nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2023‒07‒24
five papers chosen by
Karl Petrick
Western New England University

  1. Will hysteresis effects afflict the US economy during the post-COVID recovery? By Mark Setterfield
  2. Energy as a limiting factor of economic growth: the profit rate channel By Alban Pellegris
  3. What Went So Wrong in Economics By Jennings, Frederic
  4. Empirical analysis of a debt-augmented Goodwin model for the United States By Hugo Bailly; Frédéric Mortier; Gaël Giraud
  5. Women's Colleges and Economics Major Choice: Evidence from Wellesley College Applicants By Kristin F. Butcher; Patrick McEwan; Akila Weerapana

  1. By: Mark Setterfield (Department of Economics, New School for Social Research, USA)
    Abstract: An important property of hysteresis is that temporary events of sufficient magnitude can have permanent effects. The COVID-19 recession in the US was both temporary and extremely deep. This invites the hypothesis that the recession had permanent effects on the US economy as a result of hysteresis. We investigate this hypothesis by focusing on aggregate activity -- both actual and potential -- and searching for signs of possible adverse hysteresis effects in the data generated by the first 2-3 years of recovery from the COVID-19 recession. Results suggest that few such signs exist. The conclusion that emerges is that aggregate levels of activity in the US economy will emerge largely unscathed in the longer-term from short-term adversities associated with the COVID-19 recession.
    Keywords: Hysteresis, persistence, COVID-19, actual output, potential output
    JEL: E12 E32 E66
    Date: 2023–06
  2. By: Alban Pellegris (UR2 UFRSS - Université de Rennes 2 - UFR Sciences sociales - UR2 - Université de Rennes 2)
    Abstract: Within ecological economics, there is a diversity of traditions highlighting the fundamental role of energy in the growth process. Faced with the limitations of neo-thermodynamic (Ayres, Warr...) and neo-physiocratic (Court, Hall...) approaches, our work proposes to consider another paradigm: Marxist political economy. The latter allows us to theoretically identify a profit rate channel through which relative energy prices affect the macroeconomic profit rate. Econometric work carried out over the period 1995-2019 on a panel of 16 countries confirms its existence. These results are discussed in the light of recent literature on the burden of the energy bill.
    Keywords: energy bill, economic growth, marxist political economy, energy consumption
    Date: 2023–01–07
  3. By: Jennings, Frederic
    Abstract: Abstract What went so wrong in economics started in 1939 with ‘The Hicksian Getaway, ’ where – after over ten years of debate assuming increasing returns – Hicks asserted decreasing returns as the basis for his competitive frame, dismissing any “useful analysis” of increasing returns. After winning the 1972 Nobel Prize for his 1939 work, Hicks (1977, pp. v-vii) apologized for ‘The Hicksian Getaway, ’ calling it “nonsense” and “an indefensible trick that ruined the ‘dynamics’ of Value and Capital.” After a series of failed attempts to integrate time into production theory, in 1958 Armen Alchian proposed a method to do so with nine propositions showing the relation of time to cost, which Julius Margolis (1960) extended into a horizonal theory of price. Jack Hirshleifer (1962) saw Alchian’s (1958) frame as a threat to neoclassical theory, declaring his aim as “rescuing the orthodox cost function.” ‘The Hirshleifer Rescue’ of decreasing returns was seamlessly folded into economics as a ‘proof’ that decreasing returns was “a general and universally valid law” of economics, according to Alchian (1968). The present paper debunks ‘The Hirshleifer Rescue’ to show the case for decreasing returns and competition rests on unfounded assertion, especially for all long-run analyses. The paper explores the implications of an increasing returns economy of complementarity and abundance in networks, with a case for efficient cooperation. The claims in Nicholas Kaldor’s papers are thus extended into an integral theory of planning horizons, as a formalization of Herbert Simon’s notion of bounded rationality. An increasing returns economics is a horizonal economics.
    Keywords: Keywords: increasing and decreasing returns to scale, rising and falling costs, time, knowledge, planning horizons, John Hicks, Jack Hirshleifer, Armen Alchian, Herbert Simon, Nicholas Kaldor
    JEL: B2 B21 B3 B31 B4 B41 B5 B52 D4 D40 D46 D5 D6 D62 L0 P0 Z1
    Date: 2023–06–20
  4. By: Hugo Bailly (GEJP - Georgetown Environmental Justice Program [Washington] - GU - Georgetown University [Washington], CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Deloitte Economic Advisory); Frédéric Mortier (GEJP - Georgetown Environmental Justice Program [Washington] - GU - Georgetown University [Washington], UPR Forêts et Sociétés - Forêts et Sociétés - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement); Gaël Giraud (GEJP - Georgetown Environmental Justice Program [Washington] - GU - Georgetown University [Washington])
    Abstract: The Goodwin-Keen model was introduced to reflect the structural instability of debt-financed economies. The appeal of the model lies in its ability to reflect an economy that can either converge towards a Solow-like trajectory or towards a debt crisis. However, no empirical study has focused on the model up to now. Using u.s. data for non-financial firms over the period 1959-2019, this paper tests the empirical validity of an extended Goodwin-Keen model taking dividend payments into account. We propose an original two-step estimation procedure to simultaneously estimate parameters and quantify their uncertainty. We show that the model captures the historical cycles in the wage share and employment rate, while reflecting the trend growth in the debt-to-output ratio. This relatively good fit is achieved with sensible parameter estimates but a large uncertainty, indicating notably that the model fails to fully capture the debt dynamics. Finally, we show that, according to the estimated model projections, the probability of occurrence of a corporate debt crisis in the next century is less than 1%. Although the Goodwin-Keen model is too simplistic to reflect financial instability as a whole, our results show that it could be a useful framework for the development of larger macroeconomic models.
    Keywords: Goodwin-Keen model, Macroeconometrics, Dynamical systems in macroeconomics, Corporate debt, Financial instability
    Date: 2023–06–24
  5. By: Kristin F. Butcher; Patrick McEwan; Akila Weerapana
    Abstract: Many observers argue that diversity in Economics and STEM fields is critical, not simply because of egalitarian goals, but because who is in a field may shape what is studied by it. If increasing the rate of majoring in mathematically-intensive fields among women is a worthy goal, then understanding whether women’s colleges causally affect that choice is important. Among all admitted applicants to Wellesley College, enrollees are 7.2 percentage points (94%) more likely to receive an Economics degree than non-enrollees (a plausible lower bound given negative selection into enrollment on math skills and major preferences). Overall, 3.2 percentage points—or 44% of the difference between enrollees and non-enrollees—is explained by college exposure to female instructors and students, consistent with a wider role for women’s colleges in increasing female participation in Economics.
    Date: 2023–04

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