Leon Podkaminer

Disequilibrium in Poland's consumer markets: Further evidence on intermarket spillovers

Abstract Three methods are used to assess the structure of Polish consumer market disequilibria from 1965 to 1986. “Transplanted” West European ELES demand systems, intercountry consumption comparisons, and available statistics on black market prices all lead to the conclusion that Polands consumer markets suffer from distorted relative prices. Food appears to be overpriced as compared with the general equilibrium position. Observed food shortages represent spillovers from underpriced housing and services. Macroeconomic measures of disequilibrium suggest the existence of significant repressed inflation since 1970, with its level virtually constant since 1975.

Macroeconomic disequilibria in centrally planned economies: Identifiability of econometric models based on the theory of household behavior under quantity constraints☆

Abstract Many econometric studies of centrally planned economies suggest the absence of persistent aggregate excess demand. By not following the elementary theory of household behavior under rationing, these studies do not yield any legitimate conclusions. The “minimum condition” promising successful estimation in partial equilibrium contexts is rejected because measurement of macro disequilibrium requires a general equilibrium framework wherein unobservable intermarket spillovers are not ignored. Proper econometric models appear unidentifiable. Also, the distorted relative prices are shown to be macroeconomically non-neutral.

Real Convergence and Price Levels: Long-Term Tendencies Versus Short-Term Performance in the Enlarged European Union

A cross-country regression relating the relative price level to the relative GDP level is statistically significant and stable over time. Price and GDP levels for EU member countries tend to gravitate to that line. The conclusion that there is a shorter-term trade-off between fast real convergence and low inflation is unwarranted. Higher inflation is not a necessary companion of fast convergence. Giving up national currency, or pegging it to the euro, may prevent real convergence or precipitate divergence. A weak initial price level may be insufficient. While retaining national currency is not risk-free, it allows a corrective devaluation.

Non-tradable Goods and Deviations Between Purchasing Power Parities and Exchange Rates: Evidence from the 1990 European Comparison Project

There is a rich theoretical and empirical literature on the discrepancies between purchasing power parities (PPPs) and exchange rates (see Dornbusch, 1991) for a comprehensive survey. The hypothesis linking persistent discrepancies between PPPs and exchange rates to the presence of relatively cheap non-tradable goods (for example, services) in relatively poorer countries is the oldest (dating back to David Ricardo) and simplest one. Why are services relatively cheaper in poor countries? Contemporary theory tends to attribute this fact to production-side differences. Balassa (1964) and Samuelson (1964) started the tradition of analysis focusing on international labour productivity differentials (tradables vs non-tradables.) Kravis and Lipsey (1983) and Bhagwati (1984) initiated a version of the productivity differential model assuming differential factor endowments and factor rewards. The gist of the argument is that in a poor, labour-abundant country, the relative costs of producing labour-intensive services (nontradables) are lower than elsewhere.

Cross-country demand systems and centrally planned economies

Abstract The cross-country data of Kravis et al. (1982) include data on four centrally planned economies. The question is addressed as to how such data fit cross-country demand systems.

Labour Productivity Growth Slowdown: An Effect of Economic Stagnation Rather than its Cause?

This paper reports the results of an econometric examination on the links between labour productivity and output growth for 22 countries (for which long-term data are available). It turns out that, generally, labour productivity does not “cause” output. In more cases, the causation seems to be running in the opposite direction: from output to productivity. This finding, though inconsistent with the “mainstream” ideas on the sources of long-term economic growth, is reminiscent of the classical Kaldor-Verdoorn Law. The progressing slowdown in output growth on the global level, initiated around the mid-1970s (when the process of discarding the earlier economic policy paradigms set in), may have been mirrored by the progressing slowdown in productivity growth (and that despite the hardly disputable acceleration of technological progress).

WHY ARE GOODS CHEAPER IN RICH EUROPEAN COUNTRIES? BEYOND THE BALASSA–SAMUELSON EFFECT

In wealthy European countries consumer goods tend to be cheaper than consumer services. Usually explained in terms of cost developments and/or foreign‐trade considerations, this trend could also be a reflection of demand‐side regularities. Estimation of a cross‐country demand system indicates that goods are ‘necessities’ whereas services are ‘luxuries’. The relative price of goods responds negatively to the rising supply of goods and positively to the rising supply of services, with the former response being much stronger. If the supplies of both items were to rise at the same speed, the relative price of goods would have to fall.

Distributional Effects of Evolving Spending and Tax Policies in Post-Socialist Poland

Poland’s socialist economic system, which collapsed in 1989 after a decade of gradual disintegration, was highly egalitarian. Wages and other incomes in the public sector, the main employer, were largely set administratively—with the explicit aim of assuring a ‘fair’ distribution of income and consumption. Incomes in the private sector were also regulated, either through direct taxation (often quite discretionary) or via administrative controls of prices of that sector’s products and of its production inputs supplied by the public sector. Within that system private farming, accounting for about one fourth of total employment, had a privileged position, with the average per capita income consistently higher than in the public sector. The comprehensive incomes policy stipulating low levels of inequality in personal incomes and ‘wealth’ was complemented by a generous public pension system. All kinds of education were free, as were the services of the public health system. With full employment (endemic and acute shortages of labor), the system did not generate extensive areas of poverty, malnutrition or homelessness.

Globalization, secular stagnation, and soft national balances: A pro-equilibrium manifesto

It is argued that increased freedom to run economic activities combined with the growing impotence of national governments (i.e., globalization) have contributed to the secular growth slowdown at the global level. Fast globalisation-driven growth of international trade has unleashed the global race for economic surpluses. The process involves the suppression of wages and widening income inequalities – restricting aggregate demand globally. A “beggar-thy-neighbor” tactics of keeping large trade surpluses by countries successfully suppressing wages and domestic demand is likely to be unproductive. Overcoming the secular stagnation may not be possible without safeguarding equilibrium (or balance) in international transactions between major industrial countries – even if this may necessitate that in most (or all) of them the public sectors run large fiscal deficits permanently.

Economic disintegration of the European Union: Not unavoidable, but probable

It is argued that European integration has not fulfilled its chief economic promises. Output growth has been increasingly weak and unstable. Productivity growth has been following a decreasing trend. Income inequalities, both within and between the EU member states, have been rising. This sorry state of affairs is likely to continue — and likely to precipitate further exits, or eventually, the dissolution of the Union. However, this outcome is not unavoidable. A better integration in the EU is possible, at least in theory. Also, the negative consequences implicit in the existence of the common currency could be neutralised. However, the basic paradigms of the economic policies to be followed in the EU would have to be radically changed. First, the unconditional fiscal consolidation provisions still in force would have to be repelled. Second, “beggar-thy-neighbour” (or mercantilist) wage policies would have to be “outlawed”.