Dany Lang

Employment Flexibility, Dual Labour Markets, Growth, and Distribution

Many policymakers and economists have argued in favour of greater labour market flexibility as a part of structural adjustment reforms that are expected to improve economic performance. Existing post-Keynesian-Kaleckian (PKK) models are unable to address these issues because they assume away long-term labour by allowing employment to be short term and adjusting freely with output. This paper introduces long-term labour into PKK models. We develop a model that provides alternative ways of modelling labour market flexibility and suggest that when aggregate demand issues are important, an increase in employment flexibility is likely to have adverse growth and distributional impacts.

Why Economists should Choose their Inheritance: Physics and Path-independence in Economic Systems

Abstract This paper argues that economists would be well advised to do the work that Jacques Derrida calls ‘choosing ones inheritance’. This fundamental task, which every heir must undertake, consists essentially of responding to a twofold and contradictory injunction: reasserting a past that the heir did not choose; and reinterpreting and transforming this past through a process of critical rewriting. We argue that this task, particularly the work of critical selection and rewriting, is too often neglected in economics. The fact that the property of path-independence is embedded in the great majority of economic models serves as an illustration of this negligence. Because of their desire to emulate the natural sciences, the neoclassical ‘founding fathers’ of modern economics bequeathed to their successors this essential property of the physics of their time. A consequence of this inheritance, coupled with the neglect of critical selection and rewriting by economists, is that the properties of path-independent systems – homeostasis and time-reversibility – continue to thrive in the great majority of economic models.

Involuntary Unemployment in a Path-Dependent System: The Case of Strong Hysteresis

Hysteresis has been introduced in economics as an alternative to the dominant mainstream models based on the various declensions of the Natural Rate of Unemployment and of the NAIRU. By contrast with the improper interpretations of the concept of hysteresis, many Post-Keynesians have tried to exploit the genuine hysteresis concept used in physics and in other sciences, in order to try understanding the persistence of high unemployment rates in Europe. Hysteresis is one of the most important forms of path dependency in economics. In the presence of hysteresis, the economic system will be characterised by changing equilibria in the aftermath of non-dominated aggregate shocks. In these conditions, the equilibrium unemployment rates change on the basis of the history of past non-dominated aggregate shocks. Rather surprisingly, the authors that have worked in this field up to now have forgotten to examine one of its most important implications: in the presence of hysteresis, unemployment is mainly an involuntary phenomenon. After summing up the main results of the debates on the meaning and the relevance of main definitions of hysteresis in the literature, and underlining the relevance of the concept of genuine hysteresis, we propose a theoretical model for understanding hysteresis in unemployment on the basis of Keynes’s concept of effective demand.

Growth and money in Post Keynesian models

During the Last few years, a significant renewal and development in Post Keynesian modeling has taken place. A perfect illustration of this can undeniably be found by opening recent issues of this journal, as well as others. The growing interest for this kind of models has been reinforced since the 2007 crisis, a tragic event that has confirmed the relevance of the Post Keynesian analysis. Roughly speaking, the main strands of the current Post Keynesian literature are the Kaleckian models of growth and income distribution, the Kaldorian-Robinsonian models of path dependency, and the Minskian models of financial crises. In addition, the stock-flow consistent methodology can be a useful tool for understanding complex macroeconomic interactions with multiple buffers.

Stability, equilibrium, and realism: a response to Sardoni

We are grateful to Claudio Sardoni for his astute remarks about our work. His comments provide us with an opportunity to clarify a number of issues raised by our original paper. Before proceeding, it may be useful to reprise two of our most important objections to Backhouse (2004). First, we reject the claim that “there is no argument to be made in principle about the illegitimacy of equilibrium analysis” (ibid., p. 31). In our view, the “equilibrium abstraction” defended by Backhouse must be justified on a case-by-case basis, because it is generally at odds with the properties of the social material that economics is theorizing. Second, according to Backhouse, “when we look for an equilibrium, we are abstracting from the process whereby that equilibrium is reached” (ibid., p. 301). We reject this interpretation of equilibrium methodology as inappropriately narrow because it excludes a variety of models (mostly, but not exclusively, Keynesian and Post Keynesian) in which the analysis of adjustment dynamics is of central importance and outcomes are path dependent. We argue that these models better represent the properties of actually existing economies. These points having been restated, we now turn to Sardoni’s remarks (this issue, pp. 487–492). In our view, Sardoni conflates two different issues: the usefulness of equilibrium and the issue of stability (by which we mean here the absence, in real-world economies, of what Sardoni terms “‘anarchic’ dynamics or explosive, or implosive, tendencies,” ibid., p. 489). At the core of Sardoni’s remarks, we identify a concept of “realistic closure and equilibrium” that has two facets. The first involves using equilibrium to achieve a “coarse” realism in which the stability of real economies is mimicked. The second, which he identifies with the methods of Keynes, is (in our view) equivalent to what we identified in our original paper (Lang and Setterfield, 2006–7) as “empirically grounded