Vested Interests and the Common Man as Seen Through Monetary and Fiscal Policy: Flooding Wall Street or Main Street?

There are many angles through which a critical observer can analyze the divergent class interests in most aspects of macroeconomic management. We examine the insistence of financial authorities of all major economies on reviving economic activity through monetary — and not fiscal — policy as a particularly clear example of favoring vested interests over the interests of the common man. Nearly a century after Thorstein Veblen wrote on the subject, one can find many parallel elements to the political landscape of the times. Today, the common man is often expressed by the “99%,” and many accept that the dominant vested interest is that of global banks. Unlike in Veblen’s times, economists today have many historical experiments in economic management that they can consult. By employing logic, historical experience, and an understanding of our current global finance-led capitalism, we offer a preliminary institutionalist analysis of the mechanisms of current monetary policy that “flood” Wall Street, while leaving employment, production, and investment — Main Street — all but forgotten. We then explain how vested interests have abandoned fiscal policy and left a deflationary macroeconomic environment.     

Is it all about money? An examination of the motives behind moonlighting

Multiple-job holding is an important labour market phenomenon. In this article, we examine individuals’ motives for multiple-job holding. Specifically, we estimate an empirical model of the motivation for moonlighting assuming that individuals hold a second job for either financial or for nonpecuniary motives. Our results contribute to a better understanding of multiple-job holding. We find that multiple-job holding is used by individuals as a way to deal with the financial difficulties or the increased financial commitments in their household. Individuals are more likely to moonlight for money in the early stages of their adult life. Finally, individuals with more labour market experience are more likely to moonlight for pecuniary than nonpecuniary reasons.     

Can U.S. Cities afford living wage programs? An examination of alternatives

Since 1994. so-called “living wage” ordinances have passed in 20 cities in the United States, and activists are advancing similar proposals throughout the country. These proposals are a response to the declining real wages of low-wage workers in the United States—what David Gordon termed “the wage squeeze” in Fat and Mean—and, in particular, to the 30 percent fall in the real value of the minimum wage from its peak in 1968. We consider here the main arguments advanced by opponents of living wage proposals: 1) they will place a heavy burden on municipal government budgets, forcing, among other things, cuts in vital city services that benefit low-income people; 2) they will encourage local businesses to relocate and discourage new businesses from investing within cities that have such ordinances; and 3) they will cause unemployment among low-wage workers. Examining these issues in the context of proposals that were either passed or considered in different cities, we find that none of the criticisms of living wage proposals stand up to careful scrutiny or evidence. Rather, living wage proposals are affordable and workable. They represent a small but significant step toward reversing the “wage squeeze” so carefully documented and analyzed in Fat and Mean.     

Habitat preservation and restoration: Do homebuyers have preferences for quality habitat?

This research examines homebuyers' preferences for nearby riparian habitat, an important issue because quality riparian habitat competes for water resources with other activities in semi-arid regions and because federal and local governments allocate significant resources to riparian habitat preservation and restoration plans. Riparian vegetation surveys comprising comprehensive measures of the ecological characteristics of riparian habitat were completed in the metropolitan Tucson study area and the data incorporated into a hedonic analysis of single family residential house prices. The results indicate that high quality riparian habitat adds value to nearby homes and that instead of indiscriminately valuing “green” open space, nearby homebuyers distinguish between biologically significant riparian vegetation characteristics. This research also suggests that it is worthwhile to account for the heterogeneity of natural amenities in hedonic analysis. Furthermore the results suggest that riparian preservation and restoration programs are more likely to receive public support if they incorporate features that are preferred by nearby homeowners. Our study's results show that household preferences for existing riparian habitat match features of the ecologically-functional riparian habitat envisaged in a recently funded joint federal-city urban riparian restoration project in Tucson, Arizona.     

Testing theories of reciprocity: Do motivations matter?

One of the key issues for understanding reciprocity is how agents evaluate the kindness of an action. In this paper we investigate experimentally the hypothesis that the motivation driving an action is relevant for its perceived kindness and, as a consequence, for reciprocal behavior. In particular, we examine the hypothesis that, for a given distributional outcome, positive reciprocity is less strong in response to strategically motivated actions than to non-strategically motivated actions. Our results indicate that, both at the aggregate and the individual level, reciprocity is significantly stronger when strategic motivations can be ruled out. These findings suggest that intentions matter and, in particular, that models of intention-based reciprocity should take into account the nature of the motivations behind choices.     

Could the Crisis at Northern Rock have been Predicted?: An Evolutionary Approach

Bankers have, from their beginning, made their money by takingrisks and deciding how much risk they dare take, by expandinggradually, testing the water. Within this framework, the firstrisk is of illiquidity, but they must also ensure solvency.The steps taken by Northern Rock in developing their present‘business plan’ are the same as those taken by mostother banks, responding to the same incentives. It is the rapidityof its expansion that resulted in its downfall. The steps thathave been taken also by other banks can be traced back to thebeginning of banking and are predictable. Northern Rock's difficultieswere predictable – and were predicted.     

Do corporate governance mechanisms affect cash dividends? An empirical investigation of UK firms

The study examines whether corporate governance mechanisms and the compliance with good governance practice are related to cash dividends. In particular, the study assesses the effect of institutional ownership and board structure on the decision to pay cash dividends. A study on UK firms is interesting because firms are expected to voluntarily structure governance mechanisms based on their own needs. We find that institutional owners positively affect cash dividend payments, suggesting that UK institutions are effective in forcing firms to disgorge cash. There is limited evidence that independent directors affect the cash dividends. The results also show that firm specifics affect the cash dividends, namely, business risk, firm size, and leverage ratio. The results are consistent across several robustness checks.     

Greenhouse gas abatement policies and the value of carbon sinks: Do grazing and cropping systems have different destinies?

This paper presents a case study in which the effects of agri-environmental policy on two Mediterranean-type farming systems, grazing dominant and cropping dominant, are contrasted. Two greenhouse gas abatement policies are examined; an emissions taxation policy and an emissions restrictions policy. The study seeks to determine firstly, how the policy impacts on the farming systems, and from that, how the nature of the farming systems impact on the effectiveness of the policy. It is shown that relative costs of abatement are higher for the grazing-dominant farming system. However, in the absence of technological change to aid abatement, the cost of substitution from high emitting enterprises, such as livestock, to low emitting enterprises, such as crop production, will determine the cost of abatement. For both farming systems the restriction policy is found to be more effective and economically efficient than the taxation policy. The analysis found that crediting trees as carbon sinks can significantly reduce the costs of abatement. At predicted emissions permit prices, trees would be adopted by both farming systems to offset farm greenhouse gas emissions.     

The New York Times and Wall Street Journal: Does Their Coverage of Earnings Announcements Cause “Stale” News to Become “New” News?

Recent research suggests that the stock market reacts to stale information if it is reported in the media because it is gives the impression of being “new” news. The objective of this study is to provide a unique test of this hypothesis using the time-series properties of quarterly earnings. It is well documented that seasonally differenced quarterly earnings for adjacent quarters are positively correlated. Therefore a component of current quarter earnings when reported is news that was known or predictable at the end of the prior quarter and thus is old news. We find for those firms that receive media coverage in the Wall Street Journal and The New York Times that the price reaction at the time of the announcement of current earnings to past quarter's seasonally differenced quarterly earnings is greater than those firms that do not receive media coverage. The result is consistent with stale earnings information being given the appearance of new information resulting in a further price reaction. This suggests that the stale information hypothesis and media coverage could be a partial explanation for post-earnings announcement drift.     

Do the best go west? An analysis of the self-selection of employed East-West migrants in Germany

Since the inequality of earnings in East Germany has approached West German levels in the late 1990s, the standard Roy model predicts that a positive selection bias of East-West migrants should disappear. Using a switching regression model and data from the IAB-employment sample, we find however that employed East-West migrants remain positively self-selected with respect to unobserved abilities. This result is consistent with the predictions of our extended Roy model which considers moving costs that are negatively correlated with labour market abilities of individuals. Moreover, we find that wage differentials as well as differences in employment opportunities are the central forces which drive East-West migration after unification.

Do droughts have long-term effects on water consumption? Evidence from the urban area of Barcelona

This article examines the long-term effects of droughts on water consumption using data of municipalities of the urban area of Barcelona. Two important characteristics of the sample of municipalities are the relatively low water consumption in the pre-drought period and the fact that indoor uses are clearly predominant. Controlling for prices, income and various socio-demographic factors, we find a reduction in water consumption not only during the drought episode but also in subsequent periods. These permanent reductions in water use may be explained by household behavioural changes, technological changes or structural water policy changes.     

Inside the Organizational Institutions of Institutional Economics: Why Are There Two Institutionalist Associations?

The institutionalist-inspired Association for Evolutionary Economics (AFEE), officially founded in 1965, was the first heterodox association to break with the American Economic Association (AEA). In 1979, another institutionalist association, the Association for Institutional Thought (AFIT), was founded. Using mainly archival evidence, this paper provides historical reasons for the presence of two institutionalist associations.     

Transmission of shocks across global real estate and equity markets: An examination of the 2007–2008 housing crisis

This study analyses the impact of the 2007–2008 U.S. financial crisis on the structure of interdependence among several major global real estate and equity markets. Moreover, it performs a step-by-step comparative analysis to evaluate similarities and differences in the convergence patterns of global real estate markets vis-à-vis global equity markets. Long-run results indicate that global real estate markets were less integrated than global equity markets prior to the crisis. Since the crisis, however, both global real estate and global equity markets have become highly integrated with the U.S. real estate and equity markets, respectively, and have fully converged. Short-run analyses indicate that during the pre-crisis period, global real estate markets were highly exogenous and independent. In contrast, global equity markets were comparatively more interdependent with one another and more endogenous. After the crisis, however, both global real estate and equity markets reacted strongly to shocks emanating from the U.S. markets, although the impact of the U.S. real estate market on the global real estate market is more pronounced than the effect of the U.S. equity market on the global equity markets. Finally, the study shows that U.S. real estate and equity markets are the channels of transmission or the sources of trends that drive global markets over the long-run and the short-run.     

The Sustainability of European External Debt: What have We Learned?

In this paper we aim to analyze the level of sustainability of external debt and, more importantly, how it has changed for a number of European economies. Given the severity of the crisis since 2008, we argue that the path of external debt burdens may have changed since the start of the crisis, given the concerns about debt accumulation in most countries. We analyze the reaction of present debt accumulation to past debt stock, incorporating the possibility of endogenously determined structural breaks in this reaction function. We find that structural breaks happen in most cases after 2008, highlighting the importance of the policy measures taken by most governments.     

Co-managing common-pool resources: Do formal rules have to be adapted to traditional ecological norms?

We examine the effectiveness of three democratically chosen rules that alleviate the coordination and cooperation problems inherent in collectively managed common-pool resources. In particular we investigate how rule effectiveness and rule compliance depend on the prevailing local norms and ecological values held by resource users. For this purpose, we employ a framed field experiment that is based on a rangeland model for semi-arid regions and carried out with communal farmers in Namibia and South Africa. Participants could vote for three ‘best practice’ management rules found in many places around the world that are discussed for implementation in the study area: (temporary) private property rights, rotational grazing or limitation of livestock numbers. All rules were designed in a way that facilitated cooperation or coordination of actions. The focus of this study lies on the interactions between these rules and prevalent ecological norms exhibited in the rounds prior to rule implementation. In contrast to previous lab experimental studies, we find that democratic voting of rules is not sufficient for high rule compliance and an overall enhancement in cooperation. Rules turned out to be inefficient if they were in conflict with the prevalent ecological norm.     

Do sellers offer menus of contracts to separate buyer types? An experimental test of adverse selection theory

In the basic adverse selection model, a seller makes a contract offer to a privately informed buyer. A fundamental hypothesis of incentive theory is that the seller may want to offer a menu of contracts to separate the buyer types. In the good state of nature, total surplus is not different from the symmetric information benchmark, while in the bad state, private information may be welfare-reducing. We have conducted a laboratory experiment with 954 participants to test these hypotheses. While the results largely corroborate the theoretical predictions, we also find that private information may be welfare-enhancing in the good state.     

Do exchange rate changes have symmetric or asymmetric effects on the trade balances of Asian countries?

Recently the linear ARDL approach was modified and a non-linear version of the same approach that is used mostly to assess asymmetric effects of some exogenous variables on the dependent variable was introduced. The non-linear model was recently used by one study to show that indeed exchange rate changes have asymmetric effects on the trade balance of a few advanced countries. The same was demonstrated for transition economies by another study. In this article, we provide additional asymmetric effects from seven Asian economies by showing that in most cases we find evidence of short-run and long-run asymmetric effects of exchange rate changes on the trade balance. Like other studies, our findings are country specific.