nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2021‒05‒10
eleven papers chosen by
Karl Petrick
Western New England University

  1. Lessons for the Age of Consequences:COVID-19 and the Macroeconomy By Servaas Storm
  2. The Macroeconomics of Financial Speculation By Simsek, Alp
  3. An Expanded Multiplier-Accelerator Model By Todorova, Tamara; Kutrolli, Marin
  4. The ghost of capitalism: A guide to seeing, naming and exorcising the spectre haunting the business school By Jerzy Kociatkiewicz; Monika Kostera; Anna Zueva
  5. Artificial Intelligence, Globalization, and Strategies for Economic Development By Korinek, Anton; Stiglitz, Joseph E
  6. Dementia and Disadvantage in the United States and England By Arapakis, Karolos; Brunner, Eric; French, Eric Baird; McCauley, Jeremy
  7. A Policy Matrix for Inclusive Prosperity By Dani Rodrik; Stefanie Stantcheva
  8. The effectiveness and risks of loose monetary policy under financialisation By Feiner Solís, Sara
  9. Whistle the Racist Dogs: Political Campaigns and Police Stops By Grosjean, Pauline; Masera, Federico; Yousaf, Hasin
  10. Mass Incarceration Retards Racial Integration By Peter Temin
  11. Covid-19 Pandemic and the role of behavioral economics By Kumar B, Pradeep

  1. By: Servaas Storm (Delft University of Technology)
    Abstract: Based on comparative empirical evidence for 22 major OECD countries, I argue that country differences in cumulative mortality impacts of SARS-CoV-2 are largely caused by: (1) weaknesses in public health competence by country; (2) pre-existing country-wise variations in structural socio-economic and public health vulnerabilities; and (3) the presence of fiscal constraints. The paper argues that these pre-existing conditions, all favorable to the coronavirus, have been created, and amplified, by four decades of neoliberal macroeconomic policies – in particular by (a) the deadly emphasis on fiscal austerity (which diminished public health capacities, damaged public health and deepened inequalities and vulnerabilities); (b) the obsessive belief of macroeconomists in a trade-off between 'efficiency' and 'equity', which is mostly used to erroneously justify rampant inequality; (c) the complicit endorsement by mainstream macro of the unchecked power over monetary and fiscal policy-making of global finance and the rentier class; and (d) the unhealthy aversion of mainstream macro (and MMT) to raising taxes, which deceives the public about the necessity to raise taxes to counter the excessive liquidity preference of the rentiers and to realign the interests of finance and of the real economy. The paper concludes by outlining a few lessons for a saner macroeconomics.
    Keywords: COVID-19; public health emergency; recession; relief spending; fiscal austerity; social determinants of health; economic inequality; excess liquidity; 'disconnect' between the financial and the real worlds
    JEL: E00 E24 E50 E64 G20
    Date: 2021–03–08
  2. By: Simsek, Alp
    Abstract: I review the literature on financial speculation driven by belief disagreements from a macroeconomics perspective. To highlight unifying themes, I develop a stylized macroeconomic model that embeds several mechanisms. With short-selling constraints, speculation can generate overvaluation and speculative bubbles. Leverage can substantially inflate speculative bubbles and leverage limits depend on perceived downside risks. Shifts in beliefs about downside tail scenarios can explain the emergence and the collapse of leveraged speculative bubbles. Speculative bubbles are related to rational bubbles, but they match better the empirical evidence on the predictability of asset returns. Even without short-selling constraints, speculation induces procyclical asset valuation. When speculation affects the price of aggregate assets, it also influences macroeconomic outcomes such as aggregate consumption, investment, and output. Speculation in the boom years reduces asset prices, aggregate demand, and output in the subsequent recession. Macroprudential policies that restrict speculation in the boom can improve macroeconomic stability and social welfare.
    Keywords: aggregate demand recessions; belief disagreements; business cycles; countercyclical risk premium; financial speculation; leverage; macroprudential policy; Rational bubbles; Short selling; Speculative bubbles
    JEL: E00 E12 E21 E22 E32 E44 E52 E70 G00 G01 G11 G12 G40
    Date: 2021–01
  3. By: Todorova, Tamara; Kutrolli, Marin
    Abstract: This paper revisits the standard multiplier-accelerator model, as advanced by Samuelson. While borrowing on the main assumptions of the multiplier-accelerator, we check the validity of Keynesian theory. Using higher-order difference equations and advanced-level mathematical techniques we solve the tax-augmented multiplier-accelerator model, as well as the open economy one. We find that the values of equilibrium national income are identical to the simple national-income model in the absence of the accelerator. We solve the simple multiplier-accelerator model both in present terms and with prolonged consumption. We solve for equilibrium consumption, tax, and imports which are unaffected by the accelerator. All results conform to Keynesian theory where investment, government spending and exports have a favorable multiplying effect on national income through their respective multipliers. The accelerator coefficient affects neither those multipliers, nor the income and the non-income tax multipliers. Expanding the multiplier-accelerator by the volume of foreign trade, taxation or both does not change the values of Keynesian variables. Adding an accelerator leaves optimal values unaffected but, more importantly, reinforces Keynesian theory.
    Keywords: multiplier; accelerator; open economy; difference equations; Keynesian national-income model; tax multiplier; exports multiplier
    JEL: C65 E2 E21 E22
    Date: 2019–12–01
  4. By: Jerzy Kociatkiewicz (LITEM - Laboratoire en Innovation, Technologies, Economie et Management (EA 7363) - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay - IMT-BS - Institut Mines-Télécom Business School, MMS - Département Management, Marketing et Stratégie - TEM - Télécom Ecole de Management - IMT - Institut Mines-Télécom [Paris] - IMT-BS - Institut Mines-Télécom Business School); Monika Kostera (UW - University of Warsaw, Sodertorn University); Anna Zueva (University of Huddersfield)
    Abstract: The aim of this article is both a pronouncement of doom and an offer of hope for the Western business school. Both come from the recognition that business schools are haunted and that the haunting spectre is none other than the capitalist ideology. We ground our thinking in the established rich ‘ghostly' academic literature where the metaphor of the ghost is used to reveal the powerful agency of the unspoken-of and the unseen. Using three fictional ghostly tales as interpretive lenses, we make three arguments. First, we argue that capitalism is a ghost in the walls of the business school. Second, we suggest that capitalism's ghostly nature prevents the business school from offering a curriculum that serves more than the growth of financial capital. Third, we propose that naming of capitalism is integral to the exorcism of its ghost and the creation of curriculum that engages with the social and environmental challenges of our times.
    Keywords: Business school,capitalism,ghost,haunting,literary analysis,naming,reflexivity,spectre
    Date: 2021
  5. By: Korinek, Anton; Stiglitz, Joseph E
    Abstract: Progress in artificial intelligence and related forms of automation technologies threatens to reverse the gains that developing countries and emerging markets have experienced from integrating into the world economy over the past half century, aggravating poverty and inequality. The new technologies have the tendency to be labor-saving, resource-saving, and to give rise to winner-takes-all dynamics that advantage developed countries. We analyze the economic forces behind these developments and describe economic policies that would mitigate the adverse effects on developing and emerging economies while leveraging the potential gains from technological advances. We also describe reforms to our global system of economic governance that would share the benefits of AI more widely with developing countries.
    Keywords: artificial intelligence; inequality; labor-saving progress; terms-of-trade losses
    JEL: D63 F63 O25 O32
    Date: 2021–02
  6. By: Arapakis, Karolos; Brunner, Eric; French, Eric Baird; McCauley, Jeremy
    Abstract: We compare dementia prevalence and how it varies by socioeconomic status (SES) across the United States and England. We compare between country differences in age-gender standardized dementia prevalence, across the SES gradient. Dementia prevalence was estimated in each country using an algorithm based on an identical battery of demographic, cognitive, and functional measures. Dementia prevalence is higher among the disadvantaged in both countries, with the United States being more unequal according to four measures of SES. Once past health factors and education were controlled for, most of the within country inequalities disappeared; however, the cross-country difference in prevalence for those in lowest income decile remained disproportionately high. This provides evidence that disadvantage in the United States is a disproportionately high risk factor for dementia.
    Keywords: dementia; disadvantage; socioeconomic gradient
    JEL: I14 I32
    Date: 2021–03
  7. By: Dani Rodrik; Stefanie Stantcheva
    Abstract: One of the biggest challenges that countries face today is the very unequal distributions of opportunities, resources, income and wealth across people. Inclusive prosperity – whereby many people from different backgrounds can benefit from economic growth, new technologies, and the fruits of globalization – remains elusive. To address these issues, societies face choices among many different policies and institutional arrangements to try to ensure a proper supply of productive jobs and activities, as well as access to education, financial means, and other endowments that prepare individuals for their participation in the economy. In this paper we offer a simple, organizing framework to think about policies for inclusive prosperity. We provide a comprehensive taxonomy of policies, distinguishing among the types of inequality they address and the stages of the economy where the intervention takes place. The taxonomy clarifies the differences among contending approaches to equity and inclusion and can help analysts assess the impacts and implications of different policies and identify potential gaps.
    JEL: A1 E61 H2
    Date: 2021–04
  8. By: Feiner Solís, Sara
    Abstract: This paper incorporates low interest rates into a framework of Post-Keynesian theory of the firm under financialisation and uses Compustat data to provide an empirical analysis of firm behaviour in the Eurozone for the period 2000-2018. It reasons that loose monetary policy targeting low interest rates will only be effective in promoting investment in a scenario where shareholder value orientation (SVO) tightens the finance constraint on growth-maximising managers. In contrast, when shareholder value maximisation becomes the goal of the firm, loose monetary policy may not only be ineffective in promoting growth, but might actually be dangerous because it fosters financial fragility and promotes SVO. Data suggest that financialisation in the Eurozone represents a shift in the objectives of the firm towards maximising free cash flows. There is no evidence that loose monetary policy fostered leverage and an equity reduction in the Eurozone, which might be a consequence of its institutional context and ownership structures. Still, the analysis shows that low interest rates were largely ineffective in fostering investment during the period 2008-2018. Therefore, monetary policy seems insufficient to promote investment and growth. Both expansionary fiscal policy and legal reforms that control shareholder power are needed.
    Keywords: financialisation,shareholder value orientation,investment theory
    JEL: D21 D22 G30
    Date: 2021
  9. By: Grosjean, Pauline; Masera, Federico; Yousaf, Hasin
    Abstract: Did Trump radicalize xenophobes? Using data from nearly 12 million traffic stops, we show that the probability that a police officer stops a Black driver increases by 4.2% after a Trump rally during his 2015-2016 campaign. The effect is immediate, specific to Black drivers, lasts for up to 50 days after the rally, and is due to discretionary stops only. The effects are significantly larger in areas with more racist attitudes today, those that experienced more racial violence during the Jim Crow era, or those that relied more heavily on slavery. Results from a 2016 online experiment reveal how Trump's campaign speech specifically aggravated respondents' prejudice that Blacks are violent. We take this as evidence that although not explicitly anti-Black, Trump's campaign radicalized racial prejudice against Blacks -- a phenomenon known as dog-whistling-- and the expression of such prejudice in a critical and potentially violent dimension: police behavior.
    Keywords: Police stops; political campaign; racial prejudice
    JEL: D72 J15 K42
    Date: 2021–01
  10. By: Peter Temin (Center for Economic and Policy Research)
    Abstract: President Nixon replaced President Johnson's War on Poverty with his War on Drugs in 1971. This new drug war was expanded by President Reagan and others to create mass incarceration. The United States currently has a higher percentage of its citizens incarcerated than any other industrial country. Although Blacks are only 13 percent of the population, they are 40 percent of the incarcerated. The literatures on the causes and effects of mass incarceration are largely distinct, and I combine them to show the effects of mass incarceration on racial integration. Racial prejudice produced mass incarceration, and mass incarceration now retards racial integration.
    Keywords: mass incarceration, War on Drugs, racism, neighborhood effects, Head Start
    JEL: J15 H72 K14 N11
    Date: 2021–04–08
  11. By: Kumar B, Pradeep
    Abstract: The New Normal has become a buzzword thank to the Covid-19 pandemic. The realization that the pandemic is to persist has tended people to redesign their livelihood opportunities to realize not only a New Normal but a Better or Different Normal. Behavioral Economics, a new branch in economics that mixes economics with other disciplines in an attempt to present real economic behavior of man, has been found to be relevant in explaining the behavior of economic agents in times of Covid. This paper intends to focus on the certain aspects in behavioral economics which the policy makers find useful to design their strategies in dealing with the spreading of the Covid-19 pandemic.
    Keywords: New Normal, Better Normal, Different Normal, Rationality, Present Bias, Status Quo Bias, Optimum Bias, Framing effect, Affect heuristic, Herding Behavior, Infodemic
    JEL: I00
    Date: 2020–08–06

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