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on Post Keynesian Economics |
| By: | Michael Hudson |
| Abstract: | Ricardian trade theory was based on the cost of labor at a time when grain and other consumer goods accounted for most subsistence spending. But today's budgets are dominated by payments to the finance, insurance, and real estate (FIRE) sector and to newly privatized monopolies. This has made FIRE the determining factor in trade competitiveness. The major elements in US family budgets are housing (with prices bid up on credit), debt service, and health insurance-and wage withholding for financializing Social Security and Medicare. Industrial firms also have been financialized, using debt leverage to increase their return on equity. The effect is for interest to increase as a proportion of cash flow (earnings before interest, taxes, depreciation, and amortization, or EBITDA). Corporate raiders pay their high-interest bondholders, while financial managers also are using EBITDA for stock buybacks to increase share prices (and hence the value of their stock options). Shifting taxes off property and onto employment and retail sales spurs the financialization of family and business budgets as tax cuts on property are capitalized into higher bank loans. Payments to government agencies for taxes and presaving for Social Security and Medicare absorb another 30 percent of family budgets. These transfer payments to the FIRE sector and government agencies have transformed international cost structures, absorbing roughly 75 percent of US family budgets. This helps explain the deteriorating US industrial trade balance as the economy has become financialized. |
| Keywords: | International Trade Theory; Financialization |
| JEL: | F3 F4 F10 F17 F18 F37 G12 G21 H21 J61 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_699&r=pke |
| By: | L. Randall Wray |
| Abstract: | This paper takes off from Jan Kregel's paper "Shylock and Hamlet, or Are There Bulls and Bears in the Circuit?" (1986), which aimed to remedy shortcomings in most expositions of the "circuit approach." While some "circuitistes" have rejected John Maynard Keynes's liquidity preference theory, Kregel argued that such rejection leaves the relation between money and capital asset prices, and thus investment theory, hanging. This paper extends Kregel's analysis to an examination of the role that banks play in the circuit, and argues that banks should be modeled as active rather than passive players. This also requires an extension of the circuit theory of money, along the lines of the credit and state money approaches of modern Chartalists who follow A. Mitchell Innes. Further, we need to take Charles Goodhart's argument about default seriously: agents in the circuit are heterogeneous credit risks. The paper concludes with links to the work of French circuitist Alain Parguez. |
| Keywords: | Circuit Approach; Liquidity Preference; Banks as Ephor of Capitalism; J. M. Keynes; J. A. Schumpeter; A. Parguez; J. A. Kregel; Chartalist; Modern Money Theory; State Money; Credit Money; Default |
| JEL: | B2 B24 B25 B31 B51 B52 E11 E12 E41 E43 E51 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_700&r=pke |
| By: | Beck, T.H.L. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: Theoretical and empirical research has shown that a sound and effective financial system is critical for economic development and growth. The financial system, however, is also subject to boom and bust cycles and fragility, with negative repercussions for the real economy. Further, the political structure of societies, often pre-determined by historic experience, is critical for the structure and development of the financial system. This paper is a critical survey of three related strands of literature – the finance and growth literature, the literature on financial fragility, and the politics and finance literature. |
| Keywords: | Financial Development;Financial Fragility;Finance and Politics;Economic Development;Access to Finance;Banking Crisis. |
| JEL: | G0 G1 G2 O1 O4 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011141&r=pke |
| By: | Giancarlo Bertocco (Department of Economics, University of Insubria, Italy) |
| Abstract: | The current crisis in the global economy is considered on a par with the Great Depression of the 1930s. We can therefore ask whether the crisis will lead economists to revise the mainstream theory. The first result presented in this paper is to show that the traditional theory does not permit the formulation of a coherent explanation of the causes of the crisis because it uses concepts that are not coherent with the dominant theory of finance. The second result is to show that these concepts are coherent with a theory of finance that can be elaborated on the basis of the lesson of Schumpeter, Keynes and Minsky. |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:ins:quaeco:qf1116&r=pke |
| By: | Erik S. Reinert; Arno Mong Daaol Author-X-Name-FirstArno Mong |
| Abstract: | This working paper presents a note and an extensive bibliography on the relationship between production capitalism and financial capitalism. The document was produced for a conference held at Leangkollen outside Oslo on September 3-4, 1998. The background for the conference was the Asian financial crisis that started in July 1997. The massive Russian financial crisis had started a few days before the conference, on August 17, 1998, and the Russian participant, Prof. Vladimir Avtonomov, brought fresh news from these dramatic events. The conference was organized by Erik Reinert, who at the time worked for Norsk Investorforum, an organisation which at the time organized Norwegian production capitalists and later helped Reinert launch The Other Canon Foundation. Reinert was at the time also affiliated with SUM, Centre for Development and the Environment at the University of Oslo. The global financial crisis that started in 2008 . ten years after this conference . vindi- cates the perspectives presented here, and prompted the wish to make the note and the very extensive bibliography of relevant, but mostly forgotten, litterature on the relationship between the production sector and the monetary sector of the economy. The conference programme is found at the end of the document. |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:tth:wpaper:36&r=pke |
| By: | Thomas J. Miceli (University of Connecticut) |
| Abstract: | This essay offers some observations, from the perspective of an economist, on the usefulness of economics for understanding law. Economic analysis provides a coherent theoretical framework for unifying different areas of law based on the pursuit of efficiency. It does this by recognizing common problems across different areas, which give rise to solutions that, while outwardly different, have the same underlying form. In this way, economics provides a theory of law. But economists can also learn a lot about how the economy functions by thinking more carefully about the role of law in facilitating economic activity. The success of law and economics ultimately resides in the recognition of this fundamental interrelationship between the two disciplines. |
| Keywords: | Law and Economics |
| JEL: | K00 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2011-25&r=pke |
| By: | Michael W.L. Elsby; Bart Hobijn; Aysegul Sahin; Robert G. Valletta |
| Abstract: | Since the end of the Great Recession in mid-2009, the unemployment rate has recovered slowly, falling by only one percentage point from its peak. We find that the lackluster labor market recovery can be traced in large part to weakness in aggregate demand; only a small part seems attributable to increases in labor market frictions. This continued labor market weakness has led to the highest level of long-term unemployment in the U.S. in the postwar period, and a blurring of the distinction between unemployment and nonparticipation. We show that flows from nonparticipation to unemployment are important for understanding the recent evolution of the duration distribution of unemployment. Simulations that account for these flows suggest that the U.S. labor market is unlikely to be subject to high levels of structural long-term unemployment after aggregate demand recovers. ; Powerpoint supplement available at http://www.frbsf.org/economics/economist s/wp11-29bk_supplement.pdf |
| Keywords: | Labor market ; Recessions |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2011-29&r=pke |