Gerasimos T. Soldatos

The inter-war Greek economy: Income inequality and speculation

economy are rare, mostly in Greek, and descriptive in character;3 they either form part of detailed sectoral analyses or are evaluations of macroeconomic trends carried out mainly during the inter-war years and in the 1950s.1 Many of the views expressed in these studies are shared by the present work which, however, integrates them into a single framework according to economic theory, thus offering additional insight into the subject matter under investigation. That is, this article focuses upon the general picture of the inter-war Greek economy and thus, on the basis of economic theory, arrives at some new conclusions concerning it. In doing this, use is made of data and evidence drawn mainly from the descriptions of the Greek economy provided by the Bank of Greece and by Professor K. Badaloukas.5 Discussion of the inter-war Greek economy might usefully begin by noting that this economy benefited from, but did not further promote, the industrialization of the wartime period (1914-22), and that it was during the inter-war years that the Bank of Greece

Cournot-like Interaction with Cournot Outcomes

Abstract This article works out a Cournot duopoly where firms take price as given, but it is not the same price that is taken for given by each firm; it depends on individual expectations about opponent’s behaviour as are shaped by the business cycle. Yet, the result of this interaction is a Cournot equilibrium as if the calculations were based on the same price. It is not the price that would be assumed in the absence of expectations. Expectations make inverse-U-shaped reaction curves peak at higher output levels relative to peaks in their absence, implying a lower price vis-à-vis that which is taken for granted in the traditional analysis. And, output levels are higher because they reflect optimism for the course of the economy. In the static context of the analysis, a Cournot equilibrium comes about as if the business cycle is at each peak. Policy-wise, the message is that observed price variations in an oligopoly do not necessarily indicate Bertrand competition despite the possibility that dynamic interaction may lead to outcomes other than the Cournot one; but it will be about disequilibrium and unstable outcomes. JEL Classifications: D43, L13, E32

A bilateral monopsony approach to lending, and the hidden economy in LDCs

Under developing-economy circumstances of small and mainly informal firms and a few official corporate conglomerates, an investigation of the developmental role of banking in such economies might be pursued analytically within the context of a bilateral monopsony for loans. Assuming away wage differences and trade between formal and informal sectors, a model is presented in which one firm borrows from one bank with a positive supply curve of loans. The bank monitors firm’s output, which firm produces output underground too, in order to avoid this monitoring and minimize its marginal expenditure on loans by defaulting. The model incorporates also a laborer-consumer who allocates labor between the formal and informal sectors in a way preserving full employment. In this model, the following results obtain: There cannot be underground only economy even in the absence of government national-accounting induced output monitoring once part at least of the output has to be monitored by the bank. The capital employed officially is always more than that underground. Bank monopoly power induces lexicographic preferences towards underground economy income. The stability of the system depends on the relative size of the official to total capital ratio and the response of loan demand to the interest rate. The introduction of government and indirect taxation alter the optimal official to total capital ratio. Yet, the steady-state and stability of the system remain unchanged under a tax financed balanced budget. Government borrowing by a rent-seeking government or to cope with tax-evasion induced budget deficits lowers lending to the firm and leads thereby the system to equilibrium away from steady-state; but tax evasion increases such lending towards steady-state restoration. It is clear that the approach to development leading to these conclusions focuses not on development per se but on how it is shaped based on overt and covert resources and capabilities financed by concentrated banking. The mentality underlying such an approach abides by Hirschman’s (1965) view of development rather than macroeconomic growth. Policy-wise, international trade and foreign direct investment should be encouraging the official economy at the expense of the unofficial one. Also, government borrowing from abroad is expected to be sooner or later recessionary if the money is not channeled to public investment. Special attention should be paid to the design of trade liberalization towards (i) the implementation of non-inflationary government finance means compensating for the subsequent loss of tariffs, and (ii) discouraging the profit shifting by multinationals abroad.

Law, Coercion, And Socioeconomic Equilibrium

Abstract This paper investigates the economic conditions under which the performance of a Judiciary does not impede non-coercive fair socioeconomic allocations under “Strotz-myopia” regarding the law variable, i.e. under a static view of it in an otherwise dynamic context. The law, here, is the positive factor by which consumption volume is multiplied as a result of law introduction in an otherwise fully private social economy. Lexicographic preferences regarding the law is the keyword in establishing non-coercive equilibria either in the static context of a stone-age economy or in the dynamic context of a jungle economy, given in the latter the presence of farsightedness. Nevertheless, such equilibria are found here to exist even under myopia and regardless the presence of lexicographic preferences. We first detect them within a fully private social economy, and we next qualify them by introducing the Judiciary as state officials. The optimality regarding state finances imposes additional restrictions in establishing myopic noncoercive equilibria. In any case, an equilibrium will be stable if it is not influenced by the homotheticity or not of the preferences, i.e. by income distribution considerations. So, any suboptimal behaviour of the Judiciary should be attributed exclusively to the suboptimality of state finances: Macroeconomics does affect law administration.

Global Recession: A Money Gift Cure Possibly

Today, the world economy is at the brink of a major recession at zero lower bound. The recession has been fomented by the underconsumption induced by (i) the increasing income inequality, which is inherent in the neoliberal policymaking followed the last third of a century, and (ii) the declining wages being brought about by the increasing globalization and hence, international competition. And, the zero lower bound has been the aftermath of continuous interest rate reductions to confront the latent recessionary trends by stimulating investment but by increasing at the same time the prices of assets, bonds, and housing inciting several kinds of “bubbles” and inhibiting investment. The policy of “quantitative easing” in the place of interest rate reductions, a surrogate only of the latter has proved to be so far, for the simple reason that the money injections involved to spur business and household demand, are channeled towards the banking system, which withholds and does not pass on the money to the public. A money gift policy in the sense of transferring money directly to the public as a permanent asset for the private sector but not liability for the public sector, activating subsequently the Pigou effect, is advocated herein to be a viable policy alternative out of the current deadlock, ceteris paribus.

Pork-Barrel Spending under Cournot Legislators and the Quantity Equation

This note makes the following two points based on Cournot utility functions of the legislators and on the government budget constraint viewed from the perspective of the equation of exchange. Without logrolling, i.e. with different perceptions of the budget constraint, there can be such a legislature preference structure that can turn a pork-barrel project into welfare-enhancing public expenditure depending on economic circumstances. With logrolling, i.e. with agreement at least regarding the size of the budget, the “pork” may be taken out of the project regardless the economic conjuncture. These results are independent of the utility function used, while the use of the quantity equation serves only as the simplest macroeconomic framework in which the two general points herein may be made.