Working Papers

On 23 June 2016, the British electorate voted to leave the European Union (EU). We analyse vote and turnout shares across 380 local authority areas in the United Kingdom.

This paper discusses household debt as a long term phenomenon that influences economies beyond crises.1 In other words, rather than look at how household indebtedness can lead to crises, I will focus on its surprising persistence at very high levels, and its interactions along the way with other key variables, such as public policies and spending. The first section describes some stylized facts and the final section explores the macroeconomic consequences.

Support for populism is often attributed to xenophobia, racism, sexism; to anger and resentment at immigrants, racial or ethnic minorities, or “uppity” non-traditional women. According to these accounts , people who feel socially resentful may reject established politicians as favoring those “others” over people like themselves, and turn to outsider populistic leaders.

The debt-growth relationship is complex, varying across countries and being affected by global factors. While there is no simple universal threshold above which debt-to-GDP becomes a significant brake on growth, based on data from the last four decades we show that high and rising public debt burdens slow down growth in the long term.

Unpacking the Effect of Trade on Workers and Voters 

This paper discusses what we have learned about the debt build-up in advanced societies over the past century. It shows that the extraordinary growth of aggregate debt in the past century was driven by the private sector.

A better set of approaches for the 21st century.

The contemporary literature on neoliberalism has grown so large as to be unwieldy. For some on the left, this has presented an occasion to denounce it altogether.

How far are economists implicated in the rise of ‘fake experts’ and ‘fake news’?

Is Comparative Advantage the Ideology of the Comparatively Advantaged? 

The Electoral Consequences of Rising Trade Exposure

Especially in the wake of the Great Recession, calls for more diversity within economics are usually limited to appealing for greater diversity in the economists’ backgrounds, while diversity of opinion and approaches is often neglected.

The Academic and Professional Performance of the Chicago School, 1960-1985

The current crisis is the culmination of a process of integration that has profoundly changed the structure of each member state, their inter-relations and their power relations. One of its side effects was the rediscovery of the terms ‘centre’ and ‘periphery’ to analyse the economic situations of the European countries.

The euro area has been experiencing a prolonged period of weak economic activity and very low inflation.

The wind appears to be back in the sails of the Eurozone economy ….

Some fresh reflections on ECB policy

Given that this is a panel on that quintessential Enlightenment thinker Adam Smith, I can think of no better way to begin my remarks than to invoke that most enlightened of modern economists, Kenneth Boulding, who in 1971 penned the delightful essay, “After Samuelson, Who Needs Adam Smith?” 

When priests and princes lost their monopoly over the big questions of human existence over the course of the Enlightenment, philosophers, poets, and ordinary people struggled to find out the answers on their own. 

Adam Smith’s modern fame as the founding father of economics has, until relatively recently, obscured the fact that he saw himself as a moral philosopher.

The road towards a decent society; lessons from classical political economy

Growing income inequality is threatening the American middle class, and the middle class is vanishing before our eyes. We are still one country, but the stretch of incomes is fraying the unity of our nation.

The Precariat under Rentier Capitalism Guy Standing We are in the midst of a Global Transformation, analogous to Karl Polanyi’s Great Transformation described in his seminal 1944 book. Whereas Polanyi’s Transformation was about constructing national market systems, today’s is about the painful construction of a global market system. To use Polanyi’s term, the ‘dis-embedded’ phase has been dominated by an ideology of market liberalisation, commodification and privatisation, orchestrated by financial interests, as in his model. The similarities also extend to today’s fundamental challenge, how to construct a ‘re-embedded’ phase, with new systems of regulation, distribution and social protection.

In the economic literature, several scholars have addressed the narrative of a two-stage European crisis. In a first stage, the so-called “he-cession”, men would have been hit the most by the economic recession induced by the financial crisis. Shortly thereafter, in the “she-austerity” stage, women would have suffered the heaviest burdens of the fiscal retrenchment measures. If that were the case, the policy response to the crisis would be producing an increase in the – already high pre-existing – gender inequality.

This paper aims to assess such tendency to return to a supply-determined potential output, independent of aggregate demand, after episodes of demand expansion.

Preliminary draft prepared for INET conference session “A Decade of Stagnation. Why?”

The Theory of the Firm, Financial Flows, and Economic Performance

It is commonly overlooked that the concept of market efficiency embowers a time-dimension. Illustrating with an example from the class of persistent random walks, we show that a price process can be a martingale on one time-scale but inefficient on another.

This paper analyzes the link between Kamakura Risk Information Services (KRIS) data on megabank default probabilities and credit spreads.

This paper provides a critique of the DSGE models that have come to dominate macroeconomics during the past quarter-century.

Economists’ infamous failure at predicting the recent financial crisis has brought new impetus to studies on diversity in the economics profession. Such studies have underlined how diversity plays a prominent role in enriching economic analyses.

Price gouging in the US pharmaceutical drug industry goes back more than three decades.

Model Ambiguity, Consistent Representations of Market Forecasts, and Sentiment

Conventional wisdom has it that the primary function of the stock market is to raise cash for companies for the purpose of investing in productive capabilities. The conventional wisdom is wrong.

Citations Measure More Than Just Scientific Impact

The U.S. economy is widely diagnosed with two ‘diseases’: a secular stagnation of potential U.S. growth, and rising income and job polarization. The two diseases have a common root inthe demand shortfall, originating from the ‘unbalanced’ growth between technologically ‘dynamic’ and ‘stagnant’ sectors.

This paper presents a model of mass incarceration in the United States, which has the largest proportion of its population imprisoned among advanced countries.

How the U.S. New Economy Business Model Has Devalued Science and Engineering PhDs

Long term labor shortages do not happen naturally in market economies. That is not to say that they don’t exist. They are created when employers or government agencies tamper with the natural functioning of the wage mechanism.

Widespread criticism of elites and their ‘experts ’ raises questions about how economists should perceive their role, and what role societies should give them. We invited four scholars to start an online conversation by sharing their perspectives 

On June 2, 1965, under a mandate established by Title VII of the Civil Rights Act of 1964, the U.S. Congress created the Equal Employment Opportunity Commission (EEOC) to enforce federal anti-discrimination laws related to employment. The expectation was that African Americans would be prime beneficiaries of the EEOC.

The business corporation is the central economic institution in a modern economy. A company’s senior executives, with the advice and support of the board of directors, are responsible for the allocation of corporate resources to investments in productive capabilities. Senior executives also advise the board on the extent to which, given the need to invest in productive capabilities, the company can afford to make cash distributions to shareholders. Motivating corporate resource-allocation decisions are the modes of remuneration that incentivize and reward the top executives of these companies. A sound analysis of the operation and performance of a modern economy requires an understanding of not only how much these executives are paid but also the ways in which the prevailing system of executive pay influences their decisions to allocate corporate resources.

This paper analyzes white attitudes towards African Americans in the United States at different points in a business cycle from 1979- 2014.

This paper analyzes the Euro crisis in light of the experience of center-periphery relations over the last 40 years of renewed financial globalization.

We examine whether personal wealth interests affect politicians’ decisions about stabilizing financial markets.

The main point of this paper is that loanable funds macroeconomic models with their “natural” interest rate don’t fit with modern institutions and data. Before getting into the numbers, it makes sense to describe the models and how to think about macroeconomics in the first place.

Report to the Institute for New Economic Thinking on the statistical measurement and policy implications of the compensation of the highest- paid U.S. corporate executives

This paper analyzes the performative impact of the European Commission’s model for estimating ‘potential output’, which is used as a yardstick for measuring the ‘structural budget balance’ of EU countries and, hence, is crucial for coordinating European fiscal policies.

Using a unique dataset provided by the Center for Responsive Politics (CRP), we document a direct channel through which financial institutions contribute to the net worth of members of the U.S. Congress, particularly those sitting on the finance committees in the Senate and the House of Representatives.

This paper responds to a paper by Claudio Borio, Piti Disyatat and Anna Zabai “Helicopter Money: the Illusion of a Free Lunch”

Social scientists have stubbornly held that money and election outcomes are at most weakly linked. New research provides clear evidence to the contrary.

This paper considers the estimation problem in linear regression when endogeneity is present, that is, when explanatory variables are correlated with the random error, and also addresses the question of a priori testing for potential endogeneity.

Company law in the US and UK fails to acknowledge that authorities’ propensity to rescue giant banks from the consequences of insolvency assigns taxpayers a coerced and badly structured equity stake in too-big-to-fail institutions.

While the Neoliberal movement’s concerns extend into a broad political reorganization of society, it remains intimately connected with neoclassical economic thought.

If the government/CB together finance an increased fiscal deficit with permanent non-interest-bearing fiat money, then some private sector agents have to hold non-interest-bearing monetary base, and must continue to do so even when policy and market interest rates have moved away from the ZLB. How is this possible in an environment where most bank deposit money is potentially interest-bearing?

In the growing debate about the pros and cons of a monetary financed fiscal stimulus (a.k.a. helicopter money) it is argued by some participants that a money-financed stimulus will have no more effect than a debt financed stimulus since:

Behavioral finance views stock-market investors’ expectations as largely unrelated to fundamental factors. Relying on survey data, this paper presents econometric evidence that fundamentals are a major driver of investors’ expectations.

Karl Polanyi demonstrated that Classical Liberalism and current Neoliberalism were organized political movements, but their successes sparked political backlashes against laissez-faire economics — a dialectic that continues to shape politics to this day.

The following is based on Chapter 1 of my forthcoming book, Crisis and Sustainability. The Delusion of Free Markets.

The paper argues that household budgets are the best starting point for investigating a number of big questions related to the evolution of the living standards during the last two-three centuries.

What does the rise of shadow banking mean for monetary theory and practice? (How) should we change our traditional theories of money to capture the complex practices through which money is created in modern financial systems?

This paper provides a careful and synthetic overview of his contributions as well as a reconstruction of Pasinetti’s philosophical approach to economics as a science meant to serve humanity.

This paper proposes a new method to empirically validate simulation models that generate artificial time series data comparable with real-world data.

We assess the Carbon-Kuznets-Curve hypothesis using internationally consistent and comparable production-based versus consumption-based CO2 emissions data for 40 countries (and 35 industries) during 1995-2007 from the World Input Output Database (WIOD).

This is a response to a critique by Paul Davidson of our 2013 book Keynes: Useful Economics for the World Economy and related work, where we describe, amongst other things, how the Swan diagram can be used to show how economies can use policy tools to achieve internal and external balance.

This paper provides critical comments on the Peter Temin - David Vines promotion of the basic Swan Diagram as (1) a policy tool to encourage any individual debtor nation experiencing balance of payment deficits to reduce its exchange rate in order to expand exports and reduce imports and (2) the Swan Diagram as a simple model for understanding Keynes’s General Theory for an Open Economy.

We first show that, with a Kaleckian structure that is consistent with Pasinetti (1962), the relationship between distribution and growth is more robust than conventional wisdom suggests. Next, we extend our model by incorporating borrowing and emulation effects into workers’ consumption behavior, under different assumptions about how debt is serviced.

Some Fundamental Keynesian and Post-Keynesian Insights, with an Analysis of Possible Mechanisms to Achieve a Sustained Recovery

This paper applies Schein’s model of organizational culture to financial firms and their prudential regulators.

The Cambridge UK vs USA capital theory debates of the 1960s showed that the workhorse mainstream growth model relies on unsustainable assumptions. Its standard interpretation is not consistent with the last four decades of data.

This paper analyzes what assumptions on formation of expectations are consistent with Minsky’s Financial Instability Hypothesis (FIH) and its corollaries.

I describe the American economy in the twenty-first century as a dual economy in the spirit of W. Arthur Lewis.

This paper analyses the financial assistance provided to Greece in the first two rescue packages granted by the Troika (European Union, European Central Bank and IMF).

We investigate the claim that the way in which debtor households service their debts matters for macroeconomic performance.

We develop a neo-Kaleckian growth model that emphasizes the importance of consumption behavior.

This paper sketches the outlines of the new international monetary system that has emerged in the aftermath of the global financial crisis.

The impact of the post-meltdown Federal Reserve policy of ultra-low interest rates and Quantitative Easing (QE) on income and wealth inequality has become an important policy and political issue.

By integrating the history of industrial development in Britain and the United States with the ideas of leading economic thinkers, this essay demonstrates the absurdity of perfect competition as the ideal of economic efficiency.

This paper studies the role of credit in the business cycle, with a focus on private credit overhang.

This paper traces the evolution of the concept of the cyclically adjusted budget from the 1930s to the present.

US Military needs during the Cold War induced a mathematical modeling of rational allocation and control processes while simultaneously binding that rationality with computational reality. Modeling strategies to map the optimal to the operational ensued and eventually became a driving force in the development of macroeconomic dynamics.

We provide an explanation for the large spatial wage disparities and low male migration in India based on the trade-off between consumption-smoothing, provided by caste-based rural insurance networks, and the income-gains from migration.

The effect of ethnic violence on electoral results provides useful insights into voter behaviour and the incentives for political parties in democratic societies.

The reality of human homeostasis expands the views on preferences and rational choice that are part of traditionally conceived Homo economicus and casts doubts on economic models that depend only on an “invisible hand” mechanism.

We consider nonparametric identification and estimation of pricing kernels, or equivalently of marginal utility functions up to scale, in consumption based asset pricing Euler equations. Ours is the first paper to prove nonparametric identification of Euler equations under low level conditions (without imposing functional restrictions or just assuming completeness).

US household wealth concentration is not likely to decline in response to fiscal interventions alone.

A prolonged period of extremely low nominal interest rates has not resulted in high inflation. This has led to increased interest in the “Neo-Fisherian” proposition according to which low nominal interest rates may themselves cause inflation to be lower.

This paper, an extension of the Presidential Address to the International Economic Association, evaluates alternative strands of macro-economics in terms of the three basic questions posed by deep downturns: What is the source of large perturbations? How can we explain the magnitude of volatility? How do we explain persistence?

This paper proposes a theoretically based and easy-to-implement way to measure the systemicrisk of financial institutions using publicly available accounting and stock market data.

The Eurozone crisis has been wrongly interpreted as either a crisis of fiscal profligacy or of deteriorating unit-labour cost competitiveness (caused by rigid labour markets), or a combination of both.

This paper studies the long-run impact of public debt expansion on economic growth and investigates whether the debt-growth relation varies with the level of indebtedness.

Exploiting three earthquakes in Italy as quasi-experiments, we analyse the response of homeowners’ consumption to transfers targeted to finance housing repair and reconstruction. To the extent that funds are made available up-front, these transfers are akin to loans, mainly affecting the liquidity of households’ wealth

This paper studies the long-run impact of public debt expansion on economic growth and investigates whether the debt-growth relation varies with the level of indebtedness.

According to Reuters, Eurozone officials attempted to suppress the publication of this report.

There is a renewed interest in the size of labour supply elasticities and the discrepancy between micro and macro estimates. Recent contributions have stressed the distinction between changes in labour supply at the extensive and the intensive margin. In this paper, we stress the importance of individual heterogeneity and aggregation problems.

Motivated by the long-standing debate on the pros and cons of competitive devaluation, we propose a new perspective on how monetary and exchange rate policies can contribute to a country’s international competitiveness. We refocus the analysis on the implications of monetary stabilization for a country’s comparative advantage.

People adopt diverse measures to protect from contagion. I propose a taxonomy of protection technologies, and present a model to study the implications of the technology on the prevalence of infections and on welfare at different levels of exposure.

The adoption and diffusion of inputs in the production network is at the heart of technological progress. What determines which inputs are initially considered and eventually adopted by innovators? We examine the evolution of input linkages from a network perspective, starting from a stylized model of network formation.

As Greece descended into a financial maelstrom in the spring of 2010, a small group of staffers at the International Monetary Fund (IMF) held top-secret talks with officials from the German and French finance ministries to discuss the idea of restructuring Greece’s debt.

This paper presents an experiment investigating the effect of social identity on hiring decisions. The question is whether people discriminate between own and other group candidate