long-run equilibrium minus the propensity to consume out of wealth. Third, Harrodian instability may be stronger than in the simple model without violating long-run overall stability, in particular, if the rate of interest is very low and the growth rate of government expenditures is close to the mentioned upper limit. We claim that, irrespective of the relevance or irrelevance of Harrodian instability, it is necessary to introduce financial variables into models driven by non-capacity creating autonomous demand in order to assess the long-run (in-)stability and sustainability of growth.
    Keywords: Supermultiplier, autonomous demand growth, Kaleckian models, Harrodian instability, financial (in)stability
    JEL: E11 E12 E25 E62
    Date: 2020–07
  3. By: Marco Missaglia (University of Pavia (IT)); Alberto Botta
    Abstract: In this paper we build a simple, almost pedagogical, Keynesian model about the role of liquidity preference in the determination of economic performance. We assume a world of endogenous money, where the banking system is able to fix the interest rate at a level of its own willing. Even in this framework, we show that the Keynesian theory of liquidity preference, while obviously not constituting anymore a theory for the determination of the interest rate, continues to be a fundamental piece of theory for the determination of the level and evolution of aggregate income over time, both in the short and in the medium run. However powerful, the banking system and monetary authorities are not the deus ex-machina of our economies and financial markets are likely to exert a permanent influence on our economic destiny.
    Keywords: Liquidity preference, endogenous money, finance dominance
    JEL: C62 E12 E44
    Date: 2020–07
  4. By: Marco Missaglia (University of Pavia (IT))
    Abstract: What does “dollarization” mean in a world of endogenous money, i.e. a world where money is not (only) created by printing pieces of paper, but (mainly) by making loans? Is it true that dollarization only constitutes a limitation of sovereignty in the short run (making it harder to run standard stabilization macro policies) or can it slow the growth process of a country? The paper builds a theoretical, Keynesian-Kaleckian growth model for a dollarized economy in a framework of endogenous money to answer these questions. We will show that, ceteris paribus, the steady-state medium-term growth rate of a dollarized economy is lower than that of a country with its own currency. We will also show that a dollarized economy is more likely to be unstable than an economy with its own currency, in the specific sense that, everything else being equal, it is more likely for a dollarized economy to fall into a debt trap.
    Keywords: Dollarization, Keynesian Macro Models
    JEL: E12 F41
    Date: 2020–07
  5. By: Kabeer, Naila
    Abstract: The 2019 Nobel Prize in economics was awarded to three scholars on the grounds that their pioneering use of randomized control trials (RCTs) was innovative methodologically and contributed to development policy and the emergence of a new development economics. Using a critical feminist lens, this article challenges that conclusion by interrogating the storytelling practices deployed by “randomista” economists through a critical reading of a widely cited essay by Esther Duflo, one of the 2019 Nobel recipients, on the relationship between women’s empowerment and economic development. The paper argues that the limitations of randomista economics have given rise to a particular way of thinking characterized by piecemeal analysis, ad hoc resort to theory, indifference to history and context, and methodological fundamentalism. It concludes that the randomista argument that broad-based economic development alone – without focused attention to women’s rights – will lead to gender equality has not been borne out by recent data.
    Keywords: empowerment; economic development; development
    JEL: J01
    Date: 2020–05–13
  6. By: Heise, Arne
    Abstract: Pluralism in economics appears to be a double-edged sword: we need more than one theory to grasp and explain the entire economic world, yet a plurality of possible explanations undermines the aspiration of the economic discipline to provide 'objective knowledge' in the singular of the 'one world one truth' conception. Therefore, pluralism is often equated with relativism and obscurantism. In this article, I will explore both the demand for pluralism and the fear of relativism and obscurantism, scrutinising each position in order to evaluate their respective justification and devising a methodological proposal that may appease both the defender and the sceptic of economic pluralism.
    Keywords: Pluralism,Methodology,Paradigm
    JEL: A11 B40 B50 E11 E12 E13
    Date: 2020
  7. By: Banuri,Sheheryar; Nguyen,Ha Minh
    Abstract: The quest for status is a powerful motivator, but does it affect inequality? This paper presents a novel lab experiment that was designed and conducted to identify the relationship between inequality, status signaling, debt, and conspicuous consumption. It reports three main findings: First, consumption increases when it is"conspicuous"(i.e. is both observable, and signals ability/status). Second, borrowing increases when consumption is conspicuous. More critically, this increase in loan-taking is driven by those at the bottom of the income distribution. Third, in the presence of conspicuous consumption, access to finance exacerbates inequality. The results point to a vicious cycle of inequality and costly borrowing.
    Keywords: Access to Finance,Gender and Development,Economic Growth,Industrial Economics,Economic Theory&Research,Inequality,Public Sector Management and Reform
    Date: 2020–08–10
  8. By: Victor S. Venida (Economics Department, Ateneo de Manila University)
    Abstract: The economies of developing countries have a dualist structure in which feudal and capitalist modes coexist and interact. For the Philippines, this dualism is evident. This paper analyzes the Philippines’s economic structure through a theoretical framework that draws on a Marxian theory interpreted by Wolff (1977, 1979): the model of social disarticulation and the creation of relative surplus value. Adding on to estimates for 1961–2000 for further analysis, this paper updates the estimated Marxian categories for the Philippines using the Input-Output tables from 1961 to 2012 and the formal model used by Venida (2007, 2011). Results of the estimates show labor productivity improvements from 2000 to 2012, which point to the possibility that the Philippine economy could have begun to transition to further capitalist expansion.
    Keywords: input-output, labor productivity, Marxian theory, Philippines, relative surplus value
    JEL: D57 E11 E24 J24
    Date: 2020–07
  9. By: Bahçe, Serdal
    Abstract: Marx asserts that capital accumulation has been sample accompanied by the accumulation of industrial reserve army and surplus population. Contemporarily, this expansion has been fed by two tendencies. First, the change in the technical composition of capital makes a part of waged employment redundant. Second, migration-induced-growth of labor force has enlarged the size of industrial reserve army. In this respect, labor force growth itself is a function of accumulation/growth rather than vice versa. We call the first tendency as “direct Marxian effect” while the second one is “indirect Marxian effect”. For a list of 60 countries, this study estimates the direct and indirect Marixan elasticity of industrial reserve army and its components to accumulation/growth. The results indicate that “the General Law of Capitalist Accumulation” holds for the majority of countries.
    Keywords: Industrial reserve army, capital accumulation, labor force, migration, indirect Marxian effect, direct Marxian effect
    JEL: B14 J21 J6
    Date: 2019
  10. By: Tanweer Akram; Huiqing Li
    Abstract: This paper models the dynamics of Japanese government bond (JGB) nominal yields using daily data. Models of government bond yields based on daily data, such as those presented in this paper, can be useful not only to investors and market analysts, but also to central bankers and other policymakers for assessing financial conditions and macroeconomic developments in real time. The paper shows that long-term JGB nominal yields can be modeled using the short-term interest rate on Treasury bills, the equity index, the exchange rate, commodity price index, and other key financial variables.
    Keywords: Japanese Government Bonds; JGBs; Long-Term Interest Rates; Nominal Bond Yields; Monetary Policy; Bank of Japan; John Maynard Keynes
    JEL: E43 E50 E58 E60 G10 G12
  11. By: Fix, Blair (York University)
    Abstract: Neoclassical economists fundamentally misunderstand the role of natural resources in the economy. I discuss here the source of this misunderstanding, and the ways we can better understand the role of energy to human societies.
    Date: 2020–07–11
  12. By: Filippo Gusella
    Abstract: Thomas Piketty’s Capital in the Twenty-First Century is primarily an empirical investigation into the history of the distribution of income and wealth in developed countries. Piketty, however, goes beyond this approach, presenting a theory of the long-run tendency of wealth inequality and rooting his work deeply in economic theory. In this paper we review and develop the theoretical model of Piketty’s book. We can divide the model into two parts: firstly, the "fundamental laws of capitalism" and the change in the functional distribution of income are analysed. Secondly, the evolution of personal wealth distribution is examined. Alongside the development of the model, the paper points out two shortcomings. We show the contradiction of the original model in explaining the increase of the capital/income ratio with the change in the functional distribution of income. Moreover, we highlight the inconsistency between the definition of capital and the model proposed. The paper concludes by outlining alternative approaches to the problem, calling for a major rethinking about the causes of rising wealth inequality.
    Keywords: Piketty; economic inequality; fundamental laws of capitalism; functional distribution of income; economic growth
    JEL: D31 E25 P10
    Date: 2020–05
  13. By: , Stone Center (The Graduate Center/CUNY); Gornick, Janet C.; Milanovic, Branko; Johnson, Nathaniel
    Abstract: Earlier work has established that the US has exceptionally high inequality of disposable household income (i.e., income after accounting for taxes and transfers). There is a debate whether it is due to an unusually high inequality of market (pre-tax-pre- transfer) income or to weak redistribution. In this paper, we look more deeply at market income inequality, focusing on its main component – labor income – across a group of 24 OECD countries. We disaggregate the working-age population into household types, defined by the number and gender of the household’s earners and the partnership and parenting status of its members. We conclude that within-group inequality of labor incomes in the US is, in almost all groups, high by OECD standards. The roots of US inequality exceptionalism are not to be found in an unusual demographic composition, nor in unusually high or low mean incomes of some demographic groups, but in pervasive high inequality within each of these groups. (Stone Center on Socio-Economic Inequality Working Paper)
    Date: 2020–07–29
  14. By: Marwil J. Dávila-Fernández; Alessia Cafferata; Serena Sordi
    Abstract: Climate change is real. However, contrary to the near global consensus among the scientific community, international public opinion has moved in recent decades from increasing awareness to polarisation within and between nations. To the best of our knowledge, a comprehensive assessment of these trajectories formally addressing the interaction between agents and the (macro)economy is still missing. It is our purpose to ll such a gap in the literature by developing an agent-based model that allows for feedback effects between sentiments, environmental regulation and macroeconomic outcomes in an open economy set-up. Furthermore, we estimate the so-called green-Thirlwall law for a sample of 12 OECD countries between 1970 and 2014. Our findings confirm that Nordic countries have taken the lead in implementing green solutions. In terms of policy implications, we show that scientific literacy is a necessary but not sufficient condition for achieving a green-growth equilibrium. Policy makers should increase the public's response to Green House Gas emissions taking into account the fact that a successful communication strategy is conditional upon audience motivation
    Keywords: Climate change, green-growth, Thirlwall's law, Porter's hypothesis, motivated reasoning.
    JEL: O11 O44 Q01 Q56
    Date: 2020–06
  15. By: Steven Hamilton (George Washington University)
    Abstract: Australia suppressed the virus with swift and strong public health measures including stringent border controls. As of July 2020, the virus continues to spread uncontrolled across the US, resulting in the most recorded cases and deaths of any country. Both countries instituted widespread lock-downs and similarly generous fiscal support, yet Australia has experienced a far milder recession, highlighting the critical role of public health measures in protecting the economy. The role of broad cash stimulus necessarily has been more limited than in an ordinary recession, justifying the use of wage subsidies that encourage businesses to retain workers. The Australian wage subsidy, delivered via the tax authority, was better targeted, more generous, more accessible, but slower to deliver liquidity than the American wage subsidy delivered via private banks. The experience highlights the critical need for significant investments in IRS infrastructure to better prepare for future crises.
    Date: 2020–12

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