Empirical Post Keynesian Economics: Looking at the Real World

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Divergent governance principles. Controlling inflation.

As shown in table 2 , equation 1 may be written as a mark-up relation, which reveals the distributive factors of inflation. These factors influence the rate of unemployment indirectly, through the monetary policy they may induce. Indeed, monetary policy may limit inflation by increasing the unemployment pressure on wages via higher rates of interest, so as to preserve the confidence of the public regarding the value of money.

In other circumstances the central bank may prefer to let cost-pushed inflation develop in order to preserve the economic activity, which supposes an increase of the money supply. Obviously, even when increasing costs are the primary cause, inflation always is a monetary phenomenon since it expresses higher monetary prices of goods and services. But whereas mainstream economics incriminate irresponsible or lax policies, the Keynesian approach points out the dilemma involved by distributive tensions. The former think that reducing monetary inflation has no permanent cost in terms of unemployment, whereas it does for the latter, as far as persistent tensions induce monetary authorities to maintain high interest rates.

Demand side policies. Because of the conviction that markets work as efficiently as possible in the long run, mainstream economics pleads in favour of little discretionary freedom and strong monetary control of inflation, which means avoiding excessive public debt and systematic temptation to get 'extra output' by means of inflation surprises.

On the demand side, monetary and fiscal policies may be employed so as to reduce the output and price index volatilities around their long run known trajectory table 3. On the supply side, competitive distortions and other real rigidities, which explain the gap between the natural level of activity and the full capacity level, come under the competence of 'structural' policies.

As concerns demand policies, in contrast with the automatic policy rules of the NCM, the Keynesian approach suggests a pragmatic and progressive approach of discretionary macroeconomic policy, where authorities carefully avoid destabilizing expectations and private decisions, and therefore the whole aggregate system, because changing behaviours finally might make the policy inappropriate as popularized the Lucas critique. Discretion in this way means that governments fix intermediate reasonable targets in terms of employment, price index and budget balance, according to the confidence they have in the chance of success, which depends on the actual context and move with it.

In table 4 below, public expenditures are adjusted so as to reach the targeted unemployment rate; taxes are adjusted so as to more or less limit the budget balance variation, depending on the relative weight of unemployment compared with the budget balance. The central bank adjusts the rate of interest if it can do it so as to more or less reduce the rate of unemployment, depending on the relative weight of unemployment compared to inflation, which depends, among other things, on income policy ability to appease distributive tensions. It depends on the context; especially, but not only, on the state of the distributive conflict.

It depends also on the state of financial constraints, on the political acceptability of tax adjustments New governance and Keynesian governance in non-ergodic regimes. Trials of the New Consensus Governance. As long as the government can adjust the two instruments g, freely, there are three instruments and three objectives.

Thus, the New Consensus governance gets the ideal outcome in terms of prices, output and budget balance stabilization. There is a kind of 'symbiosis' between monetary and fiscal policies. The symbiosis however may turn into severe drawbacks when the new governance principles of table 3 are implemented into the non-ergodic system of table 2.

Empirical Post Keynesian Economics: Looking at the Real World

This line of argument suggests that misplaced economic policy may produce a kind of unemployment trap, to which mainstream uses to refer as hysteresis: 14 when authorities lack for room for manoeuvre in front of a negative shock, for example because of budget balance considerations, the symbiosis only works partially, and unemployment increases. Since nothing tends to reduce it then, authorities take it as the new natural rate. Monetary policy may furthermore be involved in such a depressive scenario in case of persistent distributive tensions.

As long as inflationary pressures are interpreted as the result of a 'natural' lower demand for money, the central bank raises the rate of interest without seeing the negative effects it has on employment. Here again, as far as nothing tends to reduce the rate of unemployment, authorities take it as the new natural rate.

Keynesian macroeconomic governance.

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Let us now consider the type of policy mix involved by the governance principles of table 4. The tax-expenditure combination g, that is required to reach the employment and budget balance targets 9 and 10 given equations 1 , 2 k , 3 , and 4 depends on the set of exogenous variables and parameters that represent the macroeconomic changing context and the confidence of authorities.

One of these variables is the rate of interest, which expresses monetary influences on the policy mix.

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Hence, the central bank can make it more or less difficult for governments to reach their objectives. Monetary policy modelling is very sensitive in a Keynesian world since controlling the long term rate of interest is uncertain, at least as far as reductions are concerned; but even when its own positive influence on effective demand is doubtful, it helps indirectly if it gives the supplementary money that is needed when fiscal-budgetary policy aim to stimulate the effective demand, avoiding by the way a rise of interest rate which otherwise could weaken the policy outcome.

Of course such a policy mix could produce some rise in the price index, but remember that, even in the NCM, this is a necessary condition for economic recovery when nominal wages are sticky; relative prices adjustment is quite different from inflation. The paper presents both the New Consensus and Keynesian equilibria within the usual four competitive macromarkets structure. It discusses how market interactions differ depending on the type of uncertainty, and why the optimum-oriented competitive forces at work in ergodic regimes, does not work in the Keynesian representation of the world.

It gives theoretical explanations of the pernicious effects that the NCM governance brings about in non-ergodic regimes, and put forward Keynesian principles of governance which include monetary, budgetary and fiscal instruments, and suggest new directions for the positive and normative analysis of macropolicies. Within a Keynesian perspective, authorities should abandon any reference to the natural rate of un employment, and other derivative concepts that do not apply to non-ergodic systems.

If there is no long run predictable trajectory along which money would have only nominal influence, the ordinary conduct of monetary and fiscal-budgetary policies can not be guided by any systematic 'optimal rule' designed in order to stabilize the economy near from a predetermined trend. Uncertainty imposes a gradual and pragmatic approach, closely linked to the context.

Furthermore, authorities should renounce to automatic rules disconnected from the context. Discretion is better when there is no predictable trajectory of the economy. From this point of view, authorities should take advantage of the complementarity between the central bank and the budgetary-fiscal instruments.

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That certainly would help the government to fight unemployment without denying the financial constraint. It is not necessary a matter of interest rate reduction; it may simply hinge on avoiding interest rates increases when the government aims to reflate the economy.

In addition, the dissuasive impact of the liquidity constraint that may result from a reputed non-accommodating monetary policy should not be ignored.

As regard inflation, since central banks can not repress recurrent distributive inflationary pressures without having permanent depressive effects on aggregate demand, unless demand depresses itself or through budgetary-fiscal policy, authorities should recognize that another way for fighting this kind of inflation rests on the continuous pursuit of a consensual income distribution. In the paper, the distributive conflict exhibits a dominating influence upon the policy mix, because the central bank all the more may help governments since inflation pressures are weak.

From this point of view, income distribution policy turns out to be of primary importance as concerns the costs of inflation control, which corroborates the idea that economic efficiency at the macro level, far from being the automatic outcome of free competitive forces, should not be considered independently of the political and social context. It is not essential to make imperfect competition assumptions in order to obtain a mark-up relation.

The budget balance B is defined as:. Differentiating around a solution indexed by 0 yields:. Arestis, E. Hein and E. Gnos and L. Submitted: January ; Accepted: March It has been identified as the dynamic stability of a stochastic process ergodicity. See Vercelli 40, and Davidson 39, If on the other hand nominal wages are sticky, the role of interest rate becomes crucial.

See Tobin and Palley about this kind of instability. This approach sometimes raises difficulties that will not be discussed here. All the contents of this journal, except where otherwise noted, is licensed under a Creative Commons Attribution License. Services on Demand Journal.


Empirical Post Keynesian Economics | Looking at the Real World | Taylor & Francis Group

Uncertainty, confidence and macroeconomic adjustment Because they disagree about the long run properties, the New Consensus and Keynesian Macroeconomics have distinct conceptions of the macrofunctioning of competitive markets. Markets interactions and general equilibrium Within the usual four macro-markets framework, general equilibrium supposes a set of conditions which expresses suppliers and demanders plans. Divergent governance principles 3. Controlling inflation As shown in table 2 , equation 1 may be written as a mark-up relation, which reveals the distributive factors of inflation.

Demand side policies Because of the conviction that markets work as efficiently as possible in the long run, mainstream economics pleads in favour of little discretionary freedom and strong monetary control of inflation, which means avoiding excessive public debt and systematic temptation to get 'extra output' by means of inflation surprises.

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In addition to analyses from the Global North, we especially welcome studies from the Global South, NICs, BRICs, transitional economies, and others, including cases where precarious work may be receding due to economic, social, and political change. We are particularly interested in articles, including comparative ones, that examine connections between precariousness and changes in the global division of labor, forms of business organization, configuration of geopolitics, and immigration flows, as well as counter-movements of regulation and resistance.

Prospective authors should send a letter and an abstract of no more than words of work they wish to submit to the journal. Editors will determine whether the proposed work fits thematically in an upcoming issue. The deadline for abstracts is June 1, Style and submission guidelines will be sent to authors whose work the editors wish to review.

Mosoetsa wits. Articles to be published in Moral Philosophy and Politics Link is available here. There are also areas of social life in which the market mechanism operates but is contested. The editors of Moral Philosophy and Politics invite high quality submissions which examine questions such as:. This issue advances geopolitical economy as a new approach to the 21st century world order of multipolarity and its genesis. In geopolitical economy the role of states in developing and regulating economies is central. Geopolitical economy as an approach to the world order is clearly anticipated in classical political economy up to and including Marx and Engels, though this becomes clearest if we take a fresh look at it untainted by neoclassical economics and associated discourses of neoliberalism, globalization and hegemony.

Further intellectual resources for geopolitical economy include the classical theories of imperialism, the theory of uneven and combined development as well as 20th century critics of neoclassical economics such as Keynes, Kalecki, Polanyi, Minsky and the developmental state tradition going back to List and Serra and forward to Amsden and Wade.

Papers that investigate any aspect of the world order, its theories or its historiography — whether contemporary or historical — in a way that relates to geopolitical economy as described above, or poses important objections to it, are welcome for consideration.

Proposals should be sent to Radhika. Desai umanitoba.