nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2023‒09‒18
four papers chosen by
Karl Petrick, Western New England University

  1. Keynes and the drunkard under the lamp post: Making sense of Palley By Heise, Arne
  2. Long Term Expectations and Aggregate Fluctuations By Pedro Bordalo; Nicola Gennaioli; Rafael La Porta; Matthew O'Brien; Andrei Shleifer
  3. How Does Democracy Cause Growth? By Boese-Schlosser, Vanessa A.; Eberhardt, Markus
  4. The New Economics of Industrial Policy By Réka Juhász; Nathan J. Lane; Dani Rodrik

  1. By: Heise, Arne
    Abstract: In a recent article, Tom Palley begins his critique of Keynesian economics with the well-known story of a drunkard who, when searching for his lost keys, looks not in the darkness of the nearby lawn where he misplaced them, but instead under the light cone of a lamp post because, when asked, he replies that's where the light is. This story serves as a metaphor for the field of economics attempting to understand the workings of the capitalist economy solely through the lens of Keynesian economics. However, this endeavour is ultimately futile as comprehending capitalism requires a different analytical approach: acknowledging social conflict as an essential component of capitalism's nature better addressed by Kaleckian macroeconomics. I attempt to illustrate that Palley is accurate in emphasizing the paradigmatic differences and even incommensurabilities between Keynes' monetary production paradigm and the Marxian-Kaleckian social conflict paradigm. This suggests that any classification under the umbrella term "post-Keynesianism" is misleading. However, Palley is mistaken in his assertion that this distinction aligns Keynes' economics with neoclassical (mainstream) economics, as the acceptance or rejection of social conflict is not the only fault line in terms of ontology. There are other ontological divisions that can exist. Or, to use the metaphor, the lamp post can be moved to different areas of the lawn, indicating different ontological perspectives.
    Keywords: Keynes, social conflict, effective demand, monetary production
    JEL: A14 B40 B51 E11 E12
    Date: 2023
  2. By: Pedro Bordalo; Nicola Gennaioli; Rafael La Porta; Matthew O'Brien; Andrei Shleifer
    Abstract: In line with Keynes’ intuition, volatility in the stock market and in real economic activity are linked by expectations of long term profits. We show that analysts’ optimism about the long term earnings growth of S&P 500 firms is associated with a near term boom in major US financial markets, real investment, and other business cycle indicators. The same optimism however predicts disappointing earnings growth and a contraction in financial markets and real activity one to two years later. Overreaction of measured long term profit expectations emerges as a promising mechanism for reconciling Shiller’s excess volatility puzzle with the business cycle.
    JEL: E0 E32 E44 E7 G01 G10
    Date: 2023–08
  3. By: Boese-Schlosser, Vanessa A.; Eberhardt, Markus
    Abstract: Recent empirical work has established that 'democracy causes growth'. In this paper, we determine the underlying institutions which drive this relationship using data from the Varieties of Democracy project. We sketch how incentives and opportunities as well as the distribution of political power shaped by underlying institutions, in combination with the extent of the market, endogenously form an 'economic blueprint for growth', which likely differs across countries. We take our model to the data by adopting novel heterogeneous treatment effects estimators, which allow for non-parallel trends and selection into institutional change, and run horse races between underlying institutions. We find that freedom of expression, clean elections, and legislative executive constraints are the foremost drivers of long-run development. Erosion of these institutions, as witnessed recently in many countries, may jeopardise the perpetual growth effect of becoming a liberal democracy we establish for the post-WWII period.
    Keywords: Democracy, Growth, Institutions, Interactive Fixed Effects, Difference-in-Difference
    JEL: O10 P16 C23
    Date: 2023
  4. By: Réka Juhász; Nathan J. Lane; Dani Rodrik
    Abstract: We discuss the considerable literature that has developed in recent years providing rigorous evidence on how industrial policies work. This literature is a significant improvement over the earlier generation of empirical work, which was largely correlational and marred by interpretational problems. On the whole, the recent crop of papers offers a more positive take on industrial policy. We review the standard rationales and critiques of industrial policy and provide a broad overview of new empirical approaches to measurement. We discuss how the recent literature, paying close attention to measurement, causal inference, and economic structure, is offering a nuanced and contextual understanding of the effects of industrial policy. We re-evaluate the East Asian experience with industrial policy in light of recent results. Finally, we conclude by reviewing how industrial policy is being reshaped by a new understanding of governance, a richer set of policy instruments beyond subsidies, and the reality of de-industrialization.
    JEL: L5
    Date: 2023–08

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