nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2021‒09‒20
eight papers chosen by
Karl Petrick
Western New England University

  1. Post-Keynesian vignettes on secular stagnation:From labor suppression to natural growth By Codrina Rada, Marcio Santetti, Ansel Schiavone, Rudiger von Arnim
  2. A Behavioural Model of Investment Appraisal and its Implications for the Macroeconomy By Michelle Baddeley; Geoff Harcourt
  3. Goodwin, Baumol & Lewis: How structural change can lead to inequality and stagnation By Codrina Rada, Ansel Schiavone, Rudiger von Arnim
  4. Inflation in developing economies By Peter Skott
  5. What You Exported Matters: Persistence in Productive Capabilities across Two Eras of Globalization By Isabella M Weber; Gregor Semieniuk; Tom Westland; Junshang Liang
  6. Visions of the future – a socialist departure from gloom? By Peter Skott; Paul Auerbach
  7. Global Value Chains and Unequal Exchange- Market Power and Monopoly Power By Deepankar Basu; Ramaa Vasudevan
  8. Monetary Policy is not about Interest Rates; the Liquidity Effect and the Fisher Effect By Greenwood, John

  1. By: Codrina Rada, Marcio Santetti, Ansel Schiavone, Rudiger von Arnim
    Abstract: The stylized facts of neoliberalism include a decline in steady state rate of growth and labor share. Recent classical-Keynesian literature sees the latter as a cause for the former. A crucial element is the distinction between short and long run. The business cycle is profit-led and profit-squeeze, but the steady state features a wage led natural rate of growth. This paper presents simple macroeconomic models in this vein. Our starting point is to assume an adverse shock to real wage bargaining, which across all models depresses the labor share. We consider (i) a two-dimensional model in income-capital ratio and labor share, a (ii) three-dimensional model that adds the employment rate as state variable, and a (iii) four-dimensional model that furthermore endogenizes the savings propensity. Key results are that model (i) predicts an increase (decrease) in the warranted (natural) rate of growth, and thus does not generate balanced growth; (ii) resolves this problem and predicts stagnation in steady state, but implies a long run paradox of thrift; and (iii) allows for contextualization vis-a-vis ` the utilization controversy.
    Keywords: Goodwin theory; labor suppression; secular stagnation JEL Classification: E12, E25, E32, J50
    Date: 2021
  2. By: Michelle Baddeley (University of Technology Sydney); Geoff Harcourt
    Abstract: Sub-optimal levels of investment in fixed capital are a pressing problem for modern economics. Behavioural economics provides some potential explanations, but behavioural economic insights are not commonly incorporated into standard capital investment models which capture neither the diversity of investment appraisal techniques used in practice, nor the range of decision-making styles used by real-world businesses. In filling these gaps, this paper brings together insights from capital investment theory with insights from behavioural economics to develop a behavioural economic model of investment appraisal, allowing for boundedly-rational investment decision-making. This model is applied in a macroeconomic analysis to show how the misapplication of investment appraisal criteria, especially under conditions of endemic uncertainty, is associated with sub-optimal levels of macroeconomic investment - with negative macroeconomic implications in terms of production, employment, productivity, wages and cyclical volatility.
    Keywords: investment; heuristics; bias; behavioural macroeconomics
    JEL: E29 E70 D22 D25 M21
    Date: 2021–08–01
  3. By: Codrina Rada, Ansel Schiavone, Rudiger von Arnim
    Abstract: This paper presents a classical-Keynesian one sector model of labor-constrained growth that explains secular stagnation as the result of structural change. Structural change is defined as an exogenous increase in the employment share of stagnant activities, which exhibit no or low labor productivity growth. We discuss two models: (i) a classical distributive cycle in employment rate and labor share, and (ii) a Keynes-Kalecki distributive cycle that adds the incomecapital ratio as state variable. Both versions consider labor productivity growth as endogenous to the labor share, reminiscent of induced technical change. Further, growth rates of labor productivity and real wages are assumed to respond negatively to structural change as proxied by the employment share of stagnant activities. Drawing on seminal theories of structural change, we label the positive (negative) difference between these effects dominant Lewis (Baumol) dynamics. In steady state, and across all model variants, the adverse effect of structural change on labor productivity leads to stagnation. However, only the Keynes-Kalecki version with dominant Lewis dynamics and a weak profit squeeze also exhibits a falling labor share.
    Keywords: Goodwin cycle; stagnation; structural change; reserve army JEL Classification: E12, E25, E32, O41
    Date: 2021
  4. By: Peter Skott (Department of Economics, University of Massachusetts Amherst)
    Abstract: Phillips curves and natural rates of unemployment provide a poor foundation for analyzing inflation in developing economies. Structuralist alternatives have focused on distributional conflict and cross-sectoral interactions, but if the distributional claims are exogenous, the theory has formal similarities with mainstream analysis, generating a natural rate of underemployment. This paper outlines a modified structuralist model in which historically determined distributional claims eliminate this natural rate of underemployment. Economic development and structural transformation are not blocked by immutable distributional claims, but shocks to relative incomes can produce explosive inflation.
    Keywords: Phillips curve, underemployment, distributional conáict, structuralist model
    JEL: E31 O23
    Date: 2021
  5. By: Isabella M Weber (Department of Economics and Political Economy Research Institute, University of Massachusetts Amherst); Gregor Semieniuk (Political Economy Research Institute and Department of Economics, University of Massachusetts Amherst); Tom Westland (Department of History, University of Cambridge); Junshang Liang (Department of Economics, University of Massachusetts Amherst)
    Abstract: Does what you exported matter? We build a new global commodity-level export database for the previous era of globalization and find persistence in productive capabilities proxied by economic complexity, export diversification, and sophistication across a century. We also show that productive capabilities at the turn of the 20th century are a powerful predictor of today’s income levels. We demonstrate that our results are not driven by persistence in geography or institutions. The persistence mechanism is the complementarity between past and future productive capabilities with one important qualification, the persistent negative effect of European overseas colonization. We also study shocks that undermined persistence, confirm the resource curse hypothesis for the long run and find a positive but slow effect of democratization.
    JEL: F14 F63 N10 O10 O50
    Date: 2021
  6. By: Peter Skott (Department of Economics, University of Massachusetts Amherst); Paul Auerbach (Kingston University)
    Abstract: A vision of universalised human freedom, equality, security and democracy emerged in the wake of the Scientific Revolution and the Enlightenment, the British Industrial Revolution and the French Revolution. This vision, not even approximately practicable at the time, is now well within reach. A viable socialist strategy will not be oriented around an encompassing central plan, but rather an agenda of human-centered goals – the creation of preconditions for all individuals to fully realise their personal capacities and to function as free citizens, exercising control individually and collectively, at the workplace and in society. Central to the realisation of such a programme will be a focus on the crucial role played by the first years of life in shaping human development and in the formation of class hierarchies.
    Keywords: Phillips curve, underemployment, distributional conáict, structuralist model
    JEL: B51 H40 P16
    Date: 2021
  7. By: Deepankar Basu (Department of Economics, University of Massachusetts Amherst); Ramaa Vasudevan (Department of Economics, Colorado State University.)
    Abstract: We revisit the hypotheses of unequal exchange and deteriorating terms of trade in the specific context of import-intensive, export- led strategies of developing countries which rely on integration into GVCs for access to markets in developed countries using a stylized two-country two-commodity Classical- Marxian trade model. Two sources of asymmetry can be distinguished: market power arising from the competition between suppliers that depresses the prices at which the final good is supplied; and monopoly power arising from the lead firms control and ownership of intangible assets including brand and design. The model explores some implications of these two sources of asymmetry.
    Keywords: Unequal Exchange, Global Value Chains, Classical Trade Model
    JEL: F02 F23 O19
    Date: 2021
  8. By: Greenwood, John (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: The purpose of this paper is to clarify the relation between money and interest rates. In section 1, the author examines the empirical validity of Keynes’s claims for his liquidity preference theory by looking at the relation between changes in interest rates and changes in the quantity of money. In section 2, the author considers Irving Fisher’s findings. Fisher, whose studies had mostly preceded Keynes, had shown that over any longer-term horizon the relation between money and interest rates was exactly the reverse of Keynes’ hypothesis of short-term liquidity preference. A reconciliation is proposed that treats Keynes’ theory as a short-term, liquidity effect, and Fisher’s results, which incorporate the effect of inflation or inflation expectations, as the longer-term determinant of interest rates. In section 3, the author applies the resulting combined theory of the relation between money and interest rates to five case studies in recent decades: two from Japan, and one each from the Eurozone, the U.K. and the U.S. The conclusion is that interest rates are a highly misleading guide to the stance of monetary policy; it is invariably better to rely on the growth rate of a broad definition of money when assessing the stance of monetary policy
    Date: 2021–09

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