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on Post Keynesian Economics |
| By: | Jan Toporowski (SOAS, University of London) |
| Abstract: | The discussion of financial stability, and the role of monetary policy, is incoherent because there is very little agreement on what constitutes financial stability (and, by implication, instability) - exchange rate stability, asset price stability, absence of debt default. By implication, there is a gap between the claims of various authors to the general applicability of their respective analyses, and the actual applicability of their conclusions, let alone the usefulness of some of their policy recommendations. The paper argues that the key issue is the regulation of the liquidity of all financial markets, and not just that of the banking system, through the markets for government securities. The paper examines the sources of this liquidity in the financial portfolios of the private sector, and how that liquidity may be managed through the open market operations of central banks and the debt management operations of governments. An implication of this approach is yield curve control and the use of (government) debt management to control the liquidity of the markets. These elements of monetary policy have been neglected in theory and policy since the 1950s. |
| Keywords: | monetary policy, liquidity, debt management, yield curve control. |
| JEL: | E50 G24 G29 H63 |
| Date: | 2024–01–24 |
| URL: | https://d.repec.org/n?u=RePEc:thk:wpaper:inetwp218 |
| By: | Servaas Storm (Delft University of Technology) |
| Abstract: | Bernanke and Blanchard (2023) use a simple dynamic New Keynesian model of wage-price determination to explain the sharp acceleration in U.S. inflation during 2021-2023. They claim their model closely tracks the pandemic-era inflation and they confidently conclude that "we don't think that the recent experience justifies throwing out existing models of wage-price dynamics." This paper argues that this confidence is misplaced. The Bernanke and Blanchard is another failed attempt to salvage establishment macroeconomics after the massive onslaught of adverse inflationary circumstances with which it could evidently not contend. It misrepresents American economic reality, hides distributional issues from view, de-politicizes (monetary and fiscal) policy-making, and sets monetary policymakers up to deliver significantly more monetary tightening than can be justified on the basis of more realistic model analyses. |
| Keywords: | Inflation; science of monetary policy; output gap; unemployment gap; vacancy ratio; inflation expectations; wage-price spiral; non-linear Phillips curve. |
| JEL: | E0 E5 E6 E62 O23 I12 J08 |
| Date: | 2024–03–29 |
| URL: | https://d.repec.org/n?u=RePEc:thk:wpaper:inetwp220 |
| By: | Oner Tulum (Academic-Industry Research Network); William Lazonick (Academic-Industry Research Network) |
| Abstract: | Mandated by the Inflation Reduction Act of 2022, the U.S. government through the Centers for Medicare and Medicaid Services (CMS) is negotiating with pharmaceutical companies over the "maximum fair price" of ten drugs in wide use by Medicare patients. Over the next few years, the number of drugs whose prices are subject to negotiations will increase. The pharmaceutical companies contend that a "fair" price would be a "value-based price" that enables the companies' shareholders to capture the value that the drug creates for society. Invoking the dominant "maximizing shareholder value" ideology, the argument for value-based pricing assumes that it is only a pharmaceutical company's shareholders who make the risky investments that fund drug innovation. Pharmaceutical executives and their lobbyists warn that a lowering of drug prices will reduce investments in new drugs. The purpose of this paper is to enable CMS negotiators to respond to these arguments by showing a) why drug-price regulation is required, given the relation between scale economies in supplying drugs and price inelasticity of drug demand; b) how the pharmaceutical companies with which they are negotiating prices are, in general, not using their profits from unregulated drug prices to fund drug innovation but rather to fund distributions to shareholders in the form of cash dividends and stock buybacks; c) that publicly listed pharmaceutical companies do not typically rely upon investment by shareholders to fund drug innovation; and d) that investment in drug innovation entails "collective and cumulative learning" in foundational and translational research that is both antecedent and external to the investments in clinical research that a pharmaceutical company may make to bring a safe and effective drug to market. |
| Keywords: | Inflation Reduction Act, drug prices, Medicare negotiations, investment in innovation, accessible and affordable medicines, foundational research, translational research, clinical research, collective and cumulative learning, stock buybacks, shareholder-value ideology, value-based pricing, value for society |
| JEL: | G30 G35 H40 H51 I10 I28 J24 L11 L12 L21 L50 L65 O30 P16 |
| Date: | 2024–09–09 |
| URL: | https://d.repec.org/n?u=RePEc:thk:wpaper:inetwp226 |
| By: | Thomas Ferguson (Institute for New Economic Thinking); Servaas Storm (Delft University of Technology) |
| Abstract: | This paper analyzes claims that the Federal Reserve is principally responsible for the decline of inflation in the U.S. We compare several different quantitative approaches. These show that at most the Fed could plausibly claim credit for somewhere between twenty and forty percent of the decline. The paper then examines claims by central bankers and their supporters that a steadfast Fed commitment to keeping inflationary expectations anchored played a key role in the process. The paper shows that it did not. The Fed's own surveys show that low-income Americans did not believe assurances from the Fed or anyone else that inflation was anchored. Instead, what does explain much of the decline is the simple fact that most workers nowadays cannot protect themselves by bargaining for higher wages. The paper then takes up the obvious question of why steep rises in interest rates have not so far led to big rises in unemployment. We show that recent arguments by Benigno and Eggertson that shifts in vacancy rates can explain this are inconsistent with the evidence. The biggest factor in accounting for the strength in the economy is the continuing importance of the wealth effect in sustaining consumption by the affluent. This arises, as we have emphasized in several papers, from the Fed's quantitative easing policies. Absent sharp declines in wealth, the continuing importance of this factor is likely to feed service sector inflation in particular. |
| Keywords: | Inflation; wage-price spiral; inflation expectations; effectiveness of monetary tightening; Phillips curve; central bank credibility; labor market tightness; real earnings growth; earnings uncertainty; the Beveridge ratio; wealth; wealth effect on consumption; affluent consumption; services inflation. |
| JEL: | E0 E5 E6 E62 O23 I12 J08 |
| Date: | 2024–09–25 |
| URL: | https://d.repec.org/n?u=RePEc:thk:wpaper:inetwp227 |
| By: | Alexandre Truc (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur); Olivier Santerre (UdeS - Université de Sherbrooke); Yves Gingras (UQAM - Université du Québec à Montréal = University of Québec in Montréal); François Claveau (UdeS - Université de Sherbrooke) |
| Abstract: | Economics has the reputation to be an insular discipline with little consideration for other social sciences and humanities (SSH). Recent research (Angrist et al., 2020) challenges this perception of economics: the perception would be historically inaccurate and especially at odds with the recent interdisciplinarity of economics. By systematically studying citation patterns since the 1950s in thousands of journals, we offer the best established conclusions to date on this issue. Our results do show that the discipline is uniquely insular from a historical point of view. But we also document an important turn after the 1990s that drastically transformed the discipline as it became more open, very quickly, to the influence of management, environmental sciences and to a lesser degree, a variety of the SSH. While this turn made economics less uniquely insular, as of today economics remains the least outward-looking discipline with management among all SSH. Furthermore, unlike in the other major social sciences, the most influential journals in economics have not significantly contributed to the recent increase in the interdisciplinarity of the discipline. While economics is changing, it is too soon to claim that it has completed an interdisciplinary turn. |
| Date: | 2023 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04719259 |
| By: | Heng-fu Zou (The World Bank) |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:cuf:wpaper:679 |
| By: | Thomas Ferguson (Institute for New Economic Thinking); Servaas Storm (Delft University of Technology) |
| Abstract: | The wafer-thin poll margins separating President Joe Biden and Donald Trump have surprised and baffled many analysts. This paper attempts no analysis of the election itself. It focuses instead on a clinical assessment of its macroeconomic context. Building on previous work, this paper looks first at inflation's overall effect on real wages and salaries. It then considers claims advanced by Autor, Dube and McGrew (2023) and others about wages of the lowest paid workers. Real wages for most American workers have declined substantially under inflation. We observe no sign of a radical transformation of the U.S. labor market in favor of the lowest-paid workers. The (modest) increase in real hourly wages of the bottom 10% of U.S. workers during 2021-2023 owed little to any policy change or declining monopsony power: It was a unique case of wages rising to subsistence levels as COVID exponentially multiplied risks of working at what had previously been relatively safe jobs at the bottom of the wage distribution. The paper then analyzes inflation's persistence in the face of substantial increases in interest rates. We document the wealth gains made by the richest 10% of U.S. households during 2020-2023. These wealth gains, which have no peacetime precedents, enabled the richest American households to step up consumption, even when their real incomes were falling. Empirically plausible estimations of the wealth effect on the consumption of the super-rich show that the wealth effect can account for all of the increase in aggregate consumption spending above its longer-term trend during 2021Q1-2023Q4. Importantly, the lopsided inequality in wealth makes controlling lopsided consumption spending by raising interest rates much harder for the Federal Reserve, without interest rate increases that would bring the rest of the economy to its knees much earlier. We also show that the persistence of inflation in several key service sectors is heavily influenced by captive regulators – a condition that higher interest rates cannot remedy. |
| Keywords: | Inflation; labor markets; wage compression; vacancy ratio; Bidenomics; monopsony; wealth; wealth effects; sticky prices; regulatory failure; Donald Trump. |
| JEL: | E0 E5 E6 E62 O23 I12 J08 |
| Date: | 2024–05–14 |
| URL: | https://d.repec.org/n?u=RePEc:thk:wpaper:inetwp221 |