nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2021‒05‒24
twelve papers chosen by
Karl Petrick
Western New England University

  1. Attribute Substitution, Counterfactual Thinking, and Heterodox Economics By John B. Davis
  2. Measuring Colonial Extraction: The East India Company's Rule and the Drain of Wealth (1757-1858) By Nogues-Marco, Pilar
  3. The Great Depression as a Saving Glut By Degorce, Victor; Monnet, Eric
  4. Golfing with Trump. Social capital, decline, inequality, and the rise of populism in the US By Lee, Neil; Lipp, Cornelius; Rodríguez-Pose, Andrés
  5. Behavioural Economics, What Have we Missed? Exploring “Classical” Behavioural Economics Roots in AI, Cognitive Psychology, and Complexity Theory By Steve J. Bickley; Benno Torgler
  6. The Long Recession and Economic Consequences of the COVID-19 Pandemic By Tsoulfidis, Lefteris; Tsaliki, Persefoni
  7. Slavery and development in nineteenth century Brazil By Palma, Nuno Pedro G.; Papadia, Andrea; Pereira, Thales; Weller, Leonardo
  8. Enabling transformative economic change in the post‐2020 biodiversity agenda By Esther Turnhout; Pamela Mcelwee; Mireille Chiroleu-Assouline; Jennifer Clapp; Cindy Isenhour; Eszter Kelemen; Tim Jackson; Daniel Miller; Graciela Rusch; Joachim Spangenberg; Anthony Waldron
  9. A Sequence to Reverse Poverty: Institutions, State Capacity and Human Empowerment By Sansia Blackmore; Reneé van Eyden
  10. Rebalancing society: Learning from the experience of Latin American progressive leaders By Guilherme Azevedo; Jorge Carneiro; Carlos Rodriguez; Maria Alejandra Gonzalez-Perez
  11. Designing an International Economic Order: A Research Agenda By Bowen, T. Renee; Broz, James
  12. Institutional Change and Institutional Persistence By Acemoglu, Daron; Egorov, Georgy; Sonin, Konstantin

  1. By: John B. Davis (Department of Economics Marquette University)
    Abstract: This paper examines how attribute substitution (AS), central to the psychology of choice and behavioral economic reasoning, can be understood when combined with counterfactual thinking (CFT), often called �what if� or �if only� thinking, and how their combination creates important opportunities for the seeing heterodox economics as a single research program alternative to mainstream economics. The first section of the paper discusses AS, CFT, and what a AS-CFT behavioral framework involves, and then emphasizes how this framework departs from fundamental assumptions mainstream rational choice theory employs. The second section reviews the foundations of behavioral thinking regarding AS, describes what it involves when it includes attention to CFT, distinguishes between more automatic and more reflective types of behavioral adjustment. It notes that heterodox economics has generally emphasized ecological rationality and bounded rationality in its use of AS. The third section then discusses how six prominent heterodox approaches can each be understood to draw on this combination of AS and CFT, and how this represents common ground for a shared critique of the mainstream economic approach. What distinguishes them is how they differ regarding the weight and emphasis placed on more automatic versus more reflective types of behavioral adjustment. The fourth section argues that within this shared framework these different heterodox approaches practice a division of labor in how they address different aspects of economic life understood in behavioral and counterfactual terms.
    Keywords: counterfactual thinking, attribute substitution, counterfactual thinking, adjustment behavior, automatic versus reflective, heterodox economics
    JEL: A12 A13 B41 D90
    Date: 2021–05
  2. By: Nogues-Marco, Pilar
    Abstract: This paper revisits the relationship between capitalism and colonialism by examining the case of British India under East India Company rule (1757-1858). The Marxist-nationalist historiography claims that colonialism generated a steady drain of wealth and that this drain was responsible for Indian famines, poverty, inequality, and economic retardation. I use the East India Company budgets to measure the extent of the wealth that was drained through three direct channels: oppressive land taxes, unproductive expenditures on the imperial army and civil administration, and the unrequited export of commodities from India to Britain. I conclude that available figures lend empirical support to the Marxist interpretation. There was a drain of wealth, and its effect on the underdevelopment of former European colonies deserves further research.
    Keywords: Colonialism; drain of wealth; East India Company; India; Marxism
    JEL: B14 F54 N45
    Date: 2020–11
  3. By: Degorce, Victor; Monnet, Eric
    Abstract: Facing the Great Depression, Keynes blamed the detrimental consequences of precautionary savings on growth (paradox of thrift). Yet, the magnitude, forms and effects of savings accumulation remain unexplored in studies on the international economic crash of the 1930s. Based on new data for 22 countries, we document that the Great Depression was associated with a large international increase in savings institutions' deposits. Banking crises spurred precautionary savings. Panel estimations show a negative conditional correlation between real GDP and deposits in savings institutions when a banking crisis hit. A back-of-the-envelope calculation suggests that the negative effect of precautionary savings on growth was at least as large as the direct effect of the decline in banking activity. The evolution of the saving rate began to reverse as countries left the gold standard.
    Keywords: banking crises; Great Depression; paradox of thrift; precautionary savings; Savings Banks
    JEL: B22 E21 E51 G01 G21 N1 N2
    Date: 2020–09
  4. By: Lee, Neil; Lipp, Cornelius; Rodríguez-Pose, Andrés
    Abstract: In 2000 Robert Putnam forecast that United States (US) democracy was at risk from the twin challenges of declining civic engagement and rising interpersonal inequality. Sixteen years later, his predictions were vindicated by the election of Donald Trump as president of the US. This paper analyses the extent to which the election of Donald Trump was related to levels of social capital and interpersonal inequalities and posits a third alternative: that the rise in vote for Trump in 2016 was the result of long-term economic and population decline in areas with strong social capital. This hypothesis is confirmed by the econometric analysis conducted for counties across the US. Long-term declines in employment and population â?? rather than in earnings, salaries, or wages â?? in places with relatively strong social capital propelled Donald Trump to the presidency. By contrast, low social capital and high interpersonal inequality were not connected to a surge in support for Trump. These results are robust to the introduction of control variables and different inequality measures. The analysis also shows that the discontent at the base of the Trump margin is not just a consequence of the 2008 crisis but had been brewing for a long time. Places in the US that remained cohesive but witnessed an enduring decline are no longer bowling alone, they are golfing with Trump.
    Keywords: Counties; Donald Trump; economic and demographic decline; inequality; populism; social capital; US
    JEL: D31 D72 O15 R11
    Date: 2020–09
  5. By: Steve J. Bickley; Benno Torgler
    Abstract: In this chapter, we ask (conceptually and methodologically) what exactly is behavioural economics and what are its roots? And further, what may we have missed along the way? We argue that revisiting “classical” behavioural economics concepts and methods will benefit the wider behavioural economics program by questioning its yardstick approach to ‘Olympian’ rationality and optimisation and in doing so, exploring the ‘how’ and ‘why’ of economic behaviours (micro, meso, and macro) in greater detail and clarity. We also do the same for fields which share similar ontological and epistemological roots with “classical” behavioural economics. In particular, cognitive psychology, complexity theory, and artificial intelligence. By engaging in debate and investing thought into multiple layers of the ontology-epistemology- methodology, we look to engage in ‘deeper’ (and potentially more profound) scientific discussions. We also explore the utility and implications of mixed methods in behavioural economics research, policy, and practice.
    Keywords: Behavioural Economics; Cognitive Psychology; Complexity Theory; Artificial Intelligence
    Date: 2021–05
  6. By: Tsoulfidis, Lefteris; Tsaliki, Persefoni
    Abstract: In this article, we argue the rate of profit in combination with the movement of the real net profits determines the phase-change of the economy in its long cyclical pattern. Since WWII, the US and the world economy have experienced two such long cycles. The pandemic COVID-19 has deepened a recession that has been already underway since 2007. The growth rates in the first post-pandemic years are expected to be high; however, soon after, the economies will find themselves back to their old recessionary growth paths. The onset of a new long cycle requires the restoration of profitability, which can be sustained only through the introduction of ‘disruptive’ innovations backed by suitable institutional arrangements.
    Keywords: Long recession, secular stagnation, pandemic, long cycles, institutional changes, disruptive innovations
    JEL: B0 B5 E32 N10 O3
    Date: 2021–05–09
  7. By: Palma, Nuno Pedro G.; Papadia, Andrea; Pereira, Thales; Weller, Leonardo
    Abstract: This paper brings new evidence on the legacy of slavery to economic development through the case study of Brazil during the nineteenth century. The conclusions contribute to the debate brought by the New History of Capitalism (NHC) about the role of slavery and industrialization in the United States. We argue that the NHC lacks a comparative perspective. Brazil imported more slaves than any other country in the world and slavery lasted longer and was more widespread than in the U.S. south. Rather than promoting economic growth and development, the evidence shows that slavery held back industrialization in Brazil. We also discuss the role of slavery on agricultural productivity and show that, as in the U.S. the use of violence does not explain increases in the productivity of cotton plantations.
    Keywords: Comparative History; New History of Capitalism; Slavery
    JEL: J47 N56 N66 O54
    Date: 2020–11
  8. By: Esther Turnhout (Wageningen University [The Netherlands]); Pamela Mcelwee (Department of Human Ecology, Rutgers University); Mireille Chiroleu-Assouline (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Jennifer Clapp (School of Environment, Resources and Sustainability, University of Waterloo); Cindy Isenhour (Department of Anthropology & Climate Change Institute, University of Maine); Eszter Kelemen (ESSRG ENVIRONMENTAL SOCIAL SCIENCE RESEARCH GROUP HUN - Partenaires IRSTEA - IRSTEA - Institut national de recherche en sciences et technologies pour l'environnement et l'agriculture, Centre for Social Sciences, Institute for Sociology, Budapest); Tim Jackson (Center for the Understanding of Sustainable Prosperity, University of Surrey); Daniel Miller (Department of Natural Resources and Environmental Sciences, University of Illinois at Urbana-Champaign); Graciela Rusch (NINA NORWEGIAN INSTITUTE FOR NATURE RESEARCH TRONDHEIM NOR - Partenaires IRSTEA - IRSTEA - Institut national de recherche en sciences et technologies pour l'environnement et l'agriculture); Joachim Spangenberg (Sustainable Europe Research Institute SERI Germany, Cologne); Anthony Waldron (Cambridge Conservation Initiative, Cambridge University, The Working Ant, Cambridge)
    Abstract: The COVID-19 pandemic, its impact on the global economy, and current delays in the negotiation of the post-2020 global biodiversity agenda of the Convention on Biological Diversity heighten the urgency to build back better for biodiversity, sustainability, and well-being. In 2019 the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) concluded that addressing biodiversity loss requires a transformative change of the global economic system. Drawing on the IPBES findings, this policy perspective discusses actions in four priority areas to inform the post-2020 agenda: (1) Increasing funding for conservation; (2) redirecting incentives for sustainability; (3) creating an enabling regulatory environment; and (4) reforming metrics to assess biodiversity impacts and progress toward sustainable and just goals. As the COVID-19 pandemic has made clear, and the negotiations for the post-2020 agenda have emphasized, governments are indispensable in guiding economic systems and must take an active role in transformations, along with businesses and civil society. These key actors must work together to implement actions that combine short-term impacts with structural change to shift economic systems away from a fixation with growth toward human and ecological well-being. The four priority areas discussed here provide opportunities for the post-2020 agenda to do so.
    Keywords: Biodiversity conservation,Economic systems,Green finance,Incentives,Metrics,Policy,Regulation,Subsidies,Trade,Transformative change
    Date: 2021–05–03
  9. By: Sansia Blackmore; Reneé van Eyden
    Abstract: This paper explores the fundamental or deep causes of poverty persistence, which remains a central challenge of the modern world. In theory, rising political participation in a democracy operationalises checks on state predation and cultivates development-enabling state capacity. This did not materialise post-colonial sub-Saharan Africa. The theoretical foundation of this premise is further brought into question by the development achievements of strong, capable non-democracies like Singapore and Hong Kong. This study uses a dynamic panel-data model specification and General Methods of Moments for a sample of 105 countries over the period 1981 to 2015 to explore a probabilistic development hypothesis that fuses broad institutionalism with modernisation human empowerment. In this model, regime-independent state capacity is relied on to trigger the transformational impetus associated with rising existential security, autonomy and individual agency. Ensuing shifts in societal value orientations towards emancipative mindsets then drive the progression towards prosperity and liberty. The results show that the poor-country in human empowerment, represented by mind-broadening education and emancipative mindset then drives the progression towards prosperity and liberty. The results show that the poor-country deficit in human empowerment, represented by mind-broadening education and emancipative values, dwarfs the shortcomings in all other drivers of prosperity, including exports and investment. The findings rule against geography and democracy as fundamental causes of poverty or prosperity.
    Keywords: Poverty Reversal, institutions, State Capacity, Human Empowerment
    JEL: O43 I25 P16
    Date: 2020–08
  10. By: Guilherme Azevedo (Audencia Business School); Jorge Carneiro; Carlos Rodriguez; Maria Alejandra Gonzalez-Perez
    Date: 2020–10
  11. By: Bowen, T. Renee; Broz, James
    Abstract: The institutions that have sustained global economic cooperation for the past 75 years are under threat. Despite admonitions that global peace and prosperity are at risk, policymakers in important countries ignored the rules of the multilateral order in recent times and moved down the path of unilateralism and economic nationalism. What role can social scientists play in redesigning the international economic order? We offer a research agenda for contributing to the reform and improvement of global institutions. The research agenda is guided by three themes: threats, solutions, and leadership. Threats refer to the deep causes of the crisis in global institutions, not the symptoms or expressions of those problems. Solutions refers to institutional reforms required to address deep threats to the global order. Leadership addresses the challenge of coordinating efforts to supply international institutions, which can be thought of as global public goods. We demonstrate the value of this research agenda by applying it to the World Trade Organization.
    Keywords: institutions; International trade policy; political economy; WTO Reform
    JEL: A11 F02 F13 F51 F52 F53 F55 F6 H1 H4 K12 K33
    Date: 2020–10
  12. By: Acemoglu, Daron; Egorov, Georgy; Sonin, Konstantin
    Abstract: In this essay, we provide a simple conceptual framework to elucidate the forces that lead to institutional persistence and change. Our framework is based on a dynamic game between different groups, who care both about current policies and institutions and future policies, which are themselves determined by current institutional choices, and clarifies the forces that lead to the most extreme form of institutional persistence ("institutional stasis") and the potential drivers of institutional change. We further study the strategic stability of institutions, which arises when institutions persist because of fear of subsequent, less beneficial changes that would follow initial reforms. More importantly, we emphasize that, despite the popularity of ideas based on institutional stasis in the economics and political science literatures, most institutions are in a constant state of flux, but their trajectory may still be shaped by past institutional choices, thus exhibiting "path-dependent change", so that initial conditions determine both the subsequent trajectories of institutions and how they respond to shocks. We conclude the essay by discussing how institutions can be designed to bolster stability, the relationship between social mobility and institutions, and the interplay between culture and institutions.
    Keywords: conflict; Constitutions; democracy; Institutional Change; institutions; Persistence; stability
    JEL: C73 D72 D74 N10 N40 P16
    Date: 2020–09

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