nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2022‒05‒30
nine papers chosen by
Karl Petrick
Western New England University

  1. "Why President Biden Should Eliminate Corporate Taxes to Build Back Better" By Edward Lane; L. Randall Wray
  2. The Conceptual Resilience of the Atomistic Individual in Mainstream Economic Rationality By Drakopoulos, Stavros A.
  3. Rareness in the intellectual origins of Walras’ theory of value By Cervera-Ferri, Pablo; Insa-Sánchez, Pau
  4. Some notes on Ricardo's analysis of the convergence process of the market rate of interest to the natural rate By Ciccone, Michele
  5. Fixation of Belief and Membership: A Contribution to the Understanding of the Detrimental Outcomes of Institutions By Alice Sindzingre
  6. "Chile: The Road to Joy Is Paved with Obstacles" By Giuliano Toshiro Yajima
  7. Cobweb Theory, Market Stability and Price Expectations By Poitras, Geoffrey
  8. Concepts of justice in the degrowth debate By Hennen, Sonja
  9. Trust and monetary policy By Paul De Grauwe; Yuemei Ji

  1. By: Edward Lane; L. Randall Wray
    Abstract: Edward Lane and L. Randall Wray explain how federal taxes on corporate profits are not well suited to either containing inflationary pressures or reducing inequality. They are not only a poor complement to President Biden's proposed infrastructure plans, but are inefficient and ineffective taxes more broadly, according to Lane and Wray. The authors follow Hyman Minsky in recommending the elimination of corporate taxes, and they outline a replacement centered on the taxation of unrealized capital gains.
    Date: 2021–06
  2. By: Drakopoulos, Stavros A.
    Abstract: Τhe idea that social influences and social interactions play a central role on individual economic decisions has had a long presence in the history of economics. With the emergence of marginalism, this idea went into background and the concept of atomistic individual became established in mainstream economic rationality. Starting in the 1970’s, there were some attempts to reintroduce non-atomistic preferences in mainstream microeconomic theory in the form of social interactions, interdependent preferences, keeping up with the Joneses, social identity, social preferences, and status concerns. Social preferences have started to have a growing impact among mainstream microeconomics with the advent of behavioral economics, but still they are not in the hard core of the standard theory of choice. The paper argues that atomistic preferences are still prevalent, especially in the form of the assumption of representative agent. It also focuses on the role of methodological individualism and on the theoretical implications of relaxing the assumption of atomistic individual, as main explanations of the resilience of the mainstream economic rationality.
    Keywords: Economic Rationality; Individual Preferences; Methodological Individualism, Representative Agent
    JEL: B20 B40 D10 D91
    Date: 2022–05–03
  3. By: Cervera-Ferri, Pablo; Insa-Sánchez, Pau
    Abstract: Historians of economic thought have carried out detailed studies of classical and marginalist approaches to value based on production cost and utility respectively, not to mention about the fusion of both interpretations by the neoclassical school. This is not the case with rareness value, a theory commonly attributed to Léon Walras, although Aristotle surely had rareness in mind when he first attempted to explain chrematistics. This article focuses on how our understanding of rareness has evolved from the earliest economic formulations to those of Auguste and Léon Walras, contesting Rothbard’s thesis that there is only one way in which the transmission of the utility theory of value can be tracked from scholasticism to the Austrian school. On the contrary, the concept of rareness continued to figure in some theories of value of the French Enlightenment, especially those that emerged within Calvinist circles, and was recovered in times of reaction against the dominant classicism.
    Date: 2022–04–09
  4. By: Ciccone, Michele
    Abstract: This paper aims to be a preliminary critical discussion about one of the main accepted results of Ricardo’s theory of money and interest, i.e., that the ‘natural’ rate of interest is determined by the profit rate. It will be argued that some logical inconsistencies seem to affect Ricardo’s representation of the tendency of the market rate of interest to the natural rate, with the latter ultimately determined by the rate of profits. According to Ricardo, exogenous changes in the supply of, or demand for money generate short-run changes of the money-prices ratio and the market interest rate, and permanent changes in the price level play the role of bringing them back to their natural values (the natural rate of interest being taken as a fraction of the natural profit rate). We will try to show that the convergence process envisaged by Ricardo seems to be not free from some critical considerations about its internal coherence if one takes into due account what he conceives to be the specific inducement for the public to borrow a larger quantity of money at a lower interest rate—namely, an above normal difference between profit rate and interest rate, together with the behavior of the banking system and with the main institutional features of a monetary system.
    Keywords: David Ricardo, natural and market rates of interest, quantity theory of money
    JEL: B0 B31 E4 E40
    Date: 2022
  5. By: Alice Sindzingre (CEPN - Centre d'Economie de l'Université Paris Nord - LABEX ICCA - UP13 - Université Paris 13 - Université Sorbonne Nouvelle - Paris 3 - CNRS - Centre National de la Recherche Scientifique - UPC - Université Paris Cité - Université Sorbonne Paris Nord - CNRS - Centre National de la Recherche Scientifique - Université Sorbonne Paris Nord, LAM - Les Afriques dans le monde - IRD - Institut de Recherche pour le Développement - Université Bordeaux Montaigne - Institut d'Études Politiques [IEP] - Bordeaux - IEP Bordeaux - Sciences Po Bordeaux - Institut d'études politiques de Bordeaux - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The contribution of institutions to growth or to stagnation (or even 'collapse') is a recurrent question in economics. The paper analyses the causalities according to which institutions generate behaviour that is detrimental to prosperity. Departing from mainstream explanations ('dysfunctionality', 'extraction'), it argues that institutions are composite concepts, which include forms and contents that evolve with time and contexts, and imply cascades of processes involving individual cognition and social interactions: yet certain beliefs may be subjected to processes of 'cumulative fixation', in contrast with refutable ones (e.g., scientific beliefs), and these processes are key mechanisms of stagnation. The article shows that some institutions can be related to others via sequential ordering, and that in an evolutionary perspective norms governing group membership (via, e.g., kinship, class, occupation) constitute 'core' institutions: more than others, these induce a cumulative fixation of beliefs and shape economic outcomes due to their key property, i.e. the generation of social classifications that orient individual behaviour vis-à-vis other individuals ('we'/'them', 'superiors'/'inferiors'). When contexts change, this ordering may evolve in asymmetries, where some beliefs and norms absorb or crowd-out others via mechanisms of cumulative causation, self-reinforcement and lock-in. Being more 'core', stable, than others, membership institutions drive such evolutions due to common features: beliefs that exhibit a high degree of fixation, deontic force and nonrefutability and provide high cognitive and emotional rewards, thus reinforcing incentives to adhere to them and having the greatest ability to persist whatever their economic effects.
    Keywords: heterodox economics,institutional economics,social norms,individual cognition.
    Date: 2021–06–29
  6. By: Giuliano Toshiro Yajima
    Abstract: In the second round of the Chilean presidential elections, the coalition led by Gabriel Boric secured a victory under the premise of delivering long-awaited reforms to a financially volatile, structurally fragile, and deeply unequal economic structure. In this policy note, Giuliano Toshiro Yajima sheds light on these three aspects of the Chilean economy, showing that its external and internal fragility feeds back on the excessive specialization and heterogeneity of the productive sectors, which in turn influence income and wealth distribution.
    Date: 2022–05
  7. By: Poitras, Geoffrey
    Abstract: Contributors to cobweb theory include many leading economists of the 20th century. From early beginnings in 1930, cobweb theory played a key role in evolving perceptions of market stability arising from recursive linear models with endogenous dynamics. The focal point of this evolution in cobweb theory is the transition from naive to adaptive to rational price expectations. After a review of the pre-history, this paper examines the first wave of linear cobweb theory initiated by Tinbergen, Schultz and Ricci and proceeds to consider the evolution of price expectations in the second wave of cobweb models associated with endogenous cycles in commodity markets. Finally, the role of modern cobweb theory in discussions surrounding the stability of market equilibrium and the connection to processes with rational expectations is assessed.
    Date: 2022–04–09
  8. By: Hennen, Sonja
    Abstract: Degrowth's search for a qualitatively and quantitively different economy is given legitimacy by the severity of the socio-ecological crisis, paired with a lack of evidence that resource use and environmental impact can be decoupled in absolute terms at a meaningful point in time and studies refuting the trickle-down hypothesis. However, there are few accounts of the potentially adverse effects of a halt of perpetual economic growth on the livelihoods of already marginalized and vulnerable communities and the general justice of a degrowth transition. This paper analyses to what extent Environmental Justice theory (EJ) could compensate for this deficit and thus contribute to a more comprehensive and inclusive understanding of justice in the degrowth concept. To do so, the paper firstly establishes gaps across central pillars of degrowth reasoning with regards to a just transition. It discusses evidence that degrowth seeks global socio-ecological justice on distributive grounds and with respect to recognition but falls short in conceptualizing the role that structural power systems (both on micro and macro level) as well as institutional governance mechanisms play in advancing a globally just degrowth transition. The second section of the analysis highlights those concepts within critical EJ theory that, based on the gaps identified, could enable a more extensive understanding of the necessary parameters for a just degrowth transition, namely in the areas of recognition, decoloniality, and theory of the state.
    Keywords: degrowth,socio-ecological crisis,environmental justice,theory of the state
    JEL: F54 H10 O44 Q56 Q58
    Date: 2022
  9. By: Paul De Grauwe; Yuemei Ji
    Abstract: We analyze how trust affects the transmission of negative demand and supply shocks. We define trust to have two dimensions: there is trust in the central bank’s inflation target and trust in the future of economic activity. We use a behavioural macroeconomic model that is characterized by the fact that individuals lack the cognitive ability to understand the underlying model and to know the distribution of the shocks that hit the economy. We find, first, that when large negative demand shocks occur the subsequent trajectories taken by output gap and inflation typically coalesce around a good and a bad trajectory. Second, these good and bad trajectories are correlated with movements in trust. In the bad trajectories trust collapses, in the good trajectories it is not affected. This feature is stronger when a negative supply shock occurs than in the case of a negative demand shock. Third, initial conditions (history) matters. Unfavorable initial conditions drive the economy into a bad trajectory, favorable initial conditions produce good trajectories.
    Date: 2022–05

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