nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2021‒03‒01
twelve papers chosen by
Karl Petrick
Western New England University

  1. Economics’ Boundaries with Other Sciences and within Itself By Davis, John B.; Jovanovic, Franck; Assistant, JHET
  2. Kaleckian Investment and Employment Cycles in Postwar Industrialized Economies By Peter Flaschel; Reiner Franke; Willi Semmler
  3. Models of Structural Change and Kaldor's Facts: Critical Survey from the Cambridge Keynesian Perspective By Kazuhiro Kurose
  4. A Short Period Sraffa-Keynes Model for the Evaluation of Monetary Policy By Peter Docherty
  5. The Twin Endogeneities Hypothesis: A Theory of Central Bank Evolution By Daniyal Khan
  6. Speculations on infrastructure: from colonial public works to a postcolonial global asset class on the Indian Railways 1840-2017 By Bear, Laura
  7. Complex World Money. By Hanappi, Hardy
  8. Involuntary unemployment in overlapping generations model due to instability of the economy and fiscal policy for full-employment By Tanaka, Yasuhito
  9. Truth vs justification: contrasting heterodox and mainstream thinking on development via the example of austerity in Africa By Alice Sindzingre
  10. Gender and Covid-19: Workers in global value chains By Sheba Tejani; Sakiko Fukuda-Parr
  11. Monetary Policy and Racial Inequality By Alina K. Bartscher; Moritz Kuhn; Moritz Schularick; Paul Wachtel
  12. Wages, Minimum Wages, and Price Pass-Through: The Case of McDonald's Restaurants By Orley Ashenfelter; Stepan Jurajda

  1. By: Davis, John B.; Jovanovic, Franck; Assistant, JHET
    Abstract: Introduction to Symposium "Economics and its Boundaries"
    Date: 2021–02–12
  2. By: Peter Flaschel (Department of Economics and Business Administration, Bielefeld University); Reiner Franke (Faculty of Economics, Kiel University. Kiel); Willi Semmler (Department of Economics, New School for Social Research)
    Abstract: The role of the welfare state in the post-war industrialized economies has recently become a major topic. Using a Kaleckian framework we consider an economy where investment depends positively on the rate of return on capital and negatively on the rate of employment. This allows for a possible integration of Kalecki's (1943) analysis of the political aspects of full employment. We use Okun's law to link the goods market with the labor market. We separate laws of motion for wage and price inflation in order to integrate the role of changing income distribution into this framework of effective demand and employment dynamics. There is a balanced growth path solution for this model which however is likely to be locally unstable. From the global perspective, the turning points in long lasting phases of strong economic growth are given by an increasing reaction of investment, and of fiscal and monetary policy, to the consequences resulting from full employment and the evolving welfare state (represented by generous welfare payments, labor market institutions in favor of labor, and co-determination). In subsequent long-phased depressions profit-led goods demand in combination with declining real wages (enforced by mass unemployment and labor market reforms) may account for lower turning points and for a return to normal and subsequently possibly again excessive economic activity. Such nonlinearities in economic behavior far off the balanced growth path imply the global viability of the economic dynamics. On the other hand, in contrast to such a conflict-driven macro economy, as Kalecki (1943) has perceived it, the business leaders and policy makers could pursue a consensus-driven macro economic dynamics stressing a more collaborative and long term approach which will, as we show, take on a more stable path. Pursuing those two social aspects of macro dynamics the paper lays some foundations for an economic analysis of the role of the welfare state in post-war industrialized economies.
    Keywords: Long-phase cycles, income distribution, welfare state, fiscal and monetary policy
    JEL: E24 E31 E32
    Date: 2021–02
  3. By: Kazuhiro Kurose
    Abstract: This study addresses the reconciliation of structural change with Kaldor's facts, which is a new research agenda in this area. The mainstream reconciliation strategy is that the facts are interpreted as a state at which the economy grows along the generalised balanced growth path and multi-sectoral models are transformed into the one-sectoral model that has the uniquely (saddle-path) stable steady state. We argue that the main- stream strategy is far from Kaldor's own thoughts and overlooks structural change in physical capital. The Cambridge Keynesian reconciliation based on Pasinetti's struc- tural dynamics demonstrates that structural change inevitably accompanies changes in socialinstitutionstomaintainfullemployment,whereasthemainstreamreconciliation is achieved entirely through the market mechanism.
    Date: 2021–01
  4. By: Peter Docherty (University of Technology Sydney)
    Abstract: This paper develops a short period, one sector, Sraffa-Keynes model that can be used for the evaluation of various recommendations outlined in the Post Keynesian monetary policy literature. The model is characterised by the principle of effective demand, Sraffa or target-return pricing (which integrates the determination of key distributive variables and allows for short run cyclical variation in prices), conflict inflation, endogenous money, and a basic approach to monetary policy in the Smithin–Wray tradition of fixing the policy rate to achieve low or specified rates of unemployment. The paper argues that nominal interest rates are the appropriate target for monetary policy rather than real rates given the need to determine appropriate rates of return on capital and the good approximation that nominal rates are for the particular specification that real rates take in the model. A number of key results arise from model simulations: after experiencing two standard macroeconomic shocks, the model returns to a long period equilibrium characterised by the achievement of the target rate of return, desired capacity utilisation, and Sraffian prices of production. Monetary policy is also shown to operate through the typical Post Keynesian transmission mechanism of changes to income distribution. Flexible prices (where firms modify prices to cover the additional costs of running the capital stock at other than full capacity) are lastly shown to have similar effects on activity to monetary policy. Suggestions are made for further work which applies the model to the evaluation of counter-cyclical monetary policy, a comparison of fiscal and monetary policy responses to economic shocks, and which extends the model to a multi-sector context.
    Keywords: monetary policy; demand shock; cost shock; income distribution
    JEL: E11 E12 E52
    Date: 2021–02–17
  5. By: Daniyal Khan (Department of Economics, New School for Social Research)
    Abstract: The paper outlines a theory according to which central banking evolves as the result of an interaction between endogenous money and endogenous institutions. This theory is called the twin endogeneities hypothesis and forms the basis for two models which are developed and used to explain two stylized facts of central bank evolution. These models are examples of operationalization of the hypothesis. The first model, combining endogenous money and hysteresis, explains the first stylized fact, namely that there are two different origin tendencies in the history of central banking. The second model is a heuristic model which combines the swings of the Polanyi pendulum (or the Polanyian double movement) with swings in long run central bank independence to explain the latter. These examples serve to demonstrate how the twin endogeneities hypothesis, a theory in the tradition of institutionalist Post Keynesianism, can be used to develop models which help us unpack and address the evolution of central banking from a theoretical point of view.
    Keywords: Endogeneity, evolution, money, institutions, central banking
    JEL: B52 E02 E5
    Date: 2021–02
  6. By: Bear, Laura
    Abstract: This paper issues a challenge to examine the current emergence of infrastructure as a global asset class against a longer-term colonial history of speculation. Taking the case of the Indian railways, it shows that their current financialization and transformation into a logistical network emerges from colonial techniques of calculations of risky frontiers, state guarantees and debt accounting. Historical forms built from racial and national inequalities have been incorporated into a new era of the financialization of public works led globally by the World Bank. This new moment erases the distinctive political histories of public works, while also capitalizing on these. Overall this leads to two theoretical claims: firstly, that we should only use the term ‘infrastructure’ self-consciously as a mode of critique of such contemporary moves. Secondly, that our theories derived from Marx, Foucault and Callon place too much emphasis on ‘economization’ and that we need to replace this with attention to speculation. Speculation is affective, intellectual and physical labour that aims to direct capital towards various ends. It involves the ethical imagination of social differences and places distinctions of race, nation and gender at the core of calculative regimes. This labour is governed by key nodal contracts between the market and the state and associated accounting and legal regimes or treaties for accumulation.
    Keywords: infrastructure; speculation; debt; railways; public good
    JEL: N0 R14 J01
    Date: 2020–02–21
  7. By: Hanappi, Hardy
    Abstract: In its 500 years of evolution, the capitalist mode of production has produced different forms of the most abstract incarnation of what the human species uses as the material carrier of general social value - of money. Social value in disguise permeates all internal models of social agents, from individuals via households and firms to state agencies. In a sense, we have arrived at a situation where the largest and most powerful social agents are still a handful of nation-states, of self-determined ‘global players’. Their respective national value system is partly made comparable by the existence of a military hegemon, the USA and its US Dollar. Less powerful nation-states are aligned along with the dominance of the US Dollar. To fulfil its manifold tasks, the global Dollar system has developed highly complex features, most of them incorporated in what today is called ‘international finance’. If the victory of a single nation-state (‘America first’) over a democratic global governance system fails, this will also imply a different sign-system for global social value. Not just different geographical location, but also other dimensions of diversity will have to be taken into account. In short, the complexity of a new form of world money will rise dramatically. By following the historical and logical evolution of money this contribution sketches some basic features of an upcoming complex global money.
    Keywords: Money, Political Economy, Complexity
    JEL: B52 E40 E50 P0
    Date: 2021–02–25
  8. By: Tanaka, Yasuhito
    Abstract: The existence of involuntary unemployment advocated by J. M. Keynes is a very important problem of the modern economic theory. Using a three-generations overlapping generations model, we show that the existence of involuntary unemployment is due to the instability of the economy. Instability of the economy is the instability of the difference equation about the equilibrium price around the full-employment equilibrium, which means that a fall in the nominal wage rate caused by the presence of involuntary unemployment further reduces employment. This instability is due to the negative real balance effect that occurs when consumers’ net savings (the difference between savings and pensions) are smaller than their debt multiplied by the marginal propensity to consume from childhood consumption. Also we present a discussion about fiscal policy by seigniorage to realize full-employment.
    Keywords: overlappling generations model, involuntary unemployment, instability of the economy, negative real balance effect, fiscal policy by seigniorage
    JEL: E12 E24
    Date: 2021–02–19
  9. By: Alice Sindzingre (CEPN - Centre d'Economie de l'Université Paris Nord - USPC - Université Sorbonne Paris Cité - LABEX ICCA - UP13 - Université Paris 13 - Université Sorbonne Nouvelle - Paris 3 - CNRS - Centre National de la Recherche Scientifique - UP - Université de Paris - Université Sorbonne Paris Nord - CNRS - Centre National de la Recherche Scientifique - Université Sorbonne Paris Nord, School of Oriental and African Studies (SOAS), University of London, LAM - Les Afriques dans le monde - CNRS - Centre National de la Recherche Scientifique)
    Date: 2021–02–12
  10. By: Sheba Tejani (Studley Graduate Program in International Affairs, The New School); Sakiko Fukuda-Parr (Studley Graduate Program in International Affairs, The New School)
    Abstract: This paper presents a framework to analyse the gendered impact of Covid-19 on workers in global value chains, illustrating the channels of transmission using the business process outsourcing, garments and electronics industries. Keeping the wellbeing of workers as a central focus, we analyse the impacts of the pandemic through health effects and lockdown measures. Our gendered analysis of these pathways focuses on multi-dimensional aspects of well-being, understands the economy as encompassing both production and social reproduction spheres, and examines the social norms and structures of power that produce gender inequalities. As the pandemic accelerates automation in GVCs, we also examine the likely consequences for women workers who are expected to lose out as a result. The paper argues that the pandemic exposes and amplifies the existing vulnerabilities of women workers in GVCs. The distinctive nature of the pandemic is likely to alter the course of the GVC model with its effects on labour varying by industry, geography, and the structural position of workers.
    Keywords: Gender, Covid-19, global value chains, BPO, electronics, garments, framework, automation, supply disruption, demand contraction
    Date: 2021–02
  11. By: Alina K. Bartscher; Moritz Kuhn; Moritz Schularick; Paul Wachtel
    Abstract: This paper aims at an improved understanding of the relationship between monetary policy and racial inequality. We investigate the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between black and white households. Specifically, we show that, although a more accommodative monetary policy increases employment of black households more than white households, the overall effects are small. At the same time, an accommodative monetary policy shock exacerbates the wealth difference between black and white households, because black households own less financial assets that appreciate in value. Over multi-year time horizons, the employment effects are substantially smaller than the countervailing portfolio effects. We conclude that there is little reason to think that accommodative monetary policy plays a significant role in reducing racial inequities in the way often discussed. On the contrary, it may well accentuate inequalities for extended periods.
    Keywords: Monetary policy; Racial inequality; Income distribution; Wealth distribution; Wealth effects
    JEL: E40 E52 J15
    Date: 2021–02–04
  12. By: Orley Ashenfelter; Stepan Jurajda
    Abstract: We use highly consistent national-coverage price and wage data to provide evidence on wage increases, labor-saving technology introduction, and price pass-through by a large low-wage employer facing minimum wage hikes. Based on 2016-2020 hourly wage rates of McDonald’s Basic Crew and prices of the Big Mac sandwich collected simultaneously from almost all US McDonald’s restaurants, we find that in about 25% of instances of minimum wage increases, restaurants display a tendency to keep constant their wage ‘premium’ above the increasing minimum wage. Higher minimum wages are not associated with faster adoption of touch-screen ordering, and there is near-full price pass-through of minimum wages, with little heterogeneity related to how binding minimum wage increases are for restaurants. Minimum wage hikes lead to increases in real wages (expressed in Big Macs an hour of Basic Crew work can buy) that are one fifth lower than the corresponding increases in nominal wages.
    Date: 2021–02

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