Peter Kriesler

The New Consensus on Monetary Policy and its Post-Keynesian Critique

Abstract This paper seeks to look at the underlying framework of the New Consensus models, providing a Post-Keynesian critique. In the light of this critique, the model is reformulated, with its basic structure intact, but with alternative post-Keynesian specifications of the Phillips curve being considered. It is shown that such modifications, either allow a long run trade-off between the rate of inflation and the level of output, the rate of capacity utilization and, therefore, unemployment, or, in our preferred specification, changes in output and capacity have no implications for inflation over a large range of capacity utilization.

Capacity Utilization, Inflation, and Monetary Policy: The Duménil and Lévy Macro Model and the New Keynesian Consensus

The article considers the adjustment toward long-run equilibrium within the Duménil and Lévy macro model, with modifications. Findings show that long-run convergence to fully adjusted positions with normal utilization is not achieved when a more realistic reaction function is proposed. Classical equilibrium occurs when a vertical Phillips curve is substituted, but the model is isomorphic to the “new consensus” model and to features of “new” endogenous growth theory. JEL classification: E12, E40, E52, E58

News from down under

Purpose – This brief paper seeks to identify three potential threats to the future of heterodox economics in Australia.Design/methodology/approach – The paper provides a case study of three potential threats to the future of heterodox economics in Australia.Findings – The first comes from funding uncertainties, given the fiscal conservatism of the new federal government. The second emanates from attempts by the elite “group of eight” institutions to secure all (or almost all) of the available research funding for themselves. The third relates to the research assessment exercises currently being undertaken both by the federal government and by the management of individual universities. It is concluded that the future is very far from clear.Originality/value – The paper provides a case study of three potential threats to the future of heterodox economics in Australia.

Kalecki’s Pricing Theory Revisited

The paper looks at the development of Kalecki’s pricing theory, arguing that there was substantial modification and change in the various formulations, and therefore it rejects any argument of continuity in that theoretical development. It considers the elements common to all versions of the theory before concentrating on the earliest formulation. Although, in this version, the analysis concentrated on the individual firm, this was broadened in later versions to incorporate industry-wide considerations; however Kalecki never adequately dealt with the problems of defining an industry. Kalecki’s 1939–1942 work on price theory is seen as an unsuccessful attempt to widen the scope of the analysis by utilizing the tools of orthodox microeconomic theory. After the detour provided by these articles, Kalecki made various attempts to reformulate the theory, but did not appear to be satisfied with any of them.

Microfoundations: A Kaleckian Perspective

Like the relationship between the grin and the cat, the relationship between macroeconomic and microeconomic theory has left many puzzled. Over the last few decades there has been much debate as to the nature of the relation between microeconomics and macroeconomics, the so called problem of microfoundations.1 In particular, the question of how one moves from analysis at the level of the individual or of the firm to analysis of the economy as a whole, has invited much controversy. The discussion about ‘micro-foundations’ has been about the exact way in which the microeconomics fits in with the macroeconomic theory for which it is the foundation. Not surprisingly, there is a strong relationship between the type of theory being examined and the relationship posited between the microfoundations and the macrotheory. In particular, the problem seems to be greatest for neoclassical theorists, for whom the tranquil waters of microeconomic equilibrium bear a strong contrast to the swiftly moving currents of macroeconomic unemployment. As noted in the Palgrave entry on ‘macroeconomics: relations with microeconomics’: ‘The lack of clear connection between macroeconomics and microeconomics has long been a source of discontent among [neoclassical] economists. Arrow called it a “major scandal” that neoclassical price theory cannot account for such macroeconomic phenomena as unemployment’ (Howitt 1987, 273).

A Critique of the New Consensus View of Monetary Policy

This paper seeks to look at the underlying framework of the New Consensus models of macroeconomic policy for inflation and unemployment, providing a post-Keynesian critique. In the light of this critique, the model is reformulated, with its basic structure intact, but with alternate post-Keynesian specifications of the Phillips curve being considered. It is shown that such modifications, either allow a long run trade-off between the rate of inflation and the level of output, the rate of capacity utilisation and, therefore, unemployment, or, in our preferred specification, changes in output and capacity have no implications for inflation over a large range of capacity utilisation. In either case, macroeconomic policy is restored to its role in maintaining full employment.

Asia, Japan and the Internationalization of Effective Demand

This paper examines the implications of Japanese relations with the growing economies of East and South East Asia. It is shown that, in macroeconomic terms, these relations are characterized by persistent and expanding current account surpluses in favour of Japan. Indeed East and South East Asia is becoming the area with which Tokyo obtains the largest current account surplus. The implications of these surpluses for the area are examined. In particular, it is argued that Japan’s persistent surpluses constitute an implicit factor of stagnation. Drawing on the analysis of Keynes and Kalecki, it is the contention of this paper that unless Japan and the rest of Asia maintain surpluses with the rest of the world, especially the USA, then the region will experience real anti-Keynesian tendencies. This view is contrasted with the orthodox view, as manifested in a recent OECD report, according to which Japan’s surpluses not only do not represent a problem, but also aid development elsewhere by providing much needed capital to countries where it is supposed to be scarce.

IS-LM and Macroeconomics after Keynes

This paper reflects Victoria Chick’s deeply held belief ‘that the macroeconomics which has followed the General Theory in time has not followed it in spirit’ (1983: v). This type of complaint is widespread in post-Keynesian literature and centres on the simultaneous equation equilibrium nature of the ‘Keynesian’ part of the neoclassical synthesis.

Was Kalecki an “Imperfectionist”? Davidson on Kalecki

Davidson (2000), in making an important comparison of Keynes and Kalecki on employment and effective demand, is unfair in his representation of Kalecki’s analysis. Davidson labels Kalecki an “imperfectionist,” with unemployment being the result of imperfect competition, and is critical of Kalecki’s discussions of financial behavior, due to the limited role given to the interest rate. The paper distinguishes between Kalecki’s general analysis of effective demand and his analysis specific to capitalist economies. His general analysis of effective demand is applicable to both competitive and imperfectly competitive situations. Unemployment, in the Kaleckian model, is not the result of imperfect competition, but rather results from insufficient effective demand. Imperfect competition can exacerbate the problem. Kalecki’s monetary analysis stresses the importance of credit rationing, rather than the rate of interest, as well as assuming demand-determined money supply. It has provided the inspiration for much Post Keynesian analysis. In other words, Kalecki’s analysis suggests that a full employment outcome could be automatically maintained by sufficient competition in the product market.… Kalecki’s theory of effective demand … places the ultimate cause of unemployment on the absence of competition in product markets. (Davidson, 2000, p. 5)

Exchange Rates and the Macroeconomy in an Era of Global Financial Crises, with Special Reference to Australia

Unless the global financial system is radically reformed — and the necessary reforms are looking increasingly unlikely to occur — it will continue to be conducive to financial crises. Government rhetoric and actions can often influence in desirable ways both the speculative actions that now determine the exchange rate and the effect of exchange rate movements on the domestic economy. Managing the exchange rate should start with Australian support for measures such as the Tobin tax that dampen speculation. In 2008 and 2009, exchange rate changes were helpful in reducing the impact of the global financial crisis on Australia, largely because of a very clear commitment by the Australian government to make preservation of jobs its top priority. In 2009, a rapid rise in the exchange rate was unhelpful. In the short run, little can be done about this, but in the longer run, it is possible to offset the adverse effects.