nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2022‒11‒14
four papers chosen by
Karl Petrick
Western New England University

  1. Macroeconomic ingredients for a growth model analysis for peripheral economies. A post-Keynesian-structuralist approach By Engelbert Stockhammer
  2. Inflation and distribution during the post-COVID recovery: a Kaleckian approach By Mark Setterfield
  3. How Financially Fragile can Households Become? Household Borrowing, the Welfare State, and Macroeconomic Resilience By Mark Setterfield; Y.K. Kim
  4. From Marx's fundamental equalities to the solving of the transformation problem -- Coherence of the model By Norbert Ankri; Pa\"ikan Marcaggi

  1. By: Engelbert Stockhammer
    Abstract: The growth models approach (GMA) has become increasingly prominent in Comparative Political Economy over the last years. While it has originally been developed for advanced economies, there is a growing number of applications to developing countries. This raises the question how readily transferable the GMA concepts are to the peripheral capitalist experience. This paper explores the analytical building blocks for an extension of the growth models approach to developing economies from post-Keynesian-structuralist perspective. It argues, that in a developing country context supply-side considerations will be more important and builds on structuralist theory to understand the ‘real’ constraints in the developing countries growth process. It uses Minskyan theory to understand how currency hierarchy creates financial causes for international economic stratification. As a consequence the role of the state is more crucial than in advanced economies, but at the same time states are more vulnerable. The paper concludes by reflecting on the key concepts of GMA, finance-led, export-led and state-led growth in the light of developing economies and identifying neoliberal as well developmentalist versions of these.
    Keywords: Comparative Political Economy, growth models, structuralism post-Keynesian Economics, developing economies
    JEL: E60 F00 F30 O11 P10
    Date: 2022–11
  2. By: Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: The early stages of recovery from the recession induced by the COVID-19 pandemic have been accompanied by a marked increase in inflation in the US and elsewhere. Much has been made of this outcomes, and the economic distress associated with it, in popular discussion of the economy. This paper provides a Kaleckian conflicting-claims analysis of inflation during the post-COVID recovery, that distinguishes between rising wages, pandemic-related supply shocks, and corporate price-setting behaviour as sources of inflationary pressure. A key conclusion that arises from the co-determination of inflation and distributional outcomes in the Kaleckian framework is that distributional developments that have further disadvantaged working households, rather than inflation per se, are the chief source of recent economic distress - and should be the chief cause for concern among policy makers.
    Keywords: Inflation, COVID-19, conflicting claims, wage share, income distribution
    JEL: E02 E11 E12 E25 E31 E64
    Date: 2022–10
  3. By: Mark Setterfield (Department of Economics, New School for Social Research); Y.K. Kim (Department of Economics, University of Massachusetts, Boston)
    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
  4. By: Norbert Ankri; Pa\"ikan Marcaggi
    Abstract: Recently, V. Laure van Bambeke used an original approach to solve the famous problem of transformation of values into production prices by considering that capital reallocation to each department (branch) was part of the problem. Here, we confirm the validity of this consideration in relation with the satisfaction of demand (social need which is able to pay for the given product). In contrast to V. Laure van Bambeke's method of solving an overdetermined system of equations (implying that compliance with Marx's fundamental equalities could only be approached), we show that the transformation problem is solvable from a determined (two-branch models) or an underdetermined system of equations enabling to obtain exact solutions through an algorithm we provide, with no approximation needed. For systems with three branches or more, the solution of the transformation problem belongs to an infinite ensemble, accounting for the observed high competition-driven market fluidity. Furthermore, we show that the transformation problem is solvable in the absence of fixed capital, supporting that dealing with the latter is not essential and cannot be seen as a potential flaw of the approach. Our algorithm enables simulations illustrating how the transient rise in the rate of profit predicted by the Okishio theorem is consistent with the tendency of the rate of profit to fall (TRPF) subsequent to capital reallocation, and how the TRPF is governed by the increase of organic composition, in value. We establish that the long-standing transformation problem is not such a problem since it is easily solved through our algorithm, whatever the number of branches considered. This emphasizes the high coherence of Marx's conception, and its impressive relevance regarding issues such as the TRPF, which have remained intensely debated.
    Date: 2022–10

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