nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2021‒01‒25
nineteen papers chosen by
Karl Petrick
Western New England University

  1. "Keynes's Clearing Union Is Alive and Well and Living in Your Mobile Phone" By Jan Kregel
  2. "What Jobs Should a Public Job Guarantee Provide?: Lessons from Hyman P. Minsky" By Daniel Haim
  3. The incommensurability, incompatibility and incomparability of Keynes's and Walrasian economics By Heise, Arne
  4. Whatever happened to the 'Goodwin pattern'? By Mark Setterfield
  5. Michael Polanyi's vision of economics: Spanning Hayek and Keynes By Agnès Festré
  6. Wage shares and demand regimes in Central America: An empirical analysis for Costa Rica, El Salvador, Honduras, Nicaragua, and Panama, 1970-2016 By Jiménez, Valeria
  7. Fiscal Policy, the Sraffian Supermultiplier and Functional Finance By Peter Skott; Júlio Fernando Costa Santos; José Luís da Costa Oreiro
  8. Weaknesses of MMT as a Guide to Development Policy By Adam Aboobaker; Esra Nur Ugurlu
  9. What to Make of the Kaldor-Verdoorn Law? By Deepankar Basu; Manya Budhiraja
  10. Sources of inflation and the effects of balanced budgets and inflation targeting in developing economies By Guilherme Klein Martins; Peter Skott
  11. Fiscal policy and structural transformation in developing economies By Peter Skott
  12. Michael Polanyi on creativity in science By Agnès Festré; Stein Østbye
  13. Computational Methods and Classical-Marxian Economics By Cogliano, Jonathan F.; Veneziani, Roberto; Yoshihara, Naoki
  14. Ecological contradictions of Labour's Green New Deal By Neal, Luke
  15. Can Commodities be Substances of Value? By Deepankar Basu
  16. Alternative monetary approaches and causal nexus breakdown in rate of interest and currency reserves in Italy, 1961-1990 By Giuseppe Conti; Luciano Fanti
  17. The macroeconomic impact of Trump By Benjamin Born; Gernot J. Müller; Moritz Schularick; Petr SedláÄ ek
  18. Remarks for the Session: “Increasing Diversity in Economics: From Students to Professors” By Loretta J. Mester
  19. The Role of Historical Malaria in Institutions and Contemporary Economic Development By Elizabeth Gooch; Jorge Martinez-Vazquez; Bauyrzhan Yedgenov

  1. By: Jan Kregel
    Abstract: While governments may consider implementation of John Maynard Keynes's original clearing union proposal for the international financial architecture too difficult or radical, Senior Scholar Jan Kregel notes that the private sector has already produced a virtual equivalent of an international global monetary system. Currently, this system is employed as an extension of the international mobile telephone services provided by a private company, rather than a financial institution. The clearing system he describes provides an example of a possible solution that retains national currencies without requiring the substitution of the dollar with another national currency or basket of national currencies.
    Date: 2021–01
  2. By: Daniel Haim
    Abstract: The job guarantee is a viable policy option for tackling both unemployment and underemployment. Hyman P. Minsky was one of the seminal writers on this subject. The first part of this working paper provides a survey of Minsky's writings to identify what kind of jobs he had in mind when recommending employer-of-last-resort policies. Minsky favored: (1) jobs increasing socially useful output, providing all of society better public services and goods; (2) jobs guaranteed by the public sector on a project-by-project basis at a minimum wage; (3) jobs in the places where people need them; and (4) jobs taking the people that need them as they are. The second part of the paper suggests policy recommendations for today's economy. As long as the COVID-19 pandemic still rages on, a targeted public job guarantee program can assist in the social provisioning and distribution of food, shelter, and medical services. After the pandemic, a public job guarantee can reduce poverty and inequality, and bring about a more democratic, sustainable, and socially cohesive economic system.
    Keywords: Job Guarantee; Public Service Employment; Employer of Last Resort (ELR); Unemployment; Full Employment; Minsky; Policy Design; COVID-19
    JEL: B31 E24 E61 H41 H53 I38 J21 J45 J68
    Date: 2021–01
  3. By: Heise, Arne
    Abstract: The Cambridge Journal of Economics witnessed an important debate between Mark Pernecky and Paul Wojick on the one side and Rod Thomas on the other about the usefulness of Thomas Kuhn's sociology and philosophy of science in explaining why Keynes's revolutionary ideas exposed in the General Theory have been 'lost in translation'. This brief note is an attempt to reconcile Pernecky and Wojick's claim that Keynes's new economics of the General Theory and Walrasian General Equilibrium are incommensurable paradigms in a Kuhnian understanding and Thomas's critique that - if they were incommensurable - Pernecki and Wojick's appraisal of Keynes's paradigm as a better approximation to the 'real world' than Walsrasian General Equilibrum is inconsistent within that very Kuhnian framework.
    Keywords: Keynes,Kuhn,Paradigm,Incommensurability
    JEL: B2 B40 B5
    Date: 2021
  4. By: Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: The 'Goodwin pattern' -- an anti-clockwise rotation in real activity x wage share space recurring at intervals that correspond roughly to the duration of business cycles -- is an enduring feature of high-frequency dynamics in capitalist economies. It is well known that the centre or focus of this rotation shifts over time. More recently, however, the Goodwin pattern seems to have broken down, the wage share no longer increasing as the real economy improves over the course of short-term booms. In this paper, the breakdown of the Goodwin pattern is associated with the consolidation of an 'incomes policy based on fear' that is part-and-parcel of neoliberalism. As a result of this incomes policy based on fear, the institutional structure of the labour market disciplines labour at any rate of unemployment. This decouples wage-share dynamics from the state of the real economy, with the result that as recently witnessed, the wage share is rendered invariant to tightening of the labour market in the course of short-term cyclical booms.
    Keywords: Goodwin pattern, distributional con ict, worker insecurity, incomes policy based on fear
    JEL: E11 E12 E25 E64
    Date: 2021–01
  5. By: Agnès Festré (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur)
    Abstract: This paper analyses Michael Polanyi's vision of economics. We stress two major features: first, the radical opposition to central planning and his defence of self-organization as a superior mechanism for coordinating individual plans that he shared with Hayek; second, the strong support for state interventionism in order to fight unemployment and limit income inequalities that he borrowed from Keynes. Polanyi blended these two apparently contradictory influences and provided an original institutionalist approach, which has unfortunately been underrated in the economics literature. We argue that this approach is consistent with Polanyi's intellectual background and more specifically, his view on tacit knowledge and his critical approach of liberalism.
    Keywords: Michael Polanyi,Hayek,Keynes,spontaneous order,State intervention,liberalism,tacit knowledge,public liberty B25,B31,B41
    Date: 2020–12–02
  6. By: Jiménez, Valeria
    Abstract: This paper analyzes the relationship between functional income distribution aggregate demand and economic growth in five Central American countries; Costa Rica, El Salvador, Honduras, Nicaragua, and Panama for the period 1970-2016. It estimates the effects of a change in the wage share on aggregate demand based on a post-Kaleckian model, which allows for either profit- or wage-led demand. The results show that the domestic demand is wage-led in the five countries. The same applies for total demand with the exception of Panama, whose domestically wage-led demand turns profit-led when including the effect of distribution on net exports. Finally, it is argued that there is room for a wage-led recovery in Central America.
    Keywords: distribution,aggregate demand,wage share,demand regimes,consumption,investment,net exports,developing countries,Central America
    JEL: E12 E22 E23 E25 E61 F41
    Date: 2020
  7. By: Peter Skott (University of Massachusetts Amherst, USA, and Aalborg University, Denmark); Júlio Fernando Costa Santos (Instituto de Economia e Relações Internacionais (IERI), Universidade Federal de Uberlândia (UFU), Brazil); José Luís da Costa Oreiro (Universidade de Brasília (UnB) Brazil)
    Abstract: Sraffian supermultiplier models (SSM) try to identify autonomous components of demand. The most plausible candidate is government consumption. Descriptively, however, government consumption does not grow at a constant rate, and prescriptively there is no justification for keeping constant the growth rate of government consumption, irrespective of economic performance. An active fiscal policy guided by principles of functional finance can produce more powerful stabilization, avoid overheating and excessive utilization rates, and secure faster adjustments of the growth rate towards its target level.
    Keywords: Fiscal Policy, Sraffian Supermultiplier, Functional Finance
    Date: 2020
  8. By: Adam Aboobaker (University of Massachusetts Amherst, USA); Esra Nur Ugurlu (University of Massachusetts Amherst, USA)
    Abstract: This paper addresses the limitations of Modern Money Theory (MMT) as a guide to development policy. We explore two central questions on this topic: whether MMT policies 1) ought to be implemented in low- and middle-income economies and 2) can be implemented. In relation to the first question, we argue that the MMT literature mischaracterizes the essence of the development challenge for low- and middle-income economies. Our argument is that the chief long-run growth challenge faced by developing countries concerns structural transformation rather than general aggregate demand insufficiency. We use several formal representations of the consumption-investment trade-off in growth theory, found in the Harrod-Domar growth model, Kalecki’s 1963 growth model, and Feldman-Mahalanobis model, to illustrate this point. Concerning the second question, we argue that even if MMT had the correct diagnosis of the principal growth challenge faced by developing countries, its chief policy recommendations would likely be counter-productive if implemented outside of select advanced economies. We draw from the international economics literature on currency hierarchy and exchange rate volatility to illustrate this point.
    Keywords: MMT, structural change, macro policy, growth models, history of economic thought.
    JEL: O10 O41 E0 B0
    Date: 2020
  9. By: Deepankar Basu (Department of Economics, University of Massachusetts Amherst); Manya Budhiraja (Department of Economics, University of Massachusetts Amherst)
    Abstract: The Kaldor-Verdoorn law refers to a positive but less than one-for-one relationship between the growth rates of output and labor productivity, with causality running from the former to the latter. Empirical research has affirmed such a relationship and have found that the Kaldor-Verdoorn coefficient lies between 0 and 1. But the interpretation of this finding remains unclear. In this paper, we present a model to derive the Kaldor-Verdoorn law. Our results show that the Kaldor-Verdoorn coefficient is jointly determined by the elasticity of factor substitution, labor supply elasticity, the profit share and the increasing returns to scale (or demand-induced technical change) parameter. Hence, estimated Kaldor-Verdoorn coefficients cannot be used, on their own, to infer the presence of aggregate increasing returns to scale - other than in very special cases. We also show that, perhaps surprisingly, an economy without aggregate increasing returns to scale (or without any demand-induced technical progress) can generate a Kaldor-Verdoorn coefficient that lies between 0 and 1.
    Keywords: Aggregate productivity, Kaldor-Verdoorn coefficient, labor supply elasticity, CES production function.
    JEL: E12 O4
    Date: 2020
  10. By: Guilherme Klein Martins (University of Massachusetts Amherst, USA); Peter Skott (University of Massachusetts Amherst, USA)
    Abstract: This paper presents a model of inflation in developing economies and uses it to evaluate macroeconomic policy in those countries. We see cross-sectoral interactions between demand and supply side forces as central and show that the standard macroeconomic policy recommendations of inflation targeting and balanced budgets (i) increase volatility by amplifying external shocks and (ii) can lead to premature deindustrialization. The analysis applies to economies with marked underemployment, a central feature of developing and emerging countries. The recent Brazilian experience is used to illustrate the argument.
    Keywords: inflation targeting, Dutch disease, overvaluation, commodities boom, Washington consensus
    JEL: E63 O23 O14
    Date: 2020
  11. By: Peter Skott (University of Massachusetts Amherst, USA, and Aalborg University, Denmark)
    Abstract: Developing economies with high levels of open or hidden unemployment face structural transformation problems. Unlike in mature economies there are no structural aggregate demand problems, and sustained aggregate demand stimulus can lead to a profit squeeze in the modern sector and deindustrialization. Adaptations of functional finance to developing economies should aim to stabilize the level and composition of demand at values that are consistent with a target rate of growth of the modern sector. Populist temptations, however, may lead to deindustrialization.
    Keywords: Sectoral transformation, Dutch disease, functional finance
    JEL: E62 O11 O23
    Date: 2020
  12. By: Agnès Festré (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur); Stein Østbye (UiT - The Arctic University of Norway)
    Abstract: We can know more than we can tell. In this paper we discuss how Polanyi applies his tacit knowledge concept to approach creativity in science. We argue that Polanyi not only is a theoretician on creativity, but also a very creative educator aiming to communicate widely, thereby, increasing legitimacy of science. In order to make tacit knowledge and other concepts and ideas more accessible to the general public, he extensively used analogies alluding to visual representations and even made use of new innovative media like film to complement written expositions.
    Keywords: methodology,Michael Polanyi,creativity JEL Classification
    Date: 2020–12–02
  13. By: Cogliano, Jonathan F.; Veneziani, Roberto; Yoshihara, Naoki
    Abstract: This article surveys computational approaches to classical-Marxian economics. These approaches include a range of techniques - such as numerical simulations, agent-based models, and Monte Carlo methods - and cover many areas within the classical-Marxian tradition. We focus on three major themes in classical-Marxian economics, namely price and value theory; inequality, exploitation, and classes; and technical change, profitability, growth and cycles. We show that computational methods are particularly well-suited to capture certain key elements of the vision of the classical-Marxian approach and can be fruitfully used to make significant progress in the study of classical-Marxian topics.
    Keywords: Computational Methods, Agent-Based Models, Classical Economists, Marx
    JEL: C63 B51 B41
    Date: 2020–10
  14. By: Neal, Luke
    Abstract: This paper offers an analysis and critique of the Green Industrial Revolution proposed by the Labour Party in 2019. It identifies this policy as a variant of the Keynesian Green New Deal, which has been interpreted favourably by many socialists as a programme for climate stabilisation and an ecologically restorative, egalitarian organisation of the economy. The Green Industrial Revolution pointed towards a hybrid mixed economy whose main features would have been state policy orientation towards and large investments in renewables, efficiencies and retrofitting; as well as a renewed public sector and reforms to corporate ownership. This was predicated on a contradictory policy of green growth. On the contrary, this paper develops a concept of the critical energy constraints to growth, which highlights how, in terms of its focus on "the national economy" and aversion to major infrastructural changes to reduce energy use, Labour's programme was insufficient. Nonetheless, its openings and advantages are considered alongside and in light of these contradictions. They suggest the need for economic and ecological policies that recognise both the critical energy constraints to growth and the antagonistic relation between capital and labour internationally.
    JEL: Q58 Q43 F52 B51
    Date: 2021
  15. By: Deepankar Basu (Department of Economics, University of Massachusetts Amherst)
    Abstract: The Marxian labour theory of value considers labour as the only substance of value. The generalized commodity exploitation theorem (GCET) purports to demonstrate that many other commodities can be substances of value. This note argues that the GCET is based on two conceptual flaws: (a) failure to distinguish labour and labour-power; and (b) failure to distinguish labour-power and other commodities. Once these flaws are corrected, it is easy to show that commodities cannot function as the substances of value. Only labour can be the substance of value.
    Keywords: labour theory of value; generalized commodity exploitation theorem.
    JEL: B51
    Date: 2020
  16. By: Giuseppe Conti; Luciano Fanti
    Abstract: Following a renewed interest for the investigation of the monetary policy in the Italian experience, this paper focus on the role of the official reserves as a target of Bank of Italy for the period 1961-1990, motivated by a long lasting tradition (e.g. Hawtrey, Keynes, Kaldor) for which reserves were crucial for the central bank behaviour. This paper analyses, mostly by using the Granger causality test, if this "traditional" rule could have been working for Italy in recent periods as well, regardless of exchange rate regimes and the mainstream monetary theories. Main conclusions neatly support the existence of two sub-periods: a first one (before 1979) during which the "traditional" praxis occurs; and a second one (after 1979) when the "alternative" praxis seems to prevail. This would confirm the break in monetary targeting adopted by the Italian central bank at the end of the Seventies.
    Keywords: Monetary policy, interest rate, reserve ratio, Bank of Italy, Granger test
    JEL: E52 E58
    Date: 2020–12–01
  17. By: Benjamin Born; Gernot J. Müller; Moritz Schularick; Petr SedláÄ ek
    Abstract: How much credit does Donald Trump deserve for the macroeconomic performance of the US economy? Growth and job creation have been robust during the first 2.5 years of his presidential term, but this does not prove that Trump made a difference. In this note we develop a counterfactual scenario for how the US economy would have evolved without Trump—we let a matching algorithm determine which combination of other economies best resembles the pre-election path of the US economy. We then compare the post-election performance of the US economy to this synthetic “doppelganger†. There is little evidence for a Trump effect.
    Keywords: President Trump, macroeconomic performance, economic growth, counterfactual, synthetic control method, doppelganger
    JEL: E30 E60
    Date: 2020–12–16
  18. By: Loretta J. Mester
    Abstract: I thank Stacy Dickert-Conlin for the opportunity to discuss two papers in this session: “Promoting Female Interest in Economics: Limits to Nudges,” by Todd Pugatch and Elizabeth Schroeder (2020), and “Can Positive Feedback Increase Female and Minority Undergraduates into Economics?” by Kelly Bedard, Jacquie Dodd, and Shelly Lundberg (2020). The papers I am discussing today are both systematic investigations of whether particular types of nudges can interest more women and minorities to go into the field of economics.
    Keywords: diversity; economics
    Date: 2021–01–04
  19. By: Elizabeth Gooch (Naval Postgraduate School, Monterey, CA, USA); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, USA); Bauyrzhan Yedgenov (International Center for Public Policy, Georgia State University, USA)
    Abstract: This research examines the causal impact of institutional quality on economic development from a novel perspective. At the country level, we exploit variation in the malaria prevalence in 1900, just before vector-control methods were developed, to instrument for institutional quality using a two-stage least squares instrumental variables framework. Our instrument is a population-weighted average of malaria endemicity estimates for the year 1900 developed by the WHO in the 1960s. We argue that this measure of historical malaria offers more expansive geographic information about the disease environment than other metrics, and our baseline IV estimates reveal that greater institutional quality causes greater contemporaneous economic growth. Next, we investigate the robustness of these baseline results to alternative explanations, including the role of geography and early colonizers’ experiences, as the causal link between the early disease environmental, institutional quality and contemporary growth. As an additional test of the explanatory power of malaria endemicity, we replace our instrument for settler mortality and replicate the core results from the seminal study on the colonial origins of comparative development by Acemoglu et al. (2001). In summary, we propose that malaria endemicity, estimated for 1900, holistically explains the legacy of early disease on institutional quality development and contemporary economic development.
    Date: 2021–01

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