Vicarelli’s Keynes and the New-Keynesian analytical method

This article provides a critical review of the foundations of the new Keynesian apparatus, to evaluate the actual strength of the Keynesian inheritance. As a reference of the Keynesian vision, Fausto Vicarelli’s recognition of the Keynesian message is adopted. The critical recognition of the new Keynesian methodology focuses on its analytical foundations, the recent extensions and on the criticality of its empirical performances and controls. The new Keynesian construction is shown to lack truly Keynesian roots in at least three key theoretical features: the role of the microfoundations, the stability of equilibrium, and expectations formation. The directions of an ongoing research narrowing the new Keynesian theoretical fracture from Keynesian economics are addressed.     

Keynes’s Principle(s) of Effective Demand: Redefining His Revolution

Much of critical social science today argues that the oil crisis must be resolved by getting away from it: Alternative energy is the only answer to peak oil. Yet, recent massive and continuing oil discoveries in Africa have been offered as a potential stop-gap measure to simultaneously improve socio-economic conditions and enhance energy security on that continent, as well as to bridge global income inequalities, while supporting the energy needs of richer countries, especially at a time of continuing disquiet in the major oil producing centers in the world. Memories of plunder of African resources, formed by years of “resource curse,” however, erect dark clouds over the possibility of using oil to achieve the seemingly irreconcilable aims of oil benefit to both Africa and the rest. Australia finds itself at these crossroads: It has a looming oil crisis and an emergent relationship with Africa. In this paper, I argue for a non-determinist, research-led approach to resolve this imbroglio.     

On Microfoundations and Keynes’ Economics

Most mainstream economists regard the principles of ‘rational choice’ theory as the only foundation of economics and insist that macroeconomics be based on those principles. These include certainty or certainty-equivalence, which followers of Keynes reject. Macrofoundations of microeconomics are often proposed instead. We argue that the issue is more complex and explain why it is unlikely that a logically watertight fit between the two levels of analysis will ever be achieved. The complex interactions within and between the two levels suggest that it is unhelpful to assign foundational status to either level. We examine Keynes’ General Theory is examined as an example and compromises are found to fit the two together. It is argued that compromise is inevitable and that good theorising entails defending the compromises made.     

Public happiness in today’s economics

This paper illustrates the significance of revisiting the idea of public happiness today, by briefly discussing recent contributions, some of which appeared in the IREC review.     

Integrating Schumpeter and Keynes: Hyman Minsky’s Theory of Capitalist Development

Taking the idea that institutional reproduction is not obvious and that institutions are vulnerable has significant conceptual implications. Institutional vulnerability can arise through communication between actors in a common language. To apprehend this requires an elaboration of John Searle's (1995, 2005) argument that language is the fundamental institution. Ontologically, language delineates and circumscribes a community. A community cannot function without a common language, and language at the same time constitutes a community's boundaries, allowing for focused and effective communication within a community. Communication through language introduces ambiguity as well, however, and so institutional reproduction, mediated by language, is a deeply contentious process. Communication across boundaries may particularly "irritate" a system, as Niklas Luhmann has argued. How can institutions then be re-identified through change? Searle's general form for institutions is in need of elaboration. We develop arguments by drawing upon Luhmann's (1995) systems analysis and notion of communication.     

Choosing one’s own informal institutions: on Hayek’s critique of Keynes’s immoralism

In the main, Hayek favored rules that apply equally to all and located such rules in tradition, beyond conscious construction. This led Hayek to attack Keynes’s immoralism, i.e., the position that one should be free to choose how to lead one’s life irrespective of the informal institutions in place. However, it is argued here that immoralism may be compatible with Hayek’s enterprise since Hayek misinterpreted Keynes, who did not advocate the dissolving of all informal rules for everybody. By avoiding this misinterpretation, immoralism can be seen as institutional experimentation at the margin, which Hayek himself favored.

On the nature and role of financial systems in Keynes’s entrepreneurial economies

In his debate with Bertil Ohlin, Keynes observed that entrepreneurs, when deciding to invest, have to be sure they will access the amount of finance necessary to initiate the investment process and that they will be able, when the time comes, to fund their debts in ways that are adequate to the profile of assets they are purchasing. In this statement, Keynes outlines the functions of financial systems in Entrepreneurial Economies, the type of economies he hypothesizes we live in. In entrepreneurial economies, investing firms have to be able to get hold of the necessary amount of means of payment required to purchase or order investment goods and to build balance sheets where in- and outflows of cash are broadly matched within reasonable margins of safety. This means that financial systems’ primary role in Keynesian economics is not to allocate savings or capital but to allocate liquidity and to allow investors to build liquid balance sheets. The article develops this proposition, presenting Keynes's basic concepts on the matter and showing how modern financial systems perform their role.     

Keynes’s liquidity preference and the usury doctrine: their connection and continuing policy relevance

The purpose of this paper is to support the spirit of the early medieval prohibition of payment for the use of money, with arguments based on the economics of Keynes. At the heart of the usury doctrine is the idea that a creditor cannot expect both the security of a claim on a fixed sum of money and to derive an income from it; security comes at a price, one way or another. The consequences of the unwillingness of modern society to accept this are illustrated by reference to two problems of the modern international financial and monetary system: bank bailouts and the lack of a supranational reserve currency.     

Keynes and the international monetary system: Time for a tabular standard?

This paper discusses proposals for tabular standards in the late nineteenth and early twentieth centuries. In particular, we focus on Keynes’ proposal for an international tabular standard (ITS) as the gold standard unravelled in the 1930s. The paper explains the origins of Keynes’ ITS proposal which pegged the value of an international reserve to a broad index of primary commodities, weighted in terms of their value in world production. We argue that the ITS should be viewed as an important and enduring component of Keynes’ ideal long-run vision for anchoring the international monetary system, even post-Bretton Woods.     

Combining Keynes and Schumpeter. Ingvar Svennilson’s contribution to the Swedish growth school and modern economics

In a study of European growth in the interwar period, the Swedish economist Ingvar Svennilson integrated a Keynesian theory of demand-led cumulative growth with a Schumpeterian analysis of transformation. Today, Svennilson is seen, together with the Schumpeterian economists Johan Åkerman and Erik Dahmén, as members of a unique Swedish growth school. A combination of Keynes and Schumpeter with Svennilson as a mediator has been facilitated by neo-Schumpeterian theories of demand-led innovations. But it has been obstructed by a hypothesis in the Schumpeterian tradition that productivity growth is stimulated by low aggregate demand and by Svennilsons strong commitment to Verdoorns Law which actually is Svennilsons Law. However, Svennilsons analyses of the importance of short-run imbalances for economic growth and the existence of imperfect capital markets discriminating progressive new firms have direct equivalences in modern macroeconomics. Svennilsons main contributions to economics of today are his syntheses between macroeconomic and structural analysis, short and long run theoretical perspectives and, more basically, between theoretical and empirical research.JEL Classification: B25, E32, L6, N14, O11, O14, O31, O4A Swedish version of the paper was presented at the 7th Nordic Conference on the History of Economic Thoughts in Molde (Norway), May 2-4, 2003 and at the Ratio institute (Stockholm), May 8, 2003. I thank participants, Rolf Henriksson and two anonymous referees for valuable comments.     

Information and Communication Technology (ICT) and Singapore’s economic growth

Singapore’s remarkable success in economic development has been strongly associated with the country’s vigorous efforts to embrace the Information and Communication Technology (ICT) revolution to promote economic growth. This study provides a comprehensive investigation of the contributions of ICT to Singapore’s economic growth during the 1990–2008 period. It documents three key findings. First, there is a strong positive association between the intensity of ICT use and value-added and labor productivity growth at the sector level. Second, ICT investment contributed approximately 1 percentage point to Singapore’s GDP during 1990–2008, and its role in driving economic growth has become increasingly important over time. Third, the contribution of the ICT manufacturing sector to Singapore’s growth was notable, but it was on the decline and faced difficult restructuring challenges. This paper also provides valuable policy lessons and strategic insights for governments in both developed and developing countries that aspire to embrace ICT to promote economic growth.     

Value-added exports and the skill premium: Evidence from China’s international and regional production networks

The present study examines the impact of value-added exports on the skill premium in a large developing country. We distinguish two margins of value-added trade: direct exporting measures the economic activities of de jure exporters, while indirect exporting reflects the induced demand for suppliers for exporters. We integrate China’1s internal and external production networks and draw empirical evidence from both population and economic censuses. Our findings show that aggregate value-added export intensity is associated with a higher skill premium, but it encompasses two contrasting effects: the direct exporting channel increases the skill premium, whereas the indirect channel decreases it. The latter channel has been neglected in existing published studies, which can lead to an overestimation of the positive relationship between exports and inequality in the South. We discuss the possible mechanisms and important implications.     

An investigation into the dynamic relationship between international and China’s crude oil prices

This article studies the dynamic relationship between international (WTI, Brent and Dubai) and domestic (Da Qing) crude oil prices in China using threshold cointegration method. We find evidence of a long-run equilibrium relationship between each pair of international and Da Qing oil prices, favouring the market integration hypothesis. We also estimate asymmetric adjustments under the momentum threshold autoregressive (M-TAR) specification in a TVECM, and the results show that adjustments to eliminate disequilibrium happen faster when oil price spread increases than when it decreases. The long-run and short-run Granger causality tests support the notion that China has influence on the international oil markets. The results imply that China should open up its domestic and imported oil markets, and also establish a well-functioning crude oil futures market, as they are essential for arbitrage and hedging strategies.