Inequality Research References

“The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.”
– Marcus Tullius Cicero, 55 B.C.

Historical Economic Policy and its Effect

  1. Monetary policy regimes and economic performance: The historical record (Bordo 2005)
    1. Monetary policy regimes encompass the constraints or limits imposed by custom, institutions and nature on the ability of the monetary authorities to influence the evolution of macroeconomic aggregates.
    2. This chapter surveys the historical experience of both international and domestic (national) aspects of monetary regimes from the nineteenth century to the present. We first survey the experience of four broad international monetary regimes: the classical gold standard 1880–1914; the interwar period in which a short-lived restoration of the gold standard prevailed; the postwar Bretton Woods international monetary system (1946–1971) indirectly linked to gold; the recent managed float period (1971–1995). We then present in some detail the institutional arrangements and policy actions of the Federal Reserve in the United States as an important example of a domestic policy regime. The survey of the Federal Reserve subdivides the demarcated broad international policy regimes into a number of episodes.
    3. A salient theme in our survey is that the convertibility rule or principle that dominated both domestic and international aspects of the monetary regime before World War I has since declined in its relevance. At the same time, policymakers within major nations placed more emphasis on stabilizing the real economy. Policy techniques and doctrine that developed under the pre-World War I convertible regime proved to be inadequate to deal with domestic stabilization goals in the interwar period, setting the stage for the Great Depression. In the post-World War II era, the complete abandonment of the convertibility principle, and its replacement by the goal of full employment, combined with the legacy of inadequate policy tools and theory from the interwar period, set the stage for the Great Inflation of the 1970s. The lessons from that experience have convinced monetary authorities to reemphasize the goal of low inflation, as it were, committing themselves to rule-like behavior.
  2. Do Political Institutions Shape Economic Policy? (Persson 2003)
    1. Do political institutions shape economic policy? I argue that this question should naturally appeal to economists. Moreover, the answer is in the affirmative, both in theory and in practice. In particular, recent theoretical work predicts systematic effects of electoral rules and political regimes on the size and composition of government spending. Results from ongoing empirical work indicate that such effects are indeed present in the data. Some empirical results are consistent with theoretical predictions: presidential regimes have smaller governments and countries with majoritarian elections have smaller welfare-state programs and less corruption. Other results present puzzles for future research: the adjustment to economic events appears highly institution-dependent, as does the timing and nature of the electoral cycle.
  3. The Financial Crisis and the Policy Reponses: An Empirical Analysis of What Went Wrong (Taylor 2009)
    1. Deviations in traditional government economic policy responsible for crisis government actions and interventions caused, prolonged, and worsened the financial crisis.
    2. They caused it by deviating from historical precedents and principles for setting interest rates, which had worked well for 20 years.
    3. They prolonged it by misdiagnosing the problems in the bank credit markets and thereby responding inappropriately by focusing on liquidity rather than risk.
    4. They made it worse by providing support for certain financial institutions and their creditors but not others in an ad hoc way without a clear and understandable framework.
    5. While other factors were certainly at play, these government actions should be first on the list of answers to the question of what went wrong.
  4. New Evidence on the Interest Rate Effects of Budget Deficits and Debt (Laubach 2010)
    1. Deficit/ GDP increased interest rates by 25 basis points and debt/GDP increase interest rates by 3 to 4 basis points respectively
  5. The impact of neoliberalism, political institutions and financial autonomy on economic development, 1980–2003 (Cohen 2007)
    1. This dissertation outlines and compares the economic track records of three different approaches to economic development policy:
      1. Neoliberalism, which advocates transferring control over the economy from governments to the private sector;
      2. Political institutionalism , which promotes political and bureaucratic reforms as a means of improving development; and
      3. Financial autonomy, which attempts to insulate the government and economy from economically-damaging international financial pressures.
    2. Each perspective presents a family of theories and concepts, rooted in longstanding scholastic traditions, which focus the attention and direct the problem-solving choices of those in the policy-making process. Neoliberalism, political institutionalism and financial autonomy crystallized in the wake of widespread political economic crisis during the 1970s and 1980s, and dissatisfaction with the reforms that followed the end of the Cold War. Although these perspectives provide coherent development narratives, they were not adopted coherently in actual policy, but rather provided repertoires from which policy-makers picked-and-chose their strategies.
    3. In an attempt to discern the fruitfulness of these prescriptions, a set of three studies examining the relationship between development countries’ growth, inflation and distributional equality, and their conformity to these perspectives’ prescriptions are presented. Each of these perspectives appears to touch on some facet of the larger development process.
    4. Deregulation and financial autonomy appear to be the principal determinants of growth.
    5. Inflation seems to be controlled with more trade, deregulation and financial autonomy.
    6. Unequal societies tend to be indebted and deregulated.
    7. An interpretation of these findings notes the importance of national financial autonomy and neoliberal reform in securing development in non-rich countries.
  6. The Federal Reserve and the American business cycles (Mouhammed 2008)
    1. This paper attempts to explain the Fed’s behavior of increasing and decreasing the federal funds rate. A Veblenian approach is developed and used to explain such a behavior.
    2. The paper argues that since 1968 every recession was preceded by an increase in the federal funds rate. This decision always promotes an evolving recession.
    3. The Recessions of 1991 and 2001 were preceded by increasing the federal funds rate several times. The Fed made such decisions because it tried to reduce wage share and capacity utilization and to control employment. This behavior will increase profits at the expense of the underlying population. The recent economic slowdown of 2007-08 was also preceded by increasing the federal funds rate seventeen times but for a failed reason of maintaining the exchange rate of the dollar during an inflationary condition of a high budget deficit.
    4. Summary and Conclusions
      1. The Fed’s behavior is actually grounded in the economic interpretation of history. In this interpretation there are various institutions representing the dominant vested interests and absentee ownership. The Fed is a financial institution reflecting the interest of absentee ownership. It performs its duty to maintain the interest of the financial magnates and the process of capital accumulation by weakening the working people. These goals are achieved by making the system produce at a level below its full productive capacity: sabotage. This is achieved by increasing the federal funds rate (or cutting the supply of money).
      2. The Fed increases the federal funds rate for some basic reasons such as the control of inflation and unemployment: cooling off the economy. The latter means an intentional slowdown in the rate of employment and a reduction in the growth rate of labor compensation as well as in the rate of capacity utilization. During the expansion of the 1990s some of low skilled workers and poor individuals were not able to find jobs or to obtain higher wages when the Fed increased the federal funds rate. This policy had many objectives, one of which was to keep poverty and unemployment high even when the economy had the longest economic expansion in the U.S. history.
      3. It is also true that when the federal funds rate increased, the rate of capacity utilization decreased, a situation that was associated with higher prices relative to a situation when the economy operated at full or near productive capacity. That is, a restriction of productive capacity produces a high (not a low) rate of inflation which was associated with less employment of economic resources. But if the federal funds rate decreased, the rate of capacity utilization would increase; hence, production and employment would increase and marginal costs and prices would decrease, culminating in a lower rate of inflation–the money effect on price level is outweighed by the money effect on productive capacity.
      4. Between June 2004 and August 2007 the Fed had increased the federal funds rate many times from 1.0 percent to 5.25 percent. But the higher rates of inflation were the result of the budget deficit, higher oil prices, and the falling exchange rate of the dollar. The Fed reached a point that the crisis of sub-prime lending emerged and inflation could not be controlled. The Fed then reverses direction and cut the short term interest rate several time from 5.25 percent to 2.00 percent (July 2008) and has bailed out the Bear Stearns investment bank. This decision will increase the rate of inflation (which the Fed is supposed to control) and will intensify the current economic condition of stagflation. That is to say, the Fed had promoted the recent economic crisis as well.
      5. It follows that the Fed is not interested in maintaining a high level of output (GDP) and employment when the profit share decreases and the share of labor income increases. Indeed, the Fed is a promoter of a lower rate of capacity utilization, a lower rate of labor compensation, a lower rate of employment, and recessions when the interest of the absentee ownership is threatened.
    5. Veblen’s Approach– The Great Approach
    6. The Causes of American Business Cycles: An Essay in Economic Historiography (Temin
      1. This paper surveys American business cycles over the past century. Its task is to identify the causes of these cycles; other papers in this collection address the nature of policy responses to these causes. This paper can be seen as a test to discriminate between two views of the American economy.
      2. The first is expressed in a characteristically vivid statement by Dornbusch, who proclaimed recently: “None of the U.S. expansions of the past 40 years died in bed of old age; every one was murdered by the Federal Reserve” (Dornbusch 1997). This stark view can be contrasted with its opposite in the recent literature: “[N]one of the popular candidates for observable shocks robustly accounts for the bulk of business-cycle fluctuations in output” (Cochrane 1994, p. 358).

Economic Inequality: Account Balances, Debt, Investing, Consumption patterns

  1. Economic Inequality and its Socioeconomic Impacts (Thorbecke 2002)
    1. Channels through which inequality affects growth (Thorbecke 2002)
    2. Galor (2000) also argues that for a country in an early stage of development, inequality would promote growth because physical capital is scarce at this stage and its accumulation requires saving. An increased share of the rich in the population would then result in higher saving and rapid growth. On the other hand, at a later stage of development, the increased availability of physical capital raises the return on investment in human capital. But, with credit market imperfections, the poor––who do not have the ability to provide collateral––may find their access to capital curtailed (Galor & Zeira, 1993; Agion & Bolton, 1997). The poor will therefore find it difficult to invest in human capital. Income inequality would then result in a poverty trap and lower growth.
    3. The credit constrained human capital accumulation hypothesis which is discussed in detail in Section 4 (the effect of income inequality on education) is based on the notion that under imperfect information, moral hazard arises because a borrower knows more about the investment opportunity than a lender.
      1. That is, a lender absorbs all the risk after entering into a contract; from a borrower’s side, a larger middle class mitigates the moral hazard problem because it increases the number of potential investors who are able to offer collateral. From the creditor’s side, a larger middle class enlarges the pool of loanable funds. Thus, it reduces the ECONOMIC INEQUALITY constraint on the credit market and thereforefacilitates lending to the poor.
  2. Inequality, unemployment and growth: New measures for old controversies (Galbraith 2009)
    1. This essay surveys some of the work of the University of Texas Inequality Project, a small research group that for the past decade has worked primarily to develop new measures of economic inequality, using a method based on the between-groups component of Theil’s T statistic. In this way, inequality statistics can be computed from many diverse and mundane sources of information, including regional tax collections, employment and earnings, census of manufacturing, and harmonized international industrial data sets. The rich data environment so constructed permits new analyses of patterns of economic change, by region, by sector, and by country, and broadly supports the idea that the movement of inequality is closely related to macroeconomic events at the national and the global level
    2. The movement of overall income inequality in the United States over time is largely governed by the stock market, an artifact of financial boom and bust.  Meanwhile pay inequality in both the United States and Europe largely rises and falls with unemployment over time, although other factors including exchange rate movements and political regime changes play a role.  Within Europe, countries with less pay inequality systematically enjoy less unemployment, other things equal. This result contradicts the “standard model” that places blame for chronic unemployment on labor market rigidity, though it is consistent with well-established models of search and migration and of induced productivity change.  Further, an evaluation of inequality at the continental level demonstrates that  pay inequality in the United States is less, not greater than in Europe.  Again this tends to refute the view that the superior employment performance of the United States is due to high inequality in pay structures, and calls attention instead to the neglected international dimension of European inequality – a dimension of increasing relevance as the continental economy becomes more integrated.
    3. We find that data support the basic intuition of Kuznets: the level of inequality is associated with the level of income. However, the form of this relationship appears more complex than the conventional inverted U-curve that is widely associated with Kuznets in the literature.
      1. Most countries tend to experience falling inequality as they grow and develop. There is evidence that for some of the richest countries, notably capital goods exporters and the small oil producers, rising incomes are associated with rising inequality once again. (See Galor 2000)
    4. Finally, there is a strong global pattern to the movement of inequality, with a rise, quite independent of changes in national income, beginning in the early 1980s. This pattern strongly suggests that the proper conceptual domain for the study of global inequality is macroeconomic, and that macroeconomic forces common to the entire global economy can be identified in the data.
    5. The personal or household distribution of income has traditionally been considered as a problem largely in applied microeconomics, specifically labor economics.  But the UTIP data environment points to a different conclusiont.  It suggests, instead, that macroeconomics  can provide a theoretical framework capable of explaining the relationship between inequality, unemployment and growth in a coherent way.
    6. Thus this framework has three major theoretical underpinnings:  a theory of rational search in an unequal world;  a theory of induced technological progress; a theory of intersectoral transitions at the root of changes in inequality. Behind these lie, of course, the theory of aggregate effective demand, based on Keynes. Taken together, the framework and the evidence support a general conclusion that equality, employment and productive efficiency are broadly complements, not substitutes, at least within the general ranges experienced among OECD countries at the present time.
  3. Unequal = Indebted (Kumhof 2011)
    1. Higher income inequality in developed countries is associated with higher domestic and foreign indebtedness
    2. It’s a short paper highlighting some of inequality’s effects. Take specific look at the commentary on China’s growing current account surplus. Contrary to popular belief, inequality has been rising just as quickly over there. The reason they aren’t in debt is because of their inefficient financial markets, in contrast to the US hyper efficient financial markets. They save more, despite making less and less, because there aren’t developed financial markets that provide banking services. This excess surplus travels to the US and fuels the debt investment driving our consumption and domestic demand. This type of behavior is driving global current account imbalances.
  4. Democratic Inequality (Rajan March 2011)
    1. Great Depression: consumption was high among households in the top fifth of the income distribution, household consumption was high at lower income levels as well.
    2. Conspicuous Consumption
    3. the article details the motivation of legislators in certain districts to vote against the expansion and competition of lending as a way of leveraging inequality to the benefit of wealthy private lenders who comprised the bulk of their constituency. This consequently increased their profits, in the short term anyway. The result fueled a financial frenzy and collapse similar to the run up observed in 2008.
  5. Income Inequality and Current Account Imbalances  (Kumhof, Lebarz, Ranciere, et. al 2012)
    1. Financial liberalization helps workers smooth consumption, but at the cost of higher household debt and larger current account deficits. In emerging markets, workers cannot borrow from investors, who instead deploy their surplus funds abroad, leading to current account surpluses instead of deficits.
    2. My summary:
      1. the authors look at how income inequality is exacerbated by domestic lending of the rich. As rising aggregate output/GDP is coupled with rising income inequality and stagnating wages, poor/ middle class consumption is less than their drop in income due to domestic lending of the rich. (Prices go up, they get more credit/ debt, buy more, fuels domestic demand, aggregate output increases, current account deficit widens).
      2. The typical short-term political fix is to target policies that allow for cheaper borrowing/ financial liberation (Hence the fed is keeping rates at 0% to increase borrowing). But long-term financial liberation only leads to higher domestic debt levels, higher debt services, and lower worker consumption: it generates increases in workers’ consumption, yet slows down capital accumulation as investors prefer financial over real assets (less value-added investing, more speculative investing, i.e. financial securities, real estate, etc, eventually leads to economic stagflation…. current situation?).
      3. The article continues by discussing historical economic trends and the global repercussions if new policies are not sought to address these systemic issues. They project that the issue of domestic indebtedness will spread globally as the income inequality gap widens and financial liberation continues.
  6. Inequality, Leverage and Crises  (Kumhof 2011)
    1. The paper studies how high leverage and crises can arise as a result of changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of the rich, a large increase in leverage for the remainder, and an eventual financial and real crisis.
  7. Who Are the Winners and the Losers (Hisnanick 2011)
    1. “Economic growth appears to have resulted in an unequal distribution of household income. Rather than all incomes rising with the tide of prosperity, there was an uphill flow of income to those households at the top end of the distribution. It can be argued  that households in the upper portion of the income distribution are better positioned, or even favored, to reap the benefits from growth, further widening the income gap between rich and poor and more clearly delineating the winners and the losers in the annual income race.”
    2. “On average, between one-fifth and one-fourth of households that stayed in the same quintile remained in either the bottom or top quintile. For those households that remained in the bottom quintile from year to year, nearly twice as many experienced declines of at least 10 percent, on average, than experienced an increase. However, for those households that remained in the top quintile from year to year, just the opposite situation was observed. Twice as many households experienced an increase of at least 10 percent, on average, than experienced a comparable decline. The dynamics of growth, as well as the dynamics of income, favor those households in the top of the income distribution, while those in the bottom of the distribution appear to be stuck there, and in some cases even sliding further into the depths of poverty, further negating the optimistic outcomes postulated by conventional economic thinking.”
    3. Top quartile: White, educated, young; Bottom Quartile: Minority, old, uneducated
      1. “These disparities observed between the winners and the losers in the annual income race do not represent isolated differences, but rather it could be argued they are the cumulative differences that result from inequality of opportunity, as well as limited access to those resources that would improve their position in the income distribution.”
    4. U.S. Income Distribution Winners and Losers
      1. As the U.S. economy prospers, there is an uphill flow of income to households in the upper quintiles while the majority of households in middle and lower income quintiles do not see an increase in income at all. This of course affects US households when the economy slows down.
      2. those in the bottom…appear to be stuck there, and in some cases even sliding further into the depths of poverty, further negating the optimistic outcomes postulated by conventional economic thinking.”
  8. Private Sector Consumption and Government Consumption and Debt in Advanced Economies an Empirical Study (Bhattacharya 2010)
    1. “Our results provide support for the hypothesis that the propensity to consume out of income varies in a non-linear fashion with fiscal variables, and in particular with government debt per capita, and also suggest that private and government consumption are substitutes in the household utility function.
  9. Household Debt and the Macroeconomy (Debelle 2011)
    1. “Lower interest rates and an easing of liquidity constraints have led to a substantial rise in household debt over the past two decades. The greater indebtedness has made the household sector more sensitive to changes in interest rates, income and asset prices. This enhanced sensitivity is higher where more households have variable instead of fixed rate mortgages.”
  10. Living U.S. Capitalism: The Normalization of Credit/Debt (Peñaloza 2011)
    1. Implications situate such cultural reproduction processes in the United States in discussing how the national legacy of abundance informs the normalization of credit/debt.
    2. This research develops a theoretical account of cultural meanings as integral mechanisms in the normalization of credit/debt. Analysis derives these meanings from the credit/debt discourses and practices of 27 white middle-class consumers in the United States and tracks their negotiation in patterns and trajectories in social and market domains.
    3. Discussion elaborates the ways informants normalize credit/ debt in transposing their categories, in improvising meaning combinations, and in suturing the meaning patterns to particular subject positions in constituting themselves as consumers.
    4. Theoretical contributions
      1. (1) distinguish consumers’ collaborative production of cultural meanings with friends, family, and others in the social domain and with financial agents and institutions in the market domain and
      2. (2) document the productive capacities of these meanings in patterns and trajectories in configuring people as consuming subjects.
    5. Implications situate such cultural reproduction processes in the United States in discussing how the national legacy of abundance informs the normalization of credit/debt.
  11. The growth of consumer credit and the household debt service burden  (Maki 2002)
  12. The Corrosive Qualities of Inequality: The Roots of the Current Meltdown (Perelman 2008)
    1. To this author, it is remarkable how many economists defend high levels of income inequality. He argues to the contrary, that inequality not only breeds corruption and poor business practices, it is on balance detrimental to economic growth. His new book covers a lot of ground, but he has boiled down some of the lesson in this piece.
  13. Inequality and the Global Crisis (Dowd 2009)
    1. Inequality has always been with us. With the growth of capitalism across the globe, inequalities of income, wealth and power became increasingly extreme. Written by economist Douglas Dowd, this book shows that the present banking crisis is the result of the growth of inequality across the globe.
    2. The expansion of the financial sector has brought incredible riches to a select few, at the expense of the majority. Inequality was ignored, or described as a necessary aspect of a booming global economy. With the collapse of the world markets, the fallacy of this position is clear. Inequality and the Global Economic Crisis shows how it is only by addressing inequality that we can secure the health of our economies in the future
  14. The Financial Crisis at the Kitchen Table: Trends in Household Debt and Credit (Brown 2010)
    1. The Federal Reserve Bank of New York (FRBNY) Consumer Credit Panel, created from a sample of U.S. consumer credit reports, is an ongoing panel of quarterly data on individual and household debt.
    2. The panel shows a substantial run-up in total consumer indebtedness between the first quarter of 1999 and the peak in the third quarter of 2008, followed by a steady decline through the third quarter of 2010. During the same period, delinquencies rose sharply: Delinquent balances peaked at the close of 2009 and then began to decline again.
    3. This paper documents these trends and discusses their sources. We focus particularly on the decline in debt outstanding since mid-2008, which has been the subject of considerable policy and media interest. While the magnitudes of balance declines and borrower defaults, represented as “charge-offs” on consumers’ credit reports, have been similar, we find that debt pay-down has been more pronounced than this simple comparison might indicate.

The Fed and Macroeconomics: Monetary and Fiscal Policy

  1. Monetary Policy and Economic Inequality in the United States (Silvia 2012)
    1. We study the effects and historical contribution of monetary policy shocks to consumption and income inequality in the United States.  Contractionary monetary policy actions systematically increase inequality in labor earnings, total income, consumption and total expenditures.
    2. Furthermore, monetary shocks can account for a significant component of the historical cyclical variation in income and consumption inequality.
    3. Using detailed micro-level data on income and consumption, we document the different channels via which monetary policy shocks affect inequality, as well as how these channels depend on the nature of the change in monetary policy.
  2. The Fed’s Real Reaction Function Monetary Policy, Inflation, Unemployment, Inequality – and Presidential Politics (Galbraith 2007) (pdf 2)
    1. Using a VAR model of the American economy from 1984 to 2003, we find that, contrary to official claims, the Federal Reserve does not target inflation or react to “inflation signals.”
    2. Rather, the Fed reacts to the very “real” signal sent by unemployment, in a way that suggests that a baseless fear of full employment is a principal force behind monetary policy. Tests of variations in the workings of a Taylor Rule, using dummy variable regressions, on data going back to 1969 suggest that after 1983 the Federal Reserve largely ceased reacting to inflation or high unemployment, but continued to react when unemployment fell “too low.” Further, we find that monetary policy (measured by the yield curve) has significant causal impact on pay inequality – a domain where the Fed refuses responsibility. Finally, we test whether Federal Reserve policy has exhibited a pattern of partisan bias in presidential election years, with results that suggest the presence of such bias, after controlling for the effects of inflation and unemployment.
      1. Implication for wage bargaining?
      2. Is the fed systematically maintaining high employment to retain increased firm bargaining power that keeps wages low?
    3. “It would therefore appear that, much official rhetoric to the contrary, the Fed in fact operates on a single mandate, and it isn’t price stability.”
    4. “Does monetary policy influence inequality?  More specifically, does information contained in the term structure of interest rates extend beyond inflation and unemployment to a measure of inequality in earnings?  The answer is that it does. “
      1. The fed maintains higher unemployment for lower wages
  3. With Economic Inequality for All (Galbraith 1998)
      1. Galbraith, James K., 1998.  “With Economic Inequality for All,” The Nation, Sept. 7-14.
    1. What caused bad economic performance? Economic policy, and very specifically monetary policy, changed. Beginning in 1970, the government abandoned the goal of full employment and instead turned its attention to a fight against inflation. For this purpose, only one instrument was deemed suitable: high interest rates brought into being by the Federal Reserve. There followed a repeated sequence of recessions, each justified at the time as the unfortunate consequence of external shocks and events beyond national control. The high unemployment that these recessions produced generated the rise in inequality. For this the federal Reserve, under its reputable chairmen Arthur Burns, Paul Volcker and Alan Greenspan, stands primarily (though not solely) responsible.
    2. Rising wage inequality is also linked to economic globalization. United States trade has been expanding since the late sixties, and the effects on wages, now thoroughly debated in a large literature, are significant–but they do not dominate the movement of wages. It would be absurd to pretend that imports from low-wage countries have no effect on US wages; but it is equally wrong to argue, as we sometimes hear from both left and right, that the Mexican and Chinese tails wag the dog of the US wage structure.
    3. It follows that if we wish to restore patterns of wage equality befitting a society that is truly middle class, we need two things: a return to policies of sustained full employment, and an entirely different approach, when necessary, to inflation
  4. The Effects of Monetary Policy Shocks: Some Evidence from the Flow of Funds (Christiano 1996)
    1. This paper uses the Flow of Funds accounts to assess the impact of a monetary policy shock on the borrowing and lending activities of different sectors of the economy.
    2. Our measures of contractionary monetary policy shocks have the following properties:
      1. (i) they are associated with a fall in nonborrowed reserves, total reserves, M1, the Federal Reserves’ holdings of government securities and a rise in the federal funds rate,
      2. (ii) they lead to persistent declines in real GNP, employment, retail sales and nonfinancial corporate profits as well as increases in unemployment and manufacturing inventories,
      3. (iii) they generate sharp, persistent declines in commodity prices and
      4. (iv) the GDP price deflator does not respond to them for roughly a year.
    3. After that the GDP price deflator declines. Our major findings regarding the borrowing activities of different sectors can be summarized as follows.
    4. First, following a contractionary shock to monetary policy, net funds raised by the business sector increases for roughly a year.
    5. Thereafter, as the recession induced by the policy shock gains momentum, net funds raised by the business sector begins to fall.
    6. This pattern is not captured by existing monetary business cycle models. Second, we cannot reject the view that households do not adjust their financial assets and liabilities for several quarters after a monetary shock. This is consistent with a key assumption of several recent monetary business cycle models.
  5. On Stock Market Returns and Monetary Policy (Thorbecke 1997)
    1. Financial economists have long debated whether monetary policy is neutral. This article addresses this question by examining how stock return data respond to monetary policy shocks. Monetary policy is measured by innovations in the federal funds rate and nonborrowed reserves, by narrative indicators, and by an event study of Federal Reserve policy changes.
    2. In every case the evidence indicates that expansionary policy increases ex post stock returns.
    3. Results from estimating a multifactor model also indicate that exposure to monetary policy increases an asset’s ex ante return.
  6. Wealth Inequality and Optimal Monetary Policy (Hiraguchia 2010)
    1. We study the money-in-the-utility-function model in which agents are heterogeneous in their initial wealth. We show that the Friedman rule is not optimal even if the government uses nonlinear income taxation for redistribution.
    2. A positive nominal interest rate raises social welfare because it relaxes the incentive compatibility constraint for highly endowed agents. Although the setup is close to that of da Costa and Werning [Journal of Political Economy(2008) 116, 82–112], who investigate skill heterogeneity, the role of the nominal interest rate in this paper here differs from the one in their model.
  7. Optimal Monetary Policy When Agents are Learning (Molnar 2010)
    1. We derive the optimal monetary policy in a sticky price model when private agents follow adaptive learning. We show that this slight departure from rationality has important implications for policy design. The central bank faces a new intertemporal trade-off, not present under rational expectations: it is optimal to forego stabilizing the economy in the present in order to facilitate private sector learning and thus ease the future intratemporal inflation-output gap trade-offs.
    2. The policy recommendation is robust: the welfare loss entailed by the optimal policy under learning if the private sector actually has rational expectations is much smaller than if the central bank mistakenly assumes rational expectations when in fact agents are learning.
  8. Monetary Policy, Doubts and Asset Prices (Benigno 2010)
    1. Asset prices and the equity premium might reflect doubts and pessimism. Introducing these features in an otherwise standard New-Keynesian model changes in a quite substantial way the nature of the policy that maximizes the welfare of the consumers in the model.
    2. First, following productivity shocks, optimal policy in this model is more accommodating than in a standard New-Keynesian model, and may even inflate the equity premium.
    3. Second, asset-price movements improve the inflation-output trade-off so that average output can rise without increasing much average inflation.
    4. Finally, a strict inflation-targeting policy may result in lower average welfare than a more flexible inflation-targeting policy, which instead increases the comovements between inflation, asset prices and output growth.
  9. Credit, Money and Macroeconomic Policy: A Post-Keynesian Approach (Gnos 2011)
    1. See Ch. 5 by Parguez
    2. ‘The volume Credit, Money and Macroeconomic Policy edited by Claude Gnos and Louis-Philippe Rochon, represents a most important contribution to the understanding of the nature and role of credit and money in modern economies. It deals with some of the most pressing issues of our time; as such it constitutes an invaluable guide for the comprehension of the effects of the last twenty years of inflation targeting policies.’ Giuseppe Fontana, University of Leeds, UK and University of Sannio, Italy With recent turmoil in financial markets around the world, this unique and up-to-date book addresses a number of challenging issues regarding monetary policy, financial markets and macroeconomic policy. While some of the chapters address the recent crisis as well as adjustments to the Basel Accord, others analyse the required changes to the conduct of monetary and fiscal policies. The distinguished authors offer an in-depth and comprehensive analysis of macroeconomics and provide alternative policies to deal with a number of persistent modern-day problems. Offering an interesting analysis of current economic issues from a Post-Keynesian perspective, this book will appeal to academics and graduate students of macroeconomics and financial markets.
  10. Inequality, Inflation, and Central Bank Independence- Working paper (Dolmas 2008 working paper)
    1. What can account for the different contemporaneous inflation experiences of various countries, and of the same country over time? We present an analysis of the determination of inflation from a political economy perspective.
    2. We document a positive correlation between income inequality and inflation and then present a theory of the determination of inflation outcomes in democratic societies that illustrates how greater inequality leads to greater inflation, owing to a desire by voters for wealth redistribution. (IS THIS REVERSE CAUSATION?)
    3. We conclude by showing that democracies with more independent central banks tend to have better inflation outcomes for a given degree of inequality
  11. Conventional and Unconventional Monetary Policy (Curdia, Woodford, 2010)
  12. Is Monetary Policy Effective During Financial Crises? (Mishkin 2009)
    1. This short paper argues that the view that monetary policy is ineffective during financial crises is not only wrong, but may promote policy inaction in the face of a severe contractionary shock. To the contrary, monetary policy is more potent during financial crises because aggressive monetary policy easing can make adverse feedback loops less likely. The fact that monetary policy is more potent than during normal times provides a rationale for a risk-management approach to counter the contractionary effects from financial crises, in which monetary policy is far less inertial than would otherwise be typical — not only by moving decisively through conventional or nonconventional means to reduce downside risks from the financial disruption, but also in being prepared to quickly take back some of that insurance in response to a recovery in financial markets or an upward shift in inflation risks.
  13. On the Effects of Monetary Policy Shocks on Exchange Rates (Binder 2010) (pdf 2009)
    1. In this paper we re-consider the effects of monetary policy shocks on exchange rates and forward premia. In the recent empirical literature, these effects have been predominantly described as puzzling, in that they would include delayed overshooting of the exchange rate as well as persistent deviations from uncovered interest parity. We specify an empirical model that in particular (i) allows for simultaneous multi-country adjustments in response to monetary policy shocks, and (ii) takes advantage of the identifying restrictions for monetary policy shocks implied by empirically supported long-run relations between the macroeconomic variables under consideration. Using monthly data from 1978 to 2006 for a panel of nine industrial economies (Australia, Canada, France, Germany, Italy, Japan, New Zealand, United Kingdom, and the United States), we find that U.S. Dollar effective and bilateral real exchange rates appreciate on impact after a contractionary U.S. monetary policy shock, and that there is no delay in the overshooting of the U.S. Dollar. Furthermore, there is no persistent significant forward premium. These results are consistent with the real exchange rate effects of monetary policy shocks in sticky price macroeconomic models, though the results of this paper also suggest that the latter models should be specified so as to capture simultaneous multi-country adjustments to shocks.

Financialization (Wikipedia); Liberalization/ Deregulation

  1. Financialization: What it is and Why it Matters (Palley 2012, working paper)
    1. (Financialization: What it is and Why it Matters Palley 2007)
    2. Financialization is a process whereby financial markets, financial institutions, and financial elites gain greater influence over economic policy and economic outcomes. Financialization transforms the functioning of economic systems at both the macro and micro levels.
    3. Its principal impacts are to (1) elevate the significance of the financial sector relative to the real sector, (2) transfer income from the real sector to the financial sector, and (3) increase income inequality and contribute to wage stagnation. Additionally, there are reasons to believe that financialization may put the economy at risk of debt deflation and prolonged recession.
    4. Financialization operates through three different conduits: changes in the structure and operation of financial markets, changes in the behavior of nonfinancial corporations, and changes in economic policy.
    5. Countering financialization calls for a multifaceted agenda that (1) restores policy control over financial markets, (2) challenges the neoliberal economic policy paradigm encouraged by financialization, (3) makes corporations responsive to interests of stakeholders other than just financial markets, and (4) reforms the political process so as to diminish the influence of corporations and wealthy elites.
  2. Financialization and Income Inequality: A Post Keynesian Institutionalist Analysis (Zalewski 2010)
    1. One of the most troubling developments in recent years has been widening income inequality in the United States and elsewhere. We argue Post Keynesian Institutionalism (PKI) provides insight into the causes of increasing income inequality and our contribution is threefold.
    2. First, we compare PKI to the “financialization” literature, noting key similarities and differences.
    3. Second, we examine changes in financial structure and income inequality for a sample of developed nations, showing that financialization has increased in nearly all the countries sampled and that this increase has generally been accompanied by a rise in income inequality.
    4. Third, we demonstrate that the development of modern financial structures does not preclude an expansive welfare state and egalitarian public policies.
    5. Our finding is congruent with Hyman Minsky’s conception of PKI, which stressed both that “economic systems are not natural systems” and that capitalism comes in as many varieties as Heinz has of pickles.
  3. The pursuit of (past) happiness? Middle-class indebtedness and American financialisation (Montogomerie 2012)
    1. This article evaluates unsecured (or non-mortgage) debt trends in the USA, at the aggregate and household level, as a means of considering middle-income households’ experience of financialization.
    2. The first section evaluates a unique, but overlooked, aspect of asset-backed securities credit creation.
    3. The second section analyses household survey data from Survey of Consumer Finances to consider how median-income household debt levels perpetuate inequality between those that participated in credit boom and those that did not, and how the growing stock of unsecured debt relative to income is intensifying financial insecurity for many middle-income households.
    4. The final section puts forward an ‘everyday politics’ account of households’ experience of financialization to argue that middle-income households are spending beyond the limits of income to preserve a standard of living established in the post-war period.
  4. Financialization and US Income Inequality, 1970-2008 (Lin 2011)
    1. Focusing on U.S. non-finance industries, we examine the connection between the financialization of the US economy and rising income inequality. We argue that the increasing reliance by firms on earnings realized through financial channels decoupled the generation of surplus from production, strengthening owners’ and elite workers’ negotiating power relative to other workers. Moreover, the financial conception of the firm reduced capital and management commitment to production, further marginalizing labor’s role in U.S. corporations.
    2. The result was an incremental exclusion of the general workforce from revenue generating and compensation setting processes.
    3. Using time-series cross-section data at the industry level, our analysis shows that increased dependence on financial income, in the long run, decreased labor’s share of income, increased top executives’ share of compensation, and increased earnings dispersion among workers.
    4. Net of conventional explanations, including declining unionization, globalization, technological change, and capital investment, the effects of financialization are substantial on all three dimensions of increased inequality. The counterfactual analysis suggests that financialization accounts for more than half of the decline in labor’s share of income, 10 percent of the growth in officers’ share of compensation, and 15 percent of the growth in earnings dispersion between 1970 and 2008.
  5. Financialization of the Global Economy (Dore 2008)
    1. The instability of the world financial system, starkly revealed in the recent debacle, is not the only problem it poses. Its secularly increasing dominance over the real economy is in itself a phenomenon that needs examining.
    2. The article traces the source of this increasing dominance not just to the increasingly leveraged and increasingly incomprehensible forms of intermediation between savers and those in the real economy who need credit and insurance, but also to the increasingly universal doctrine that maximizing “shareholder value” is the sole raison d’être of the firm and the promotion by governments of an “equity culture.”
    3. Some of the social consequences of financialization are exacerbating inequalities, greater insecurity, misdirection of talent, and the erosion of trust.
  6. Financial Liberalisation, Consumption and Wealth Effects in 7 OECD Countries(Barrell 2002)
    1. We estimate the impact of financial liberalisation on consumption in 7 major industrial countries, and find  a marked shift in behaviour, notably a decline in short run income elasticities and a rise in short run wealth and interest rate elasticities. A corollary is that consumption equations estimated over both pre- and post-liberalisation regimes may be misleading, and either a form of testing as presented here or a shortening of the sample period may be appropriate for accurate forecasting and simulation
  7. An Analysis on the Way through which Financial Liberation Influences Economic Growth (Hong-yi 2006)
    1. The financial liberation theory advocates that we should reform excessive government intervention in the financial sector, while striving for an increasing liberalization of financing institution and financial market, strengthening the financial function of enterprise, we should deregulate the interest rate and foreign exchange rate and adopt it to the market principle.
    2. By looking back upon the relational theory of financial liberation and economic growth, this paper discusses the way through which finance influences the economic growth, and what is needed to realize financial liberation, combining the concrete situation in our country.
  8. Financial repression, the new structuralists, and stabilization policy in semi-industrialized economies (Buffle 2002)
    1. It is found that financial liberalization may fail in the short-run and, contrary to the claims of the new structuralists, that the financial market repercussions of devaluation may be favorable
  9. Income inequality: the aftermath of stock market liberalization in emerging markets (Das 2003) (PDF)
    1. Early research has documented that the large-scale equity market liberalizations of the last decade led the subsequent rise in aggregate equity indices, investment booms, capital flows and economic growth.
    2. An important and unaddressed issue is the normative question of whether and how these reforms shifted the distribution of incomes in the aftermath of equity market liberalization. In careful empirical analysis, we find a pattern indicating that income share growth accrued almost wholly to the top quintile of the income distribution at the expense of a “middle class” that we define as the three middle quintiles of the income distribution.
    3. A surprising finding is that the lowest income share remained effectively unchanged in the event of liberalization. These patterns are robust to the inclusion of a wide variety of controls for global shocks, country-specific factors, and contemporaneously implemented privatization and stabilization policies.
  10. The Evolution of the US Financial Industry from 1860 to 2007: Theory and Evidence. (Philippon 2008)
    1. The share of finance in U.S. GDP displays large historical variations. I argue, using evidence and theory, that corporate finance is a key factor behind these evolutions. Corporate demand for intermediation depends crucially on the relative investment opportunities of firms with low cash flows (young firms) and firms with high cash flows (incumbents).
    2. A simple general equilibrium model is developed in order to separate demand and supply factors in the market for financial intermediation. The demand parameters accord well with historical evidence on the importance of entrants during technological revolutions.
    3. The supply parameters suggest financial regress in the 1930s and progress in the 1990s. The model accounts for much of the variation in the income share of the financial sector from 1860 to 2001. Only the period 2002-2007 appears puzzling
  11. Capital account liberalization, financial depth, and economic growth (Klein 2008)
    1. We show a statistically significant and economically relevant effect of open capital accounts on financial depth and economic growth in a cross-section of countries over the periods 1986–1995 and 1976–1995.
    2. Countries having open capital accounts had a significantly greater increase in financial depth and, over the 20-year period, greater economic growth.
    3. These results, however, are largely driven by the developed countries included in the sample. The observed failure of capital account liberalization to promote financial deepening among developing countries suggests potentially important policy implications concerning the desirability of opening up the capital account.
  12. Consumer Behavior and the Stickiness of Credit-Card Interest Rates (Calem 1995)
  13. Financial Development and Economic Growth (De Gregorio 1994)
    1. This paper examines the empirical relationship between long-run growth and financial development, proxied by the ratio between bank credit to the private sector and GDP. We find that this proxy is positively correlated with growth in a large cross-country sample, but its impact changes across countries, and is negative in a panel data for Latin America.
    2. We argue that the latter findings is the result of financial liberalization in a poor regulatory environment. Our findings also show that the main channel of transmission from financial development to growth is the efficiency, rather than the volume, of investment.
  14. Financial Development and Economic Growth: A Critical View (Fitzgerald 2006)
    1. The potential contribution of financial development to economic growth is considerable, but cannot be taken for granted depends on the construction of the appropriate institutional structure.
    2. Conventional measures of financial ‘depth’ (in terms of private assets) and financial ‘development’ (defined as moving from banks towards capital markets) are not associated with higher rates of economic growth.
    3. Financial liberalisation leads to more efficient and liquid financial intermediation, but does not appear to raise the rates of domestic savings or investment in the aggregate.
    4. The efficiency gains from the standard model of financial liberalisation in terms of investment allocation and corporate governance can be outweighed by new of instability from short-term foreign capital flows
  15. Financialization and the Slowdown of Accumulation (Stockhammer 2000)
    1. Over the past decades financial investment of non-financial businesses has been rising and accumulation of capital goods has been declining.
    2. The first part of the paper offers a novel theory to explain this phenomenon. Financialization, the shareholder revolution and the development of a market for corporate control have shifted power to shareholders and thus changed management priorities, leading to a reduction in the desired growth rate.
    3. In the second part the link between accumulation and financialization is tested econometrically by means of a time series analysis of aggregate business investment for USA, UK, France, and Germany.
    4. Extensive test of robustness are performed. For the first three countries evidence that confirms the negative effect of financialization on accumulation is found.

Capital Accumulation

  1. From physical to human capital accumulation: Inequality and the process of development (Galor 2000)
    1. This research develops a growth theory that captures the endogenous replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth in the transition from the Industrial Revolution to modern growth.
    2. The proposed theory offers a unified account for the effect of income inequality on the growth process of the currently advanced economies during this transition.
    3. It argues that the replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth has changed the qualitative impact of inequality on the process of development.
    4. In the early stages of the Industrial Revolution, when physical capital accumulation was the prime source of economic growth, inequality, enhanced the process of development by channeling resources towards individuals whose marginal propensity to save is higher. In the later stages of the transition to modern growth, as human capital emerged as a prime engine of economic growth, equality alleviated the adverse effect of credit constraints on human capital accumulation and promoted the growth process.
    5. As wages increase, however, credit constraints become less binding, differences in the marginal propensity to save decline and the aggregate effect of income distribution on the growth process becomes therefore less significant.
  2. Income inequality, Human Capital Accumulation and Economic Performance (Chiu 1998)
    1. We show that greater income equality implies higher human capital accumulation and economic performance in an overlapping-generations model with heterogeneity in income and talent.
    2. Given liquidity constraints and declining marginal utility, individuals with a given level of talent receive education if their initial income is higher than a threshold level and the threshold is lower for more talented individuals.
    3. Assuming the more talented create more human capital when educated, greater initial income equality for one generation then imply not only higher aggregate human capital accumulated by that generation but an improvement in all subsequent generations’ initial income distributions.
  3. Capital accumulation and growth: a new look at the empirical evidence (Bond 2010)
    1. Using annual data for 75 countries in the period 1960–2000, we present evidence of a positive relationship between investment as a share of gross domestic product (GDP) and the long-run growth rate of GDP per worker.
    2. This result is robust for our full sample and for the subsample of non-OECD countries, but not for the subsample of OECD countries. Our analysis controls for time-invariant country-specific heterogeneity in growth rates, and for a range of time-varying control variables. We also address endogeneity issues, and allow for heterogeneity across countries in model parameters and for cross-section dependence.
  4. Financialisation and capital accumulation in the non-financial corporate sector (Orhangazi 2010)
    1. I discuss the impact of financialisation on real capital accumulation in the US. Using data from a sample of non-financial corporations from 1973 to 2003, I find a negative relationship between real investment and financialisation. Two channels can help explain this negative relationship:
    2. First, increased financial investment and increased financial profit opportunities may have crowded out real investment by changing the incentives of firm managers and directing funds away from real investment.
    3. Second, increased payments to the financial markets may have impeded real investment by decreasing available internal funds, shortening the planning horizons of the firm management and increasing uncertainty.

Savings and Consumption

  1. Saving, Growth, and Liquidity Constraint (Jappelli 1994)
    1. We have empirically assessed the validity of three propositions, namely that liquidity constraints on households raise the saving rate, strengthen the effect of growth on saving, and foster productivity growth in models in which growth is endogenous. The evidence reported in Sections IV and V does not reject any of these propositions. (102)
    2. “The policy implications for the process of financial integration and liberalization in the European Community are important. This process may lead to further easing of liquidity constraints in the countries where the mortgage and consumer credit markets are still relatively underdeveloped. Our estimates suggest that the development of these markets will lead to a deterioration in the Community’s overall saving and growth performance, and our model indicates that it may also reduce the welfare of current and future generations.“ (103)
  2. Trickle Down Consumption (Bertrand, Morse 2012)
    1. While incomes in the lower and middle portions of the US income distribution have only been rising slowly over the last three decades, incomes in the upper part of the income distribution have risen sharply. At the same time, the average saving rate in the US has been in constant decline since the early 1980s. We ask whether these two trends are related. In particular, we ask whether rising consumption among (increasingly)  richer households induces the relatively worse off to spend a higher share of their disposable income.
      1. We find evidence consistent with this, suggesting that up to a quarter of the decline in the savings rate over the last three decades could be attributed to rising top income levels.
    2. We  argue against a permanent income explanation for this finding; we also fail to find evidence that this higher consumption level  out of disposable income is driven by upwardly-biased biased expectations about future income.
    3. Consistent with our core finding of higher expenditure to income ratios among non-rich households exposed to higher top income levels, we find that  households exposed to more spending by the rich self-report more financial distress.
    4. Likewise, in a state-year panel, higher top income levels in a state are predictive of a higher number of personal bankruptcy filings in a state. Finally, we investigate the political economy implications of our findings. Looking at both federal and state legislations, we find evidence that, holding ideology constant, legislators that represent areas where income inequality is higher are more likely to vote in favor of policies that increase credit availability or decrease the cost of credit.
  3. Is the Consumption-Income Ratio Stationary? Evidence from Linear and Non-Linear Panel Unit Root Tests for OECD and Non-OECD Countries (Cerrato 2012)
    1. We find that the majority (78 per cent) of the series are non-stationary with slightly fewer non-OECD countries’ (74 per cent) series exhibiting a unit root than OECD countries (83 per cent).
      1. Habit formation causal mechanism?
  4. Has Consumption Inequality Mirrored Income Inequality? (Aguiar 2011)
    1. “Our estimation exploits the difference in the growth rate of luxury consumption inequality versus necessity consumption inequality. This “double-differencing,” which we implement in a a regression framework, corrects for mis-measurement that can systematically vary over time by good and income group.
    2. This second exercise indicates that consumption inequality has closely tracked income inequality over the period 1980-2007. Both of our measures show a significantly greater increase in consumption inequality than what is obtained from the CE’s total household expenditure data directly.”
  1. Private Sector Consumption and Government Consumption and Debt in Advanced Economies an Empirical Study (Bhattacharya 2010)
    1. “Our results provide support for the hypothesis that the propensity to consume out of income varies in a non-linear fashion with fiscal variables, and in particular with government debtper capita, and also suggest that private and government consumption are substitutes in the household utility function.


  1. What Explains High Unemployment? The Aggregate Demand Channel (Mian 2011)
    1. A drop in aggregate demand driven by shocks to household balance sheets is responsible for a large fraction of the decline in U.S. employment from 2007 to 2009. The aggregate demand channel for unemployment predicts that employment losses in the non-tradable sector are higher in high leverage U.S. counties that were most severely impacted by the balance sheet shock, while losses in the tradable sector are distributed uniformly across all counties. We find exactly this pattern from 2007 to 2009. Alternative hypotheses for job losses based on uncertainty shocks or structural unemployment related to construction do not explain our results. Using the relation between non-tradable sector job losses and demand shocks and assuming Cobb-Douglas preferences over tradable and non-tradable goods, we quantify the effect of aggregate demand channel on total employment.
    2. Our estimates suggest that the decline in aggregate demand driven by household balance sheet shocks accounts for almost 4 million of the lost jobs from 2007 to 2009, or 65% of the lost jobs in our data.
      1. Debt contraction is cause?
  2. Household Balance Sheets, Consumption, and the Economic Slump  (Mian 2011)
    1. The large accumulation of household debt prior to the recession in combination with the decline in house prices has been the primary explanation for the onset, severity, and length of the subsequent consumption collapse. Using novel county level retail sales data, we show that the decline in consumption was much stronger in high leverage counties with large house price declines. Levered households experiencing larger house price declines faced larger drops in credit limits, were unable to refinance mortgages into lower rates, and paid down existing debts at a faster pace. Using zip code level data on auto purchases and exploiting within-county variation, we show that the consumption response to declining house prices was stronger in areas with more reliance on housing as a source of wealth


  1. 50 states and no winners: Ginley 2012
    1. Political corruption very high
    2. NYT: The States Got a Poor Report Card

Habit Formation, Path Dependence (Persistence)

  1. Habit Formation in Consumption and Its Implications for Monetary Policy Models Fuhrer 2000
    1. The habit formation specification improves upon the standard specification because it imparts a motive for consumers to smooth the change, as well  as the  level  of  consumption.
    2. Another improvement afforded by the smooth response of consumption is that the model implies a more realistic and data-consistent gradual decline in inflation during a disinflation.
  2. Habit Persistence in Overlapping Generations (Lahiri 1996)
    1. Habit persistence causes savings rate to be decreased in the rate of interest at lower values for relative risk aversion
  3. Consumption with Habit Formation (Aylin Secki 2000)
    1. Consumption growth is higher with habit formation
    2. The variance of change in consumption is less than the variance of change in
    3. income when there is habit formation
    4. With habit formation, consumption has a lower response to permanent income than in the usual model, but also responds to a distributed lag of past permanent incomes, i.e., to past perceptions of the income stream, thus exhibiting a faster rate of growth.

Bargaining Power

  1. The Tyranny of Inequality (Rajan 2011)
    1. “When parties are very unequally endowed, agreement may be very difficult to reach, even if the specific transaction is easy to contract on, and fungible resources can be transferred to compensate the losing party. The very fungibility of the resource transferred makes it hard to restrict its use, changing the amount the parties involved spend in trying to grab future rents. This spill-over effect can inhibit otherwise valuable transactions, as well as enable otherwise inefficient transactions. Agreement typically breaks down when the required transfer is large and the proposed recipient of the transfer is relatively unproductive or poorly endowed. We examine the implications of this model for a theory of the optimal allocation of property rights.” (Abstract)
    2. “…when property rights are fluid, unequal distribution of endowments can reduce co-operation and production. One way to reduce inefficiency may be to reduce inequality by re-distributing resources.” (p.539)
    3. “Given inequality, however, it is generally a bad idea to improve marginally the channels through which the very poor can achieve power.” (539)
      1. The reason is that the poor typically invest in power-seeking, and the greater the force multiplier associated with power-seeking, the greater the power-seeking response by the rich, and lower is co-operation and production in society. Of course, it may be better still to grant the poor power unconditionally (as opposed to marginally improving their opportunity to acquire power through power seeking) since this improves their incentive to be productive. How this can be credibly achieved is an issue worthy of further research. (540)
    4. “In our model a one-off deal achieves first-best while inefficiencies arise when the two parties interact again in the future. This seems to run against the intuition that lengthening the duration of a relationship increases the opportunities for co-operation (see, for example, the Folk theorem in Fudenberg and Maskin, 1986) (541)
    5. “…the introduction of a credit market typically reduces total welfare (we do not, however, account for any additional gains from ex ante co-operation). This is a composite of a number of different effects. First, the credit market increases the productive investment of the poor unit (A). But it also increases its power-seeking, forcing B to counter with more power-seeking of its own. Further, A’s increased power forces B to abandon some of its own productive investment (since B gets only half the return now). In fact, both units underinvest despite the credit markets being perfect. The opening of the credit market is worst for overall surplus when total endowments are small and A is relatively poor. A’s borrowing now triggers off a mutually destructive escalation in power-seeking.
      1. By contrast, the introduction of a credit market has least adverse impact when both parties are rich and equally well endowed. (p. 544-5)
    6. Especially interesting is that A (borrower) is typically worse off in the new equilibrium (the amount of time 1 consumables A is left with can fall) because it pays ex post for the amount borrowed (see Fig. 8). It is better off only when total endowments are small and it is relatively poor, a situation where it reduces overall surplus the most by borrowing (note that the z-axis is reversed in the two figures to improve visibility).
      1. In fact, the magnitudes in the figures suggest that the relatively poor, who intuitively would need the credit market more, actually suffer greater damage from its introduction. While A could forsake borrowing in an attempt to preserve the old equilibrium, this would not be credible.
    7. The creditors get their pound of flesh, so they have no incentive to step in and shut off credit. So in situations where the parties have no credible way to bind themselves against obtaining credit, it is easy for them to borrow their way to mutual destruction (or permanent indebtedness).
    8. By contrast, if there are means by which borrowing may be mutually limited — for instance, when a central authority can enforce some aspects of behavior — such limits may be agreed upon ex ante if the gains to co-operation are not high.
      1. This suggests that a country with great inequalities and poorly protected property rights may not be made better off if the credit markets develop in isolation. What is required is the simultaneous development of both property rights and rule of law (to limit power-seeking), as well as the development of credit markets (to provide the resources for productive investment).
  1. Contractual Commitments, Bargaining Power, and Governance Inseparability: Incorporating History into Transaction Cost Theory (Argyres 1999)
    1. Government Inseparability
    2. Organizational Inertia
  2. Declining labor shares and bargaining power: An institutional explanation (Bental 2008)
    1. The model’s predictions are consistent with recent decreasing labor shares and wages per effective labor units observed in most OECD countries. It is also consistent with rising labor productivity and declining ratio between effective labor and capital found in many of these countries.
  3. Inequality and Bargaining Power (Barnhizer 2004)
    1. Email for citation:
  4. Inequality, Leverage and Crises  (Kumhof 2011)
    1. The paper studies how high leverage and crises can arise as a result of changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of the rich, a large increase in leverage for the remainder, and an eventual financial and real crisis.
    2. The paper presents a theoretical model where these features arise endogenously as a result of a shift in bargaining powers over incomes. A financial crisis can reduce leverage if it is very large and not accompanied by a real contraction. But restoration of the lower income group’s bargaining power is more effective.
  5. Bargaining: Power, Tactics and Outcomes. (Bacharach 1981)
    1. A general theory of bargaining that is applicable to all types of bargaining situations and that provides a framework for analyzing the stages of the bargaining process is presented.
    2. Bargaining theory is critiqued with special attention directed to theories of Zeuthen, Hicks, Pen, and Chamberlain.
    3. The proposed framework in bargaining power is based on the notion of dependence and emphasizes the tactical, subjective nature of bargaining power. It is suggested that bargaining is understood by knowing how bargainers perceive, use, and manipulate power. The framework in bargaining is applied to concessions, and social-psychological data are used to indicate how different images of bargaining power result in different levels of concession.
    4. Additionally, the following two viewpoints are contrasted:
      1. A theory of deterrence that suggests that building up punitive capabilities reduces the tendency of parties to use punitive tactics and facilitates concession making
      2. A theory of conflict spiral that indicates that building up of punitive capabilities increases the likelihood of parties using punitive tactics in a way that inhibits serious bargaining.
    5. Research data are cited to demonstrate how bargainers can maximize the positive consequences of punitive capabilities, specified by deterrence theory, while minimizing the negative consequences delineated by the conflict spiral theory.
    6. Attention is also directed to tactics of argumentation at the bargaining table, including three types of normative arguments; and the role of bargaining power in conflict resolution.
  6. When competitive advantage doesn’t lead to performance: The resource-based view and stakeholder bargaining power (Coff 1999)
    1. What if rent from a competitive advantage is appropriated so it cannot be observed in performance measures? The resource based view was not formulated to examine who will get the rent. Yet, this essay argues that the factors leading to a resource based advantage also predict who will appropriate rent. Knowledge-based assets are promising because firm-specificity, social complexity, and causal ambiguity make them hard to imitate. However, the roles of internal stakeholders may grant them a great deal of bargaining power especially relative to investors. This essay integrates the resource-based view with the bargaining power literature by defining the firm as a nexus of contracts. This new lens can help to explain when rent will be generated and, simultaneously, who will appropriate it. In doing so, it provides a more robust theory of firm performance than the resource-based view alone. It is also suggested that this lens might be useful for examining other theories of firm performance.
  7. Increasing Income Inequality:Productivity, Bargaining and Skill-Upgrading (Frederiksen 2010)
    1. In recent decades most developed countries have experienced an increase in income inequality.
    2. In this paper, we use an equilibrium search framework to shed additional light on what is causing an income distribution to change.
    3. The major benefit of the model is that it can accommodate shocks to the skill composition in the market, employee bargaining power and productivity.
    4. Further, when our model is subjected to skill-upgrading and changes in employee bargaining power, it is capable of predicting the recent changes observed in the Danish income distribution.
    5. In addition, the model emphasizes that shocks to the employees’ relative productivity, i.e., skill-biased technological change, are unlikely to have caused the increase in income inequality.
  8. Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity (Felbermayr 2009)
    1. The paper shows that the labor market implications of trade liberalization are determined by the effect of trade on aggregate productivity
    2. Calibrated models indicate long-run impact of trade openness on the rate of unemployment is negative and quantitatively significant
    3. We find that different trade liberalization scenarios all improve labor market outcomes, regardless of the bargaining environment.
  9. Relative Bargaining Power, Corporate Restructuring, and Managerial Incentives (Dencker 2009)
    1. Findings are consistent with the theory and show a negative effect of bonuses on salary increases and of bonuses on promotions, with tradeoffs greatest when the firm’s oversight of rewards was highest and termination threats were most explicit. Further support for the theory is the finding that the strength of the negative effect of bonuses on promotions varied across managerial groups due to differences in managers’ bargaining power: “fast-trackers” were much less likely to experience a tradeoff than were low performing managers, and women were less likely to experience a tradeoff than were men.
  10. Labor Markets and Monetary Policy: A New Keynesian Model with Unemployment (Blanchard 2010)
    1. We construct a utility-based model of fluctuations with nominal rigidities and unemployment. We first show that under a standard utility specification, productivity shocks have no effect on unemployment in the constrained efficient allocation. That property is also shown to hold, despite labor market frictions, in the decentralized equilibrium under flexible prices and wages.
    2. Inefficient unemployment fluctuations arise when we introduce real-wage rigidities. As a result, in the presence of staggered price setting by firms, the central bank faces a trade-off between inflation and unemployment stabilization, which depends on labor market characteristics. We draw the implications for optimal monetary policy.
  11. The Dark Side of the Force: Western Economic Association International 1993 Presidential Address (Hirshleifer 1994)
    1. ‘‘According to Coase’s Theorem, people will never pass up an opportunity to co-operate by means of mutually beneficial exchange. What might be called Machiavelli’s Theorem says that no one will ever pass up an opportunity to gain a one-sided advantage by exploiting another party. Machiavelli’s Theorem standing alone is only a partial truth. But so is Coase’s Theorem standing alone. Our textbooks . . . should be saying that decision-makers will strike an optimal balance between the way of Coase and the way of Machiavelli — between the way of production combined with mutually advantageous exchange, and the dark-side way of confiscation, exploitation, and conflict.’’ (p.3)
  12. The Dark Side of the Force: Economic Foundations of Conflict Theory (Heirshleifer 1994)
  13. Are People More Aggressive When They Are Worse Off or Better Off Than Others? (Muller 2012)
    1. Winners tend to aggress against losers.
  14. Wage Inequality and Varieties of Capitalism (Rueda 2000)
    1. This article draws on a new data set that enables the authors to compare the distribution of income from employment across OECD countries. Specifically, the article conducts a pooled cross-sectional time-series analysis of the determinants of wage inequality in sixteen countries from 1973 to 1995. The analysis shows that varieties of capitalism matter. The authors find that the qualities that distinguish social market economies from liberal market economies shape the way political and institutional variables influence wage inequality. Of particular interest to political scientists is the finding that the wage-distributive effects of government partisanship are contingent on institutional context. Union density emerges in the analysis as the single most important factor influencing wage inequality in both institutional contexts.
  15. Inequality of Bargaining Power
    1. This article examines the disconnect between the judicial approach to the legal concept of inequality of bargaining power in contract law and the analysis of power in general by the social sciences, negotiators, military strategists, businesspeople, and politicians. As a consequence of this disconnect, courts have ignored how bargainingpower is actually used by contracting parties. Instead, courts focus upon crude heuristics such as the availability of meaningful alternatives, opportunities for negotiation, and a series of fixed, status-based party characteristics to assess relative bargaining power disparities. As a result, small businesses, middle-income consumers and similar entities have been largely denied access to contract doctrines that employ the legal concept of inequality of bargaining power (explicitly or implicitly), including unconscionability, adhesion contract analysis and, to a lesser extent, duress, fraud, parol evidence, consideration and public policy analysis. This article recommends that courts begin to assess power imbalances in contract relationships as complex and dynamic influences subject to radical changes throughout the parties’ interaction.
  16. Labor’s inequality of bargaining power: Changes over time and implications for public policy (Kaufmann 1989)
    1. A major justification for enacting the Wagner Act and encouraging collective bargaining was that in the wage-determination process individual workers suffer from an inequality of bargaining power vis-á-vis employers. This critical review of this justification examines the analytical meaning of the concept of an inequality of bargaining power, the factors responsible for this inequality, the change that has taken place in labor’s disadvantage since the 1930s, and the implications for national labor policy. It is concluded that some employers continue to have significant market power over wages but that the extent and degree of labor’s disadvantage in bargaining has diminished substantially since World War II. The implication is that the Wagner Act’s protection of the right to organize remains in the social interest but that the bargaining power of labor unions should be further circumscribed to preserve a balance of power in wage determination.
  17. Labor market institutions and wage inequality (Koeniger)
    1. The authors investigate how labor market institutions such as unemployment insurance, unions, firing regulations, and minimum wages have affected the evolution of wage inequality among male workers. Results of estimations using data on institutions in eleven OECD countries indicate that changes in labor market institutions can account for much of the change in wage inequality between 1973 and 1998. Factors found to have been negatively associated with male wage inequality are union density, the strictness of employment protection law, unemployment benefit duration, unemployment benefit generosity, and the size of the minimum wage. Over the 26-year period, institutional changes were associated with a 23% reduction in male wage inequality in France, where minimum wages increased and employment protection became stricter, but with an increase of up to 11% in the United States and United Kingdom, where unions became less powerful and (in the United States) minimum wages fell.
      1. From 1973-1998 wage inequality increased 11% in the US
  18. Wage Discrimination Over the Business Cycle (Biddle 2012)
    1. Using CPS data from 1979-2009 we examine how cyclical downturns and industry-specific demand shocks affect wage differentials between white non-Hispanic men and women, Hispanics and non-Hispanic whites, and African-Americans and non-Hispanic whites. Women’s relative earnings are harmed by negative shocks; the wagedisadvantage of African-Americans drops with negative shocks, which have slight negative effects on Hispanics’ relative wages. Negative shocks also increase the earnings disadvantage of bad-looking workers. A theory of job search suggests two opposite-signed mechanisms that affect these wage differentials. It suggests greater absolute effects among job-movers, which is verified using the longitudinal component of the CPS.


  1. Are Phillips Curves Useful for Forecasting Inflation? (Atkeson 2001)
    1. Abstract: This study evaluates the conventional wisdom that modern Phillips curve-based models are useful tools for forecasting inflation. These models are based on the non-accelerating inflation rate of unemployment (the NAIRU). The study compares the accuracy, over the last 15 years, of three sets of inflation forecasts from NAIRU models to the naive forecast that at any date inflation will be the same over the next year as it has been over the last year. The conventional wisdom is wrong; none of the NAIRU forecasts is more accurate than the naive forecast. The likelihood of accurately predicting a change in the inflation rate from these three forecasts is no better than the likelihood of accurately predicting a change based on a coin flip. The forecasts include those from a textbook NAIRU model, those from two models similar to Stock and Watson’s, and those produced by the Federal Reserve Board.
  2. Why Stopping Inflation May Be Costly: Evidence from Fourteen Historical Episodes (Gordon 1982)
  3. The quest for prosperity without inflation (Orphanides 2002)
    1. Abstract: In recent years, activist monetary policy rules responding to inflation and the level of economic activity have been advanced as a means of achieving effective output stabilization without inflation. Advocates of such policies suggest that their flexibility may yield substantial stabilization benefits while avoiding the excesses of overzealous discretionary fine-tuning such as is thought to characterize the experience of the 1960s and 1970s.
    2. In this study I present evidence suggesting that these conclusions are misguided. Using an estimated model, I show that when informational limitations are properly accounted for, activist policies would not have averted the Great Inflation but instead would have resulted in worse macroeconomic performance than the actual historical experience. The problem can be attributed, in large part, to the counterproductive reliance of these policies on the output gap. The analysis suggests that the dismal economic outcomes of the Great Inflation may have resulted from an unfortunate pursuit of activist policies in the face of bad measurement, specifically, over-optimistic assessments of the output gap associated with the productivity slowdown of the late 1960s and early 1970s.
  4. Inflation Illusion and Stock Prices (Campbell 2002)
    1. Abstract: We empirically decompose the S&P 500’s dividend yield into (1) a rational forecast of long-run real dividend growth, (2) the subjectively expected risk premium, and (3) residual mispricing attributed to the market’s forecast of dividend growth deviating from the rational forecast. Modigliani and Cohn’s (1979) hypothesis and the persistent use of the Fed model’ by Wall Street suggest that the stock market incorrectly extrapolates past nominal growth rates without taking into account the impact of time-varying inflation. Consistent with the Modigliani-Cohn hypothesis, we find that the level of inflation explains almost 80% of the time-series variation in stock-market mispricing.
  5. Why Are the Effects of Money-Supply Shocks Asymmetric? Evidence from Prices, Consumption, and Investment (Karras 1999) (Another pdf)
    1. This paper investigates why the effects of money on output are asymmetric. We show that Cover’s (1992) methodology is a special case of a more general model which enables us to distinguish between two sets of theories consistent with the output asymmetries: a convex aggregate supply, and a pushing-on-a-string view.
    2. We find that the effects of money on prices are symmetric, which is consistent with both sets of theories being operative at once.
    3. We also show that consumption responds symmetrically to money, whereas the response of fixed investment is characterized by asymmetries very similar to those that affect output.
    4. *Finally, we find that the asymmetries in the effects of money supply shocks are intensified by increases in the rate of inflation.


  1. An Institutionalist Perspective on the Global Financial Crisis (Whalen 2009)
    1. This essay, prepared for a forthcoming collection of perspectives on the current world economic crisis, offers an institutionalist view point on the financial crisis at the center of world attention since mid-2008. It is divided into three sections.
    2. The first section provides a brief history of the institutionalist understanding of how an economy operates, with special emphasis on a tradition known as post-Keynesian institutionalism (PKI).
    3. The second section draws on PKI to offer an explanation of the global financial crisis.
    4. The third section identifies some of the public-policy steps that are required to achieve a more stable and broadly shared prosperity in the United States and abroad.
    5. At the heart of PKI is attention to unemployment and the broader economic concerns facing working families. That focus is rooted in the shared interests of John R. Commons and John M. Keynes, who saw the business cycle as an important cause of unemployment and recognized that attaining greater economic stability requires understanding the operation and evolution of financial institutions.
  2. Alternative institutional structures: evolution and impact (Batie 2008) ( See Ch. 12, Post-Keynesian Institutionalism and the Anxious Society, Whalen)
    1. In the spring on 2006, a workshop was held at Michigan State University to honour the career of A. Allan Schmid and his writings about how institutions evolve and how alternative institutions, including property rights, shape political relationships and impact economic performance. This edited book is the outcome of the workshop. It is a collection of original essays that explores several approaches to understanding the impact of alternative legal-economic institutions. The collection investigates questions such as: What are the similarities and differences among the various strands and approaches? Could parts of the different approaches be integrated to achieve greater insight into economic behaviour? Do different analytical problems require different approaches? Are the various strands of institutionalism actually saying the same things, but using different language and perspective? In gathering together authors who represent different approaches or strands of institutionalism, this book addresses several different issues such as transactions as the unit of observation, bounded rationality and learning, power issues embedded in the concept of efficiency, comparative empirical analysis, multiple equilibria and institutional diversity within a given environment, specification of institutional rules and structures, evolutionary perspectives, decentralized processes, and the significance of historical content.
  3. Historical Institutionalism in Comparative Politics (1999)
    1. This article provides an overview of recent developments in historical institutionalism. First, it reviews some distinctions that are commonly drawn between the “historical” and the “rational choice” variants of institutionalism and shows that there are more points of tangency than typically assumed. However, differences remain in how scholars in the two traditions approach empirical problems. The contrast of rational choice’s emphasis on institutions as coordination mechanisms that generate or sustain equilibria versus historical institutionalism’s emphasis on how institutions emerge from and are embedded in concrete temporal processes serves as the foundation for the second half of the essay, which assesses our progress in understanding institutional formation and change. Drawing on insights from recent historical institutional work on “critical junctures” and on “policy feedbacks,” the article proposes a way of thinking about institutional evolution and path dependency that provides an alternative to equilibrium and other approaches that separate the analysis of institutional stability from that of institutional change.
  4. New directions in post-Keynesian economics (Pheby 1989)
    1. See chapter Ch. 5: Post-Keynesianism and Institutionalism: The Missing Link by Hodgson
  5. The global financial crisis: an institutional theory analysis (Riaz 2009)
    1. Purpose- This paper seeks to provide insights into the current global financial crisis from an institutional theory perspective.
    2. Design/methodology/approach – The paper presents the development of key concepts using institutional theory, grounded in a discussion of the context of the current global financial crisis.
    3. Findings – The interplay of financial industry organizations and formal and informal institutions is key to understanding the creation of the crisis.
    4. Research limitations/implications- The treatment is brief but serves to provoke further research on the global financial crisis through applying and extending new institutional theory.
    5. Practical implications- Fundamental aspects of the crisis need to be understood with respect to the organizational-institutional interplay involving the financial industry. This would help to reveal the general pattern of such crises and also point towards what needs to be taken into account for potential solutions.
    6. Originality/value- The paper has value for researchers as it opens up a discussion of the current crisis from an institutional theory perspective. Fresh concepts introduced here could be extended further and inform institutional theory in general. The paper has value for policy makers and practitioners in helping them understand the fundamentals of the organizational-institutional interplay underlying the current crisis.
  6. Critical Institutionalism and Financial Globalization: A Comparative Analysis of American and Continental Finance (Krier 2008)
    1. The globalization of financial markets is essentially an Americanization of financial
    2. institutions:  institutional structures and speculative dynamism unique to American finance is rapidly displacing other financial systems. Critical institutional analysis is used to construct Weberian ideal types of the institutional structures of American and Continental financial systems. Critical institutionalism embraces the theoretical power of macro-level analysis, maintains concern for social justice but incorporates detailed analysis of meso-level institutions and organizational structures.
    3. Seven institutional structures are analyzed: 1) the extensiveness of financial market participation; 2) the structure of financial intermediation; 3) the relative dominance of primary and secondary financial markets; 4) the relative orientation of participants to investment and speculation; 5) the predominance of debt versus equity securities; 6) the organizational form of the financial securities markets; and 7) the form of financial accounting. Together, these institutional patterns support the essentially speculative character of contemporary American finance and fuel stock market powered restructuring of industry.
    4. The article examines how Germany’s financial structure prevented, deflected or delayed American-style downsizing and deindustrialization in the late 20th century and ends by considering how critical institutionalism can identify important, winnable battle grounds for labor movement and anti-globalization activists who seek to shape the future of global capitalism.
  7. The Concept of Uncertainty in Post-Keynesian Theory and in Institutional Economics (Filho 2001)
    1. What we show is this article is that there is a link between Post- Keynesian theory and Institutional Economy. This link can help us (i) to understand the instability of the monetary economies and (ii) to observe the relevance of the institutions in the coordination process of the monetary economies.
  8. The State’s Interest Seeking and Economic Stagnation in the Third World: Cross-National Evidence  (Ming-Chang Tsai 2008)
    1. In the development literature, the state’s interest seeking is considered a crucial determinant of economic stagnation in the Third World. The internality inefficiency, opportunity costs, and structural disincentives generated by such a state constitute the key mechanisms responsible for slow growth. This study provides a major quantitative test of this hypothesis. A sectoral approach is proposed to measure the interest seeking of the state by using the central government expenditures for state employees’ wages and salaries as an indicator. As the analysis of pooled data from fifty-five less-developed countries reveals, high expenditures on salaries impeded the GDP growth rate in 1970–1990. In response to the argument that the African economy is more vulnerable to state predation, this regional effect hypothesis is further tested with an interaction model. The results reveal that the harmful growth effect of the state’s interest seeking cuts across varied regions and can be generalized.

Fiat Currency and the Gold Coinage

  1. On the private provision of fiatcurrency (Berentsen 2004)
    1. This paper considers whether fiat money can be provided by a revenue-maximizing monopolist in an environment where money is essential. Two questions arise concerning the private supply of money: Is it feasible and is it optimal? Concerning the feasibility question, I show that the revenue-maximizing policy is time-consistent if the trading history of the issuer is public information and if money demanders respond to the revelation of defection by playing autarky. Concerning the optimality question, the model suggests that any private organization of the market for fiatcurrency is suboptimal.


  1. Why Americans Distrust the News Media and How it Matters (Ladd 2010)
  2. Bankruptcy of Our Nation: 12 Key Strategies for Protecting Your Finances in These Uncertain Times (Book)
  3. Are Alternative Currencies a Substitute or a Complement to Fiat Money? Evidence from Cross-Country Data (Pfajfar 2011)
    1. This paper studies the determinants of the usage of alternative currencies (currencies which exists parallel to the national currency of a country) across countries. We found that monetary stability, financial sector development and a countryís general level of economic development are all positively related to both the likelihood of a country hosting an alternative currency as well to the number of alternative currencies a country is hosting. This suggest that these currencies, in contrast to their historical function, mainly act as a complement to fiat money. We discuss the implications for the role of fiat money in the economy as well as for the welfare e§ects of alternative currencies.

News Articles and Periodicals

  1. The real problem: Income inequality (Interview with Rajan Nov. 2010)
  2. Unemployment, Wage Stagnation, and the Balance-Sheet Recession
  3. A rich guy’s case for (much) higher taxes – The Washington Post
  4. Five Reasons Why the Very Rich Have Not Earned Their Money
  5. Voting issues
  6. The Inequality Puzzle in U.S. Cities
  7. The Economist: Is a concentration of wealth at the top to blame for financial crises?
  8. Fiat Currency: The Root Of All Inequality

Solutions and Predictions

  1. Policies for Increasing Economic Growth and Employment in 2012 and 2013 (D Elmendorf 2011)

Graphics, Charts

  1. The Interest Rate Spread and Annual % Change in Real GDP
  2. Inflation and the “Risk Free” Interest Rate

Equality Arguments

  1. The Spirit Level: Why More Equal Societies Almost Always Do Better  (Richard Wilkinson and Kate Pickett)
  2. Greater Competitiveness Does Not Have to Mean Greater Inequality (Florida 2011)

Creativity and Society

  1. From Creative Economy to Creative Society (Stern 2008)

Topic Issues: Macroeconomic Theory and its Policies

  • Speculation and bubbles: Prevention policies
    • Shiller, Irrational Exuberance
    • Galbraith, A Short History of Financial Euphoria
    • Rate of accumulation: booming v decadent capitalism
  • New Value-added Market Creation, Expansion, and development
    • OECD, Handbook of Market Creation for Biodiversity: Issues in Implementation
  • Capital accumulation: concentration and centralization
  • Manufacturing v. Service industries as value adding enterprises
  • State Capitalism and Free Market Capitalism
  • Financial Regulation & Market Failures: Why consistently in the finance industry?
  • Saving, Investment, Liquidity Preference Theory and how they relate to Credit and Debt markets:
  • Liquidity Preference Theory, Money, Liquidity Trap during a recession and high unemployment: Fiscal and monetary policies and their shortcomings (Keynes)
    • Keynes effect?
  • Economics Schools: Mainstream economics v Austrian School v Modern Monetary Theorists (Neo-charlatan’s) v Market monetarists….. As well as Institutional Economics, Behavioral Economics, Evolutionary Economics
  • Challenge the scientific validity of Milton Friedman and John Keynes Economic theories, methods, assumptions, etc. (Perhaps examine, compare, and contrast with Thorstein Veblen, John Kenneth Galbraith, as well as that evil Marxism. Examine the alternative paradigm of Schumpeter)
  • Examine consumer theory, value theory, productivity theory

Broad References

  1. Macroeconomic policy and labor markets: Lessons from Dale Mortensen’s research
  2. Marginal revolutionaries: The crisis and the blogosphere have opened mainstream economics up to new attack
    1. Austrian school of economics vs.  Neo-chartalism, sometimes called “Modern Monetary Theory”
  3. Spiro J. Latsis (1972). Situational Determinism in Economics. British Journal for the Philosophy of Science 23 (3):207-245.
  4. Method and Appraisal in Economics, 1976-2006
  5. Situational Determinism Revisited: Scientific Research Programs in Economics twenty years on
  6. Realism and evolutionary economics

Evolutionary Macro-Economic Policy Research

  1. The Evolutionary Analysis of Economic Policy
  2. Economic policy making in evolutionary perspective
    1. Economic policy making is discussed from three different angles: the political economy of actual policy making (“what policy does do”), the analysis of policy instruments for given ends (“what policy could do”), and the debate on policy goals and their legitimization (“what policy ought to do”). Center stage in the evolutionary perspective is new, positive and normative knowledge which is unfolding during the policy making process and in its aftermath. It is argued that this implies regularities and constraints which extend and modify the comparative-static interpretations of public choice theory, economic policy making theory, and social philosophy.
  3. Economic policy from an evolutionary perspective: a new approach

System economics: Overcoming the pitfalls of forecasting models via a multidisciplinary approach

-Focus in on what it is about new markets, growth, income distribution wealth, and what policies would I evaluate for policies?
How to achieve faster economic growth?
Or given current/ projected, how can we change the wealth distribution towards a more desirable outcome?
How can new markets be created? policies that can ensure that continues? or encourage importance.
What role
How important is new business in economic growth?
IT? Or manufacturing?

How important are new innovative markets for creating new wealth for the average american? Should be try to facilitate that? Regulatory, subsidies?

If that is not working:
-Health economics
-private paying!

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