nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2021‒11‒08
thirteen papers chosen by
Karl Petrick
Western New England University

  1. "Are Concerns over Growing Federal Government Debt Misplaced?" By L. Randall Wray
  2. The macroeconomic implications of zero growth: A post-Keynesian approach By Hein, Eckhard; Jimenez, Valeria
  3. Growth drivers in emerging capitalist economies before and after the Global Financial Crisis By Jungmann, Benjamin
  4. Macroeconomic transformation of capitalism - How to achieve politically determined growth rates? By Herr, Hansjörg
  5. Inflation Regimes and Hyperinflation. A Post-Keynesian/Structuralist typology By Sébastien Charles; Eduardo Bastian; Jonathan Marie
  6. Keynes's Treatise on Probability at 100 Years: Its Most Enduring Message By Carlo Zappia
  7. "The Employer of Last Resort Scheme and the Energy Transition: A Stock-Flow Consistent Analysis" By Giuliano Toshiro Yajima
  8. "Production Function Estimation: Biased Coefficients and Endogenous Regressors, or a Case of Collective Amnesia?" By Jesus Felipe; John McCombie; Aashish Mehta; Donna Faye Bajaro
  9. The Unmaking of the Black Blue-Collar Middle Class By William Lazonick; Philip Moss; Joshua Weitz
  10. Eigenvalues and Eigenlabors: On Iliadi’s, Mariolis’, Soklis’, and Tsoulfidis’ Explanation of the Empirical Regularities in Price Curves By Jacobo Ferrer-Hernández; Luis Daniel Torres-González
  11. Ambivalence About International Trade in Open- and Closed-ended Survey Responses By Arturo Chang; Thomas Ferguson; Jacob Rothschild; Benjamin I. Page
  12. Why the CHIPS Are Down: Stock Buybacks and Subsidies in the U.S. Semiconductor Industry By William Lazonick; Matt Hopkins
  13. „Capitalism: What Has Gone Wrong?“ Who Went Wrong? Capitalism? The Market Economy? Governments? “Neoliberal” Economics? By Martin F. Hellwig

  1. By: L. Randall Wray
    Abstract: With the US Treasury cutting checks totaling approximately $5 trillion to deal with the COVID-19 crisis, Senior Scholar L. Randall Wray argues that when it comes to the federal government, concerns about affordability and solvency can both be laid to rest. According to Wray, the question is never whether the federal government can spend more, but whether it should. And while there are still strongly held beliefs about the negative impacts of deficits and debt on inflation, interest rates, growth, and exchange rates, with two centuries of experience the evidence for these concerns is mixed at best.
    Date: 2021–11
  2. By: Hein, Eckhard; Jimenez, Valeria
    Abstract: This paper tries to clarify some important aspects around the zero-growth discussion. Starting from an accounting perspective, we analyse the implications of zero growth and clarify the stability conditions of such an economy. This is complemented with a monetary circuit approach - which, like any model, has to respect the national income and financial accounting conventions. The latter allows us to show that a stationary economy, i.e an economy with zero net investment, is compatible with positive profits and interest rates. It is also argued that a stationary economy does not generate systemic financial instability, in the sense of rising or falling financial assets- or financial liabilities-income ratios, if the financial balances of each macroeconomic sector are zero. In order to analyse the dynamic stability of such an economy, we make use of an autonomous demand-led growth model driven by government expenditures. We show that a stable stationary state with zero growth, positive profits, and a positive interest rate is possible. However, the stable adjustment of government expenditure-capital and government debt-capital ratios to their long-run equilibrium values requires specific maxima for the propensity to consume out wealth and for the rate of interest, assuming a balanced government budget and zero retained earnings of the firm sector.
    Keywords: Ecological macroeconomics,post-Keynesian economics,stationary-state economics,growth imperative
    JEL: Q01 O44 P10
    Date: 2021
  3. By: Jungmann, Benjamin
    Abstract: This paper contributes to the ongoing growth models (GMs) debate by investigating the growth drivers of emerging capitalist economies (ECEs) in the periods before (2000-2008) and after (2009-2019) the Global Financial Crisis (GFC). By drawing mostly on post-Keynesian economics, six growth drivers are considered: Finance, i.e., household debt; changes in income distribution; price and non-price competitiveness, as well as commodity prices; and finally, fiscal policy. By conducting crosscountry simple and multiple linear regressions to explain the growth of 19 ECEs in both periods, we find that post-GFC growth was driven by non-price factors while price competitiveness played a role in neither period. Likewise, commodity prices did not drive growth either. In terms of distribution, our results indicate that cross-country growth was driven by rising income inequality in both periods; however, this relation lacks significance. In the post-crisis period, growth was associated with rising profit shares. While this relation also lacks significance, it has to be assessed against various possibilities for seemingly profit-led growth. Finally, with household debt accelerating and fiscal policy becoming more expansionary after the crisis, our results indicate a potentially more prominent role for these factors in driving post-crisis growth, however, this finding lacks robustness. We argue that the sparse robust findings result from ECEs' heterogeneity, particularly in terms of their growth models and subordinated financialization.
    Keywords: growth model,growth driver,financialization,emerging capitalist economies,post-Keynesian economics
    JEL: E11 E12 E65 F62 F65
    Date: 2021
  4. By: Herr, Hansjörg
    Abstract: An economy with a stable medium-term growth rate of zero - or any other politically determined growth rate - needs new regulations and institutions to realise this target. Such an economy would look very different compared with the existing type of capitalism we have today in the Global North. In the existing capitalist system, investment demand as well as autonomous demand elements like government demand, export demand or autonomous consumption demand drive the dynamic of GDP and the whole economic system. In a zero growth economy the different demand aggregates are determined by economic policy including heavy intervention in income and wealth distribution and the direction of technological development. Whether such an alternative system is understood as a version of highly regulated capitalism or as a new system is a question of taste.
    Keywords: Transformation of capitalism,economic systems,zero growth
    JEL: B20 B52 P41
    Date: 2021
  5. By: Sébastien Charles (LED - Laboratoire d'Economie Dionysien - UP8 - Université Paris 8 Vincennes-Saint-Denis); Eduardo Bastian; Jonathan Marie (CEPN - Centre d'Economie de l'Université Paris Nord - CNRS - Centre National de la Recherche Scientifique - USPC - Université Sorbonne Paris Cité - UP13 - Université Paris 13)
    Abstract: The article proposes a typology of inflation regimes that can be applied to any kind of economy based on the Post-Keynesian and structuralist literature. We identify three separate regimes: the low, moderate, and high inflation regimes. Hyperinflation is also defined and described. Each regime presents different characteristics. We identify the key role played by the distributive conflict between workers and capitalists in all the regimes, the role played by the indexation of wages on domestic prices in the moderate and high inflation regimes, and the specific roles played by the widespread indexation on a short term basis in the high inflation regime. Hyperinflation is explained by selffulfilling prophecies about exchange rate variations and by the rejection of the domestic currency. Our analysis underlines the fact that the current fear of inflation is largely groundless.
    Keywords: Inflation,Hyperinflation,Post-Keynesian analysis,Structuralist analysis
    Date: 2021–10–03
  6. By: Carlo Zappia (Università degli Studi di Siena)
    Abstract: On the occasion of the assessment of the enduring influence of Keynes's Treatise on Probability at 100 years, this paper focuses on its relevance for decision theory. The paper places emphasis on Keynes's introduction of the epistemic notion of probabilities that often are non-numerical, as a theoretical object intended to replace frequency probabilities. The paper argues that, as non-numerical probabilities make it possible to deal with uncertainty as if individuals were endowed with interval-valued probabilities, Keynes's 1921 critique of contemporary frequency probability theory turns out to be relevant also with regard to the yet to be established subjective probability theory. Although non-numerical probabilities were used by Keynes to criticize the contemporary application of probability to conduct, it must be acknowledged that, still today, they may constitute an appropriate tool for decision-making when confronting uncertainty, as he hinted at in his late 1930s correspondence with Hugh Townshend.
    Keywords: probability, uncertainty, decision-making
    JEL: B21 B31 D81
    Date: 2021–10
  7. By: Giuliano Toshiro Yajima
    Abstract: The health and economic crises of 2020-21 have revived the debate on fiscal policy as a major tool for stabilization and meeting long-term goals. The massive surge in unemployment, due to the economic disruption of the lockdown measures, has increased the interest in policies that target employment directly instead of trying to achieve it via a general "demand push." One of the proposals currently under debate is the job guarantee. Under such a policy the government would act as an "employer of last resort" by offering a job to everyone that is able and wants to work but cannot find a job in the private sector. This paper argues that a carefully designed scheme of direct employment and public provision by the state--addressing both the low- and high-skill workforce--can have permanent effects and promote the economy's structural transformation, in particular by fostering energy transition and a lower carbon footprint. Starting from this point, a stock-flow consistent model is developed to study the long-run effect of the job guarantee's implementation, inspired by the work of Godin (2013) and Sawyer and Passarella (2021).
    Keywords: Stock-Flow Consistent Models; Job Guarantee; Structural Change; Energy Transition
    JEL: B52 J68 Q43
    Date: 2021–11
  8. By: Jesus Felipe; John McCombie; Aashish Mehta; Donna Faye Bajaro
    Abstract: The possible endogeneity of labor and capital in production functions, and the consequent bias of the estimated elasticities, has been discussed and addressed in the literature in different ways since the 1940s. This paper revisits an argument first outlined in the 1950s, which questioned production function estimations. This argument is that output, capital, and employment are linked through a distribution accounting identity, a key point that the recent literature has overlooked. This identity can be rewritten as a form that resembles a production function (Cobb-Douglas, CES, translog). We show that this happens because the data used in empirical exercises are value (monetary) data, not physical quantities. The argument has clear predictions about the size of the factor elasticities and about what is commonly interpreted as the bias of the estimated elasticities. To test these predictions, we estimate a typical Cobb-Douglas function using five estimators and show that: (i) the identity is responsible for the fact that the elasticities must be the factor shares; (ii) the bias of the estimated elasticities (i.e., departure from the factor shares) is, in reality, caused by the omission of a term in the identity. However, unlike in the standard omitted-variable bias problem, here the omitted term is known; and (iii) the estimation method is a second-order issue. Estimation methods that theoretically deal with endogeneity, including the most recent ones, cannot solve this problem. We conclude that the use of monetary values rather than physical data poses an insoluble problem for the estimation of production functions. This is, consequently, far more serious than any supposed endogeneity problems.
    Keywords: Accounting Identity; Endogeneity; Monetary Values; Production Functions; Total Factor Productivity
    JEL: C18 C81 C82
    Date: 2021–10
  9. By: William Lazonick (University of Massachusetts Lowell); Philip Moss (University of Massachusetts Lowell); Joshua Weitz (Brown University)
    Abstract: In the decade after the Civil Rights Act of 1964, African Americans made historic gains in accessing employment opportunities in racially integrated workplaces in U.S. business firms and government agencies. In the previous working papers in this series, we have shown that in the 1960s and 1970s, Blacks without college degrees were gaining access to the American middle class by moving into well-paid unionized jobs in capital-intensive mass production industries. At that time, major U.S. companies paid these blue-collar workers middle-class wages, offered stable employment, and provided employees with health and retirement benefits. Of particular importance to Blacks was the opening up to them of unionized semiskilled operative and skilled craft jobs, for which in a number of industries, and particularly those in the automobile and electronic manufacturing sectors, there was strong demand. In addition, by the end of the 1970s, buoyed by affirmative action and the growth of public-service employment, Blacks were experiencing upward mobility through employment in government agencies at local, state, and federal levels as well as in civil-society organizations, largely funded by government, to operate social and community development programs aimed at urban areas where Blacks lived. By the end of the 1970s, there was an emergent blue-collar Black middle class in the United States. Most of these workers had no more than high-school educations but had sufficient earnings and benefits to provide their families with economic security, including realistic expectations that their children would have the opportunity to move up the economic ladder to join the ranks of the college-educated white-collar middle class. That is what had happened for whites in the post-World War II decades, and given the momentum provided by the dominant position of the United States in global manufacturing and the nation`s equal employment opportunity legislation, there was every reason to believe that Blacks would experience intergenerational upward mobility along a similar education-and-employment career path. That did not happen. Overall, the 1980s and 1990s were decades of economic growth in the United States. For the emerging blue-collar Black middle class, however, the experience was of job loss, economic insecurity, and downward mobility. As the twentieth century ended and the twenty-first century began, moreover, it became apparent that this downward spiral was not confined to Blacks. Whites with only high-school educations also saw their blue-collar employment opportunities disappear, accompanied by lower wages, fewer benefits, and less security for those who continued to find employment in these jobs. The distress experienced by white Americans with the decline of the blue-collar middle class follows the downward trajectory that has adversely affected the socioeconomic positions of the much more vulnerable blue-collar Black middle class from the early 1980s. In this paper, we document when, how, and why the unmaking of the blue-collar Black middle class occurred and intergenerational upward mobility of Blacks to the college-educated middle class was stifled. We focus on blue-collar layoffs and manufacturing-plant closings in an important sector for Black employment, the automobile industry from the early 1980s. We then document the adverse impact on Blacks that has occurred in government-sector employment in a financialized economy in which the dominant ideology is that concentration of income among the richest households promotes productive investment, with government spending only impeding that objective. Reduction of taxes primarily on the wealthy and the corporate sector, the ascendancy of political and economic beliefs that celebrate the efficiency and dynamism of `free market` business enterprise, and the denigration of the idea that government can solve social problems all combined to shrink government budgets, diminish regulatory enforcement, and scuttle initiatives that previously provided greater opportunity for African Americans in the government and civil-society sectors.
    Keywords: African American, employment relations, equal employment opportunity, unions, blue-collar, employment mobility, automobile industry, government employment, mass-incarceration industries.
    JEL: D2 D3 G3 J0 L2 L6 N8 O3 P1
    Date: 2021–05–20
  10. By: Jacobo Ferrer-Hernández (Department of Economics, New School for Social Research); Luis Daniel Torres-González (Facultad de Economía, UNAM)
    Abstract: The paper complements Iliadi’s, Mariolis’, Soklis’, and Tsoulfidis’s (IMST) explanation of the regular monotonic/near monotonic behavior of prices and capital intensities as an effect of hypothetical changes in the rate of profit obtained in empirical production price models with data from input-output accounts. We show that the shapes of the theoretical price and capital value curves depend on the product of the eigenvalues and the eigenlabors, i.e., the representation of the labor-coefficient vector in the space spanned by the eigenvectors of the input-coefficients matrix. We report robust evidence that for each economy in the WIOD database the eigenvalues by themselves cannot produce the conditions for monotonic/near monotonic curves, as claimed by IMST, but rather it is the joint action of the eigenvalues and the eigenlabors. The tendency towards zero of the product of the eigenvalues and the eigenlabors is driven by the statistical tendency towards the proportionality (i) between the columns of the input matrix, and (ii) between the labor vector and the Perron-Frobenius eigenvector of the input-coefficient matrix. The latter constitutes a new stylized fact in the productive structures of modern middle- and high-income economies.
    Keywords: Sraffian price models, price-profit rate curves, capital value, spectral representation, labor vector-Perron-Frobenius eigenvector relation
    JEL: B51 C67 D57
    Date: 2021–10
  11. By: Arturo Chang (University of Toronto); Thomas Ferguson (Institute for New Economic Thinking); Jacob Rothschild (Reality Check); Benjamin I. Page (Northwestern University)
    Abstract: Spontaneous, open-ended survey responses can sometimes better reveal what is actually on people`s minds than small sets of forced-choice, closed questions. Our analysis of closed questions and trade-related open-ended responses to 2016 ANES `likes` and `dislikes` prompts indicate that Americans held considerably more complex, more ambivalent, and – in many cases – more negative views of international trade than has been apparent in studies that focus only on closed-ended responses. This paper suggests that contrast between open- and closed-question data may help explain why the effectiveness of Donald Trump`s appeals to trade resentments surprised many observers.
    Keywords: Free Trade; Public Opinion; international trade; Donald Trump; opinion surveys, political economy.
    JEL: C83 F10 F13 F59 F68
    Date: 2021–09–01
  12. By: William Lazonick (Academic-Industry Research Network); Matt Hopkins (Academic-Industry Research Network)
    Abstract: The Semiconductor Industry Association (SIA) is promoting the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act, introduced in Congress in June 2020. An SIA press release describes the bill as `bipartisan legislation that would invest tens of billions of dollars in semiconductor manufacturing incentives and research initiatives over the next 5-10 years to strengthen and sustain American leadership in chip technology, which is essential to our country`s economy and national security.`` On June 8, 2021, the Senate approved $52 billion for the CHIPS for America Act, dedicated to supporting the U.S. semiconductor industry over the next decade. This paper highlights a curious paradox: Most of the SIA corporate members now lobbying for the CHIPS for America Act have squandered past support that the U.S. semiconductor industry has received from the U.S. government for decades by using their corporate cash to do buybacks to boost their own companies` stock prices. Among the SIA corporate signatories of a letter to President Biden in February 2021, the five largest stock repurchasers - Intel, IBM, Qualcomm, Texas Instruments, and Broadcom — did a combined $249 billion in buybacks over the decade 2011-2020, equal to 71 percent of their profits and almost five times the subsidies over the next decade for which the SIA is lobbying. In addition, among the members of the Semiconductors in America Coalition (SIAC), formed specifically in May 2021 to lobby Congress for the passage of the CHIPS for America Act, are Apple, Microsoft, Cisco, and Google. These firms spent a combined $633 billion on buybacks during 2011-2020. That is about 12 times the government subsidies provided under the CHIPS for America Act to support semiconductor fabrication in the United States in the upcoming decade. If the Congress wants to achieve the legislation`s stated purpose of promoting major new investments in semiconductors, it needs to deal with this paradox. It could, for example, require the SIA and SIAC to extract pledges from its member corporations that they will cease doing stock buybacks as open-market repurchases over the next ten years. Such regulation could be a first step in rescinding Securities and Exchange Commission Rule 10b-18, which has since 1982 been a major cause of extreme income inequality and loss of global industrial competitiveness in the United States.
    Keywords: Semiconductor fabrication, nanometer technology, global competition, CHIPS for America Act, Semiconductor Industry Association, Semiconductors in America Coalition, stock buybacks, Intel, TSMC, Samsung Electronics, IBM, GlobalFoundries, Apple, semiconductor fabrication equipment, Huawei.
    JEL: D01 D21 D25 D40 G22 G28 G35 G38 L21 L52 L63
    Date: 2021–09–27
  13. By: Martin F. Hellwig (Max Planck Institute for Research on Collective Goods)
    Abstract: The paper contributes to a symposium of the Oxford Review of Economic Policy on “Capitalism: What has Gone Wrong, What Needs to Change, and How can it be Fixed?”. The analysis starts from the observation that, in the United States, the United Kingdom and continental Europe, widespread discontent has become an important political force. I attribute this discontent to a sense on unfairness in developments of the past few decades. I relate this sense of unfairness to: (i) negative effects of structural change, including joblessness and regional decline, (ii) the observation of extraordinary growth in executive remuneration and financial-sector remuneration, coupled with government bailouts in the global financial crisis, and (iii) changes in public policy and public discourse, with a retrenchment of public services and public investment, except for bailouts and a focus on “efficiency”, the meaning of which is driven by the perceptions of corporate executives rather than standard welfare economics. To capture these developments, one needs to think about “capitalism” in the sense of French “capitalism” or German “Kapitalismus”, with a focus on the symbiosis of wealth and power, including the elimination of competition, rather than the English sense of merely another term for the market economy.
    Keywords: Efficient public-good provision, incomplete information, conditionally independent private values, macro uncertainty, budget balance, weakly robust incentive compatibility
    Date: 2021–08–11

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