Peter Skott

Effective Demand, Class Struggle and Cyclical Growth

The paper presents an analytical model of endogenous cyclical growth in a pure capitalist economy. The model integrates Keynesian ideas on effective demand with a Marxian emphasis on class struggle and the reserve army of labor. For reasonable parameter values, the model has a unique (nontrivial) balanced growth equilibrium; the equilibrium is unstable; and using the Poincare-Bendixson theorem, it is shown that the economy will exhibit perpetual fluctuations around the balanced growth path. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Growth, instability and cycles: Harrodian and Kaleckian models of accumulation and income distribution

This paper compares Kaleckian and Harrodian models of accumulation. The sim- plicity of the canonical Kaleckian model is appealing but more complex Harrodian specifications are preferable from a behavioral perspective. The local instability of Harrodian-inspired specifications, moreover, offers a unified understanding of both trend and cycles. JEL Categories: E12, E32, O41

The Real Exchange Rate and Economic Growth: are Developing Countries Different?

Recent research has found a positive relationship between real exchange rate (RER) undervaluation and economic growth. Different rationales for this association have been offered, but they all imply that the mechanisms involved should be stronger in developing countries. Rodrik (2008) explicitly analyzed and found evidence that the RER–growth relationship is more prevalent in developing countries. We show that his finding is sensitive to the criterion used to divide the sample between developed and developing countries. Using alternative classification criteria and empirical strategies to evaluate the existence of asymmetries between groups of countries, we find that the effect of currency undervaluation on growth is indeed larger and more robust for developing economies. However, the relationship between RER undervaluation and per capita GDP is non-monotonic, and is limited largely to the least developed and richest countries. This discontinuity constitutes a puzzle that calls for closer analysis.

STEINDLIAN MODELS OF GROWTH AND STAGNATION

Following an analysis of the relation between a standard Steindlian model of stagnation and Steindls own analysis, we modify the standard model by introducing endogenous changes in the mark-up and a reformulation of the investment function. These extensions, which address significant weaknesses of the standard model, find support in Steindls writing and leave intact some of Steindls key results. In a further extension, we add a labour market and analyse the stabilizing influence of a Marxian reserve-army mechanism. The implications of the extended model for the effects of increased oligopolization are largely in line with Steindls predictions. Copyright

A rational-voter explanation of the cost of ruling

It is well known that the average government loses votes — the so-called cost of ruling. We show that the loss can be explained as a perfectly rational demand for change in a median voter model, once the model is amended to let the two parties be visibly different.

Concentration, competition and distribution - a critique of theories of monopoly capital

The paper argues that: 1. Contrary to the claims of the theory of monopoly capital, the level of competition has had a tendency to increase under capitalism due to the lowering of the costs of transport and communications, the development and dispersion of the techniques of business calculation and the increase in the quantity and the quality of business information. 2. The theory of monopoly capital is based on a questionable causal interpretation of a static equilibrium relation. 3. The empirical evidence of declining profitability cannot be explained by an increased degree of monopoly.

Public debt and full employment in a stock-flow consistent model of a corporate economy

This paper examines the fiscal requirements for continuous full employment. We find that (i) changes in the financial behavior of households and firms require adjustments in tax rates and public debt, (ii) the stability of the steady-growth solution for public debt depends on the fiscal instrument and the household consumption function, (iii) in stable cases, a fall in government consumption (or a decline in another component of autonomous demand) requires an increase in the steady-growth ratio of public debt to capital, and (iv) the steady-growth tax rate may be positively or negatively related to the level of debt.

Paradoxical effects of drug policy in a model with imperfect competition and switching costs

This paper presents a stylized model of the market for hard drugs. We assume that there is imperfect competition, that the demand side is dominated by addicts, and that the presence of switching costs leads to consumer loyalty. Drug policies affect the values of the parameters of the model, including the degree of consumer loyalty and the static price elasticity of demand. Taking into account these effects, it is shown that tough policies may lead to an increase in the marketing activities by suppliers and cause a long-run increase in the number of addicts and total consumption.

Increasing Inequality and Financial Instability

Rising inequality affects the composition of asset demands as well as aggregate demand. The poor have few financial assets and their portfolios are skewed towards fixed-income assets. The rich, by contrast, hold a large proportion of their wealth in stocks. Thus, an increase in inequality tends to raise the demand for stocks. This generates capital gains, and these gains can fuel a bubble, as desired portfolios shift further towards stocks.

Wage inequality and overeducation in a model with efficiency wages

This paper shows that the existence and persistence of ‘overeducation’ can be explained by an extension of the efficiency wage model. When calibrated to fit the amounts of overeducation found in most empirical studies, the model implies that both the relative wage and the relative employment rate of high-skill workers depend inversely on aggregate economic activity. Keeping aggregate employment constant, furthermore, low-skill unemployment rises following an increase in the relative supply of high-skill labor, and relative wages may be insensitive to changes in relative labor supplies. The model may help explain rising wage inequality in some countries since the early 1970s. JEL Categories: J31