nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2022‒11‒07
seven papers chosen by
Karl Petrick
Western New England University

  1. Falling Labour Share and the Anaemic Growth in Portugal: a Post-Keynesian Econometric Analysis By João Alcobia; Ricardo Barradas
  2. How Financially Fragile can Households Become? Household Borrowing, the Welfare State, and Macroeconomic Resilienc By Mark Setterfield; YK Kim
  3. Running the U.S. Economy at Full Throttle Is a Stressful Variant of Capitalism By John Komlos
  4. La estructura lógica de la teoría del equilibrio general dinámico estocástico By Tobón Arias, Alexander
  6. Can Economics Become More Reflexive ? Exploring the Potential of Mixed-Methods By Rao,Vijayendra
  7. What Have We Learned about the Effectiveness of Infrastructure Investment as a FiscalStimulus ? A Literature Review By Vagliasindi,Maria; Gorgulu,Nisan

  1. By: João Alcobia; Ricardo Barradas
    Abstract: In recent decades, the labour share has experienced a downward trend in Portugal that has occurred at the same time as a weaker and anaemic growth pattern. This seems to suggest that the fall in the labour share represents an important constraint on Portuguese economic growth, which does not support the orthodox claims around wage restraint policies as a necessary condition to improve macroeconomic performance due to their positive effects on private investment through higher profits and on net exports through lesser unit labour costs and a corresponding rise in competitiveness. This study assesses the relationship between labour share and economic growth by performing a time series econometric analysis focused on Portugal from 1970 to 2020. Findings show that labour share positively impacts economic growth in Portugal, which is in line with heterodox claims and particularly with post-Keynesian economics on the beneficial effects on private consumption played by the growth of wages. Findings also confirm that the Portuguese economy follows a wage-led growth regime instead of a profit-led growth regime; that is, a rise in wages boosts economic growth because its beneficial effect on private consumption more than compensates for a prejudicial effect on private investment and on net exports. The study points out the urgent need to adopt public policies to support the growth of wages to avoid more decades of dismal growth and a new ‘secular stagnation’ in Portugal.
    Keywords: Post-Keynesian Economics; Labour Share; Economic Growth; Portugal; Generalised Method of Moments Estimator
    JEL: C22 D33 E12 O47
    Date: 2022–09
  2. By: Mark Setterfield; YK Kim
    Abstract: We extend the principles of the Financial Instability Hypothesis (FIH) to the household sector by re-framing the three financial postures associated with the FIH (hedge, speculative, and Ponzi) in the context of households, using a simple model of household borrowing and debt-financing behavior. We also connect our analysis to various strands of research in Comparative Political Economy on credit regimes, the welfare state, and Varieties of Capitalism. Our paper thereby discusses the importance of welfare systems and financial regimes as determinants of household borrowing behavior and hence the financial fragility of the household sector. In so doing it relates to recent US policy debates by demonstrating the macroeconomic consequences of raising taxes on top incomes in order to fund an increase in the social wage. Our results suggest that taxing top incomes to provide social services without accumulating public debt improves macroeconomic resilience and may also improve macroeconomic performance. We therefore uncover some of the values of welfarism that the neoliberal ‘experiment’ inadvertently revealed by ‘rolling back the frontiers of the welfare state’ and in so doing, leading capitalism headlong into the 2007-09 financial crisis.
    Keywords: Financial fragility, financial instability hypothesis, household borrowing, household debt, welfare state, macroeconomic resilience
    JEL: E12 E44 O41
    Date: 2022–10
  3. By: John Komlos
    Abstract: Maximizing output without taking into consideration the negative externalities generated, including the harm to the mental and physical health of the population creates psychological stress. Focusing on the bellwether indicators of economic performance including working more, generating income, accepting more risks, while disregarding its effect on work-life balance, on income distribution, and the quality of life in general creates stressors that harm the human biological system. Stress is the biological reaction to external stimuli that threatens the self-preservation instinct of a human organism. The stress was generated by debilitating poverty, financial insecurity, by the highest level of inequality among rich countries that led to the hollowing out of the middle class, by the lack of social safety nets that might have mitigated the turbulence of adjusting to a knowledge economy, by the downward social mobility of millions disadvantaged by globalization, and by the inadequate retraining opportunities that prevented those displaced by the penetration of imports to find employment in the expanding IT sector. These stressors have been accumulating in the U.S. population for decades, as indicated by the deterioration of mental health, by the propensity to relieve the pain through the use of illicit drugs, by deaths of despair, by the incarceration rate, by mass murders, by the fall in life expectancy, by the attenuation in life satisfaction, and by the rise of populism, creating many mental, biological, social, economic, and political quandaries.
    Keywords: capitalism, psychological stress, globalization, financial crisis, inequality, populism
    JEL: A14 D60 D91 E71 G41 P16
    Date: 2022
  4. By: Tobón Arias, Alexander
    Abstract: Resumen: El objetivo de este documento de trabajo es proponer una estructuración lógica de la teoría del equilibrio general dinámico estocástico o teoría DSGE. Para tal fin, se presentan las seis fases que configuran su evolución, buscando responder al paradigma de las fluctuaciones económicas o business cycle. Se muestra que existen dos linajes en dicha evolución: por un lado, aquel que proviene de Brock y Mirman (1972) y, por otro lado, aquel que proviene de Dixit y Stiglitz (1977). Sobre la base de esta distinción, se discute la naturaleza de la teoría del equilibrio general dinámico estocástico en su versión actual llamada “nueva síntesis neoclásica†o “modelo nuevo keynesiano†. Si bien esta versión reivindica una adhesión al pensamiento de Keynes, se aporta evidencia para rechazar tal pretensión. Se concluye que la teoría del equilibrio general dinámico estocástico es esencialmente una metodología empírica, cuyo contenido teórico se reduce a los principios tradicionales de la teoría neoclásica walrasiana. Abstract: The aim of this working paper is to propose a logical structure of the dynamic stochastic general equilibrium theory or DSGE theory. To this end, the six phases of its evolution are presented, aiming to address the paradigm of economic fluctuations or business cycle. It is shown that there are two lineages in this evolution: the one from Brock and Mirman (1972), and that which comes from Dixit and Stiglitz (1977). Based on this distinction, the dynamic stochastic general equilibrium theory is discussed, known in its current version as “new neoclassical synthesis†or “new Keynesian model†. While this version claims an adherence to Keynes’s thought, evidence is provided to reject such a claim. It is concluded that dynamic stochastic general equilibrium theory is essentially an empirical methodology, whose theoretical content is reduced to the traditional principles of the Walrasian neoclassical theory.
    Keywords: Historia de la macroeconomía, nuevos clásicos, nuevos keynesianos, DSGE, nueva síntesis neoclásica
    JEL: B22 E13 E32 E50
    Date: 2022–07–12
  5. By: Jacques Fontanel (CESICE - Centre d'études sur la sécurité internationale et les coopérations européennes - UGA - Université Grenoble Alpes - IEPG - Sciences Po Grenoble - Institut d'études politiques de Grenoble - UGA - Université Grenoble Alpes)
    Abstract: The economic analysis of war remains deeply dependent on expressed or underlying philosophical reflections. Political economy was based on philosophical reflections on life in society, from the mercantilists in search of the power of the Prince to the Marxists, resolute opponents of the class struggle inherent in capitalism, passing through humanist, anarchist, statist or socialist analyses often grouped together under the inaccurate Marxist name of "utopian socialists" and Keynesian reflections giving the State a role that is today rendered so difficult because of regionalization and globalization. The transition from political economy to economic science has progressively disconnected formalized analyses from all forms of conflict between states or within nations. It testifies to the importance still given today to the "invisible hand" and to liberal neo-classical analyses that still value self-interest and the police state as fundamental and optimal bases of economic life. However, the 20th century shows the permanence of conflicts and wars. It is essential today, in order to understand the economy of today, to integrate into economic reflections the functioning of political systems which, under declarations favorable to the functioning of the market economy, continue to exert influences that are similar to mercantilist type policies. Economic development goes hand in hand with the power of the state and vice versa.
    Abstract: L'analyse économique de la guerre reste profondément dépendante de réflexions philosophiques exprimées ou sous-jacentes. L'économie politique était fondée sur des réflexions philosophiques portant notamment sur la vie en société, des mercantilistes à la recherche de la puissance du Prince aux marxistes adversaires résolus de la lutte des classes inhérente au capitalisme, en passant par les analyses humanistes, anarchistes, étatiques ou socialistes souvent regroupées sous la dénomination marxiste inexacte de «socialistes utopiques » et les réflexions keynésiennes donnant à l'Etat un rôle qui lui est aujourd'hui rendu si difficile du fait de la régionalisation et de la globalisation. Le passage de l'économie politique à la science économique a progressivement déconnecté les analyses formalisées de toutes les formes de conflits entre les Etats ou à l'intérieur des Nations. Il témoigne de l'importance accordée encore aujourd'hui à la « main invisible » et aux analyses néo-classiques libérales qui valorisent toujours l'intérêt personnel et l'Etat gendarme comme bases fondamentales et optimales de la vie économique. Pourtant, le XXe siècle met en évidence la permanence des conflits et des guerres. Il est aujourd'hui essentiel, pour comprendre l'économie d'aujourd'hui, d'intégrer dans les réflexions économiques le fonctionnement de systèmes politiques lesquels, sous les déclarations favorables au fonctionnement de l'économie de marché, continuent à exercer des influences qui s'apparentent à des politiques de type mercantiliste. Le développement économique va de pair avec la puissance de l'Etat et vice versa.
    Date: 2022
  6. By: Rao,Vijayendra
    Abstract: This paper argues that Economics can learn from Cultural Anthropology and Qualitative Sociologyby drawing on a judicious mix of qualitative and quantitative methods to become more “reflexive.” It arguesthat reflexivity, which helps reduce the distance between researchers and the subjects of their research, has four keyelements: cognitive empathy, the analysis of narratives (potentially enhanced by machine learning), understandingprocess, and participation (involving respondents in research). The paper provides an impressionistic andnon-comprehensive review of mixed-methods relevant to development economics and discrimination to illustrate these points.
    Keywords: Human Rights,Gender and Development,Financial Sector Policy,Social Cohesion,ICT Applications
    Date: 2022–01–28
  7. By: Vagliasindi,Maria; Gorgulu,Nisan
    Abstract: Since the Great Depression of the 1930s, and through the more recent Asian Crisis of 1997 andGreat Recession of 2008/09, governments have experimented with Keynesian style fiscal stimulus to support employmentand accelerate economic recovery. The effectiveness of these policies depends on the size of fiscal multipliers. A largebody of economic literature has estimated such multipliers, with gradually increasing precision, due to econometricimprovements and better ways to identify fiscal impulses. Overall, the largest multipliers are found to be associatedwith public investment, as opposed to other types of spending. Such public investment multipliers are typicallybelow one in the short run, but studies with multi-year horizons suggest that values higher than unity can beattained over time. The size of multipliers is sensitive to economic conditions. During recessions, and periods of highunemployment, transfer payments appear sometimes to offer higher multipliers than public investment. An importantexception is when fiscal and monetary policies are closely coordinated and interest rates approach zero, conditionsthat provide the strongest evidence for the efficacy of public investment multipliers. Other institutional factorsalso play a crucial role in determining the size of the public investment multiplier, in particular the country’s absorptive capacity, and the selection of high-qualityshovel ready projects. However, there is limited empirical evidence available on the magnitude of fiscal multipliers indeveloping country settings, or for infrastructure sectors or subsectors specifically. The few studies availablesuggest that certain types of green infrastructure (energy efficiency, solar energy, and so forth) may bring employmentbenefits in the short run, while innovative digital infrastructure may yield longer-run benefits for economicgrowth. The relevance of these findings to the current COVID-19 crisis is explored.
    Keywords: Labor Markets,Energy Demand,Energy and Mining,Energy and Environment,Transport Services,Fiscal & Monetary Policy,Public Finance Decentralization and Poverty Reduction,Public Sector Economics,Economic Adjustment and Lending,Macroeconomics and Economic Growth,Economic Policy, Institutions and Governance,Macro-Fiscal Policy
    Date: 2021–10–06

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