Post-Keynesian Institutionalism in an Era of Multiple Crises
Paper Session
Saturday, Jan. 8, 2022 3:45 PM - 5:45 PM (EST)
- Chair: Avraham Baranes, Elmhurst University
Modern Money Theory as a Foundational Component in Polanyi’s the Great Transformation
Abstract
In Polanyi’s The Great Transformation, there are two ongoing, complementary narratives. First, there is the depiction of how nineteenth-century society engaged in an historically unprecedented and contradictory transition towards a self-regulating market economy. Second, there is his treatment of how this transitional epoch created a derived demand for seemingly valid intellectual content that would justify this newly emerging order, thereby lending it ‘scientific’ legitimacy. Polanyi was highly critical of both of these events, yet what has received scant attention is the extent to which his criticism’s analytical substance is rooted in what is now known as modern money theory (MMT). The purpose of the present paper is to identify and elucidate these foundational components. We begin by highlighting that one of the primary reasons Polanyi repudiated a self-regulating market economy is because he dismissed the metallist monetary myth, choosing instead to follow an economic anthropology on the nature of money that corresponds with MMT’s own. Second, Polanyi and MMT agree on the process by which money is created as well as the mechanisms that regulate its value. Third, they both share a relatively analogous political economic outlook; in particular, Polanyi noted that for there to be ‘Freedom in a Complex Society’, it is necessary to embrace a job guarantee and functional finance--two staples of the MMT approach--which he believed would foster international peace, national liberty, and individual freedom.Is There an Appropriate Monetary Policy Framework to Achieve a More Equitable Income Distribution? The Fair Interest-Rate Rule versus a Full-Employment Policy
Abstract
Employment and income distribution are two concerns that will be high on the macroeconomic policy agenda, as economies slowly emerge from the COVID-19 crisis. Within the Post-Keynesian/Institutionalist literature on monetary policy, there are essentially two perspectives on how monetary policy can be framed.There is, however, another position that can also be found in the literature. This approach starts from the premise that interest-rate policy can have an effect on aggregate demand both directly (through the income-distribution channel) or indirectly (by impacting on the interest-elastic component of private spending). Hence, unless already stuck at the lower bound, discretionary monetary policy can help to achieve full employment and, by doing so, impacting on other components of income distribution, especially on the wage/profit shares of the national economy, which the non-discretionary monetary policy rules may not, since the latter focus primarily on the rentier/non-rentier income relation. The purpose of our paper is to explain these positions, analyze their implications, and offer a perspective on what type of full-employment monetary policy would be most consistent with an equitable and stable distribution of income in the post-pandemic world where low interbank rates may remain the norm in industrial countries.Post Keynesian Institutionalism and Heterodox Microeconomics
Abstract
Post Keynesian Institutionalism (PKI) is a promising intellectual enterprise which demonstrates an exemplary case that when two (or more) compatible theoretical traditions in heterodox economics with different origins are combined, the ensuing approach provides enhanced explanatory power as to evolving socio-economic reality under fundamental uncertainty. PKI thus has the potential to move both Post Keynesianism and Institutionalism forward by modifying and developing existing theories corresponding to unfolding socio-economic changes, and by making bold arguments which are not confined to each tradition. To make a positive contribution to this end, I argue that PKI should pay more attention to heterodox microeconomics in line with the work of, among others, Gardiner Means, Alfred Eichner, and Frederic Lee. Heterodox microeconomics helps develop PKI, and vice versa. They together provide a cogent account of socio-economic ills and crises, which are due largely to the anti-social institutional arrangements informed by the ideological belief in the market price mechanism.Money Manager Capitalism and the Coronavirus Pandemic: A Post-Keynesian Institutionalist Analysis
Abstract
The COVID-19 pandemic has shaken the world economy and triggered one of the worst economic downturns in U.S. history. This paper demonstrates that the crisis has also exposed fundamental shortcomings of the current economic era, a stage of history that post-Keynesian institutionalists describe as money manager capitalism (MMC). Focusing on the United States, the paper identifies four dimensions of the coronavirus crisis and their relation to key aspects of MMC. One dimension is inadequate industrial capacity, which can be traced to a focus on shareholder value and the accompanying relentless business cost cutting and preference for financial innovation over technological capabilities. Another is working families’ financial distress, partly a consequence of a decades-long trend toward increasing economic insecurity and inequality. A third dimension is corporate vulnerability to sudden economic changes, owing to a culture of debt financing and accompanying financial fragility. The fourth is the public sector’s responsiveness to financial and corporate interests rather than to the wellbeing of working families, a trend that reflects the post-Keynesian institutionalists’ notion of the predator state. Because the dimensions addressed in the paper are associated with core features of MMC, it will not be easy to fix the economic system’s shortcomings that the pandemic has exposed. Thus, we conclude not merely by outlining (briefly and in broad terms) a reform agenda, but also by identifying some of the challenges that must be confronted on the road from MMC to an age of broadly shared prosperity.Reshaping ‘Macroeconomic Analysis’ for an Era of Multiple Crises: Insights from Post-Keynesian, Institutionalist, and Stratification Theory
Abstract
The current global situation of human societies is characterized by multiple crises. Ecological unsustainability, social inequality, and economic crisis and stagnation were already forcing massive shifts in human settlement and fueling political discontent, when a global pandemic entered the stage, taking human life and worsening already stressed social and economic divides.The pathway out of this fix consists, on one hand, of urgent scientific work, and on the other, of macroscopic responses capable of overcoming the dynamics of fear and need. In the realm of economics, this means devising comprehensive – macro – thinking, which lives up to the textbook definitions of macroeconomics as ‘the study of the behavior and performance of the economy as a whole’, or ‘the branch of economics concerned with large-scale or general factors’. The dominant contemporary approach to macroeconomic theory and policy, the New Consensus Macroeconomics (NCM), is not fit for such a purpose. The NCM assumes that efficient financial markets guide the economy along an equilibrium growth path, except when exogenous shocks push it off course. Crises – including the 2007-08 financial collapse, which it failed to see coming – are attributed to government-policy-induced deviations from an assumed equilibrium growth path.
The time for this finger-pointing approach to macroeconomics has passed. The post-2008 legacy of the unimaginative and largely unreformed NCM was secular stagnation – not the platform needed for supporting the international goals set in 2015 in Addis Ababa and in Paris to achieve global human well-being and to confront climate change. The squeezed fiscal policy space needed to support the foundational economy had put national governments under siege even before the Covid-19 pandemic appeared.
JEL Classifications
- B5 - Current Heterodox Approaches
- E0 - General