Associated Programs

Explorations in Theory and Empirical Analysis

Explorations in Theory and Empirical Analysis

On occasion, scholars at the Levy Institute conduct research that does not fall within a current program or general topic area. Such study might include examination of a subject of particular policy interest, empirical research that has grown out of work in a current program area, or initial exploration in an area being considered for a new research program. Recent studies have included those on Harrodian growth models, the economic consequences of German reunification, and campaign finance reform.

Research Program

Economic Policy for the 21st Century

Program Publications

  • Working Paper No. 907 | May 2018
    The paper discusses the Sraffian supermultiplier (SSM) approach to growth and distribution. It makes five points. First, in the short run the role of autonomous expenditure can be appreciated within a standard post-Keynesian framework (Kaleckian, Kaldorian, Robinsonian, etc.). Second, and related to the first, the SSM model is a model of the long run and has to be evaluated as such. Third, in the long run, one way that capacity adjusts to demand is through an endogenous adjustment of the rate of utilization. Fourth, the SSM model is a peculiar way to reach what Garegnani called the “Second Keynesian Position.” Although it respects the letter of the “Keynesian hypothesis,” it makes investment quasi-endogenous and subjects it to the growth of autonomous expenditure. Fifth, in the long run it is unlikely that “autonomous expenditure” is really autonomous. From a stock-flow consistent point of view, this implies unrealistic adjustments after periods of changes in stock-flow ratios. Moreover, if we were to take this kind of adjustment at face value, there would be no space for Minskyan financial cycles. This also creates serious problems for the empirical validation of the model.

  • Working Paper No. 905 | May 2018
    The Vested Interests, Limits to Reform, and the Meaning of Liberal Democracy
    I subject some aspects of Roosevelt’s “New Deal” to critical analysis, with particular attention to what is termed “liberal democracy.” This analysis demonstrates the limits to reform, given the power of “vested interests” as articulated by Thorstein Veblen.
    While progressive economists and others are generally favorably disposed toward the New Deal, a critical perspective casts doubt on the progressive nature of the various programs instituted during the Roosevelt administrations. The main constraint that limited the framing and operation of these programs was that of maintaining liberal democracy. The New Deal was shaped by the institutional forces then dominant in the United States, including the segregationist system of the South. In the end, vested interests dictated what transpired, but what did transpire required a modification of the understanding of liberal democracy.

  • Book Series | March 2018
    Edited by Marcella Corsi, Jan Kregel, and Carlo D'Ippoliti
    Edited by Marcella Corsi, Sapienza University of Rome, Levy Institute Director of Research Jan Kregel, and Carlo D’Ippoliti, Sapienza University of Rome, this new collection of 16 essays is dedicated to Alessandro Roncaglia and deals with the themes that “have characterized his work or represent expressions of his personality, his interests and method," particularly his contributions to the interpretation of classical political economists as a means for informing present-day policy.

    Published by: Anthem Press
  • Working Paper No. 879 | December 2016

    This paper presents a methodological discussion of two recent “endogeneity” critiques of the Kaleckian model and the concept of distribution-led growth. From a neo-Keynesian perspective, and following Kaldor (1955) and Robinson (1956), the model is criticized because it treats distribution as quasi-exogenous, while in Skott (2016) distribution is viewed as endogenously determined by a series of (exogenous) institutional factors and social norms, and therefore one should focus on these instead of the functional distribution of income per se. The paper discusses how abstraction is used in science and economics, and employs the criteria proposed by Lawson (1989) for what constitutes an appropriate abstraction. Based on this discussion, it concludes that the criticisms are not valid, although the issues raised by Skott provide some interesting directions for future work within the Kaleckian framework.

  • Working Paper No. 857 | December 2015

    This paper describes the transformations in federal classification of ethno-racial information since the civil rights era of the 1960s. These changes were introduced in the censuses of 1980 and 2000, and we anticipate another major change in the 2020 Census. The most important changes in 1980 introduced the Hispanic Origin and Ancestry questions and the elimination of two questions on parental birthplace. The latter decision has made it impossible to adequately track the progress of the new second generation. The change in 2000 allowed respondents to declare origins in more than one race; the anticipated change for 2020 will create a single question covering race and Hispanic Origin—or, stated more broadly, race and ethnic origin. We show that the 1980 changes created problems in race and ethnic classification that required a “fix,” and the transformation anticipated for 2020 will be that fix. Creating the unified question in the manner the Census Bureau is testing will accomplish by far the hardest part of what we believe should be done. However, we suggest two additional changes of a much simpler nature: restoring the parental birthplace questions (to the annual American Community Survey) and possibly eliminating the Ancestry question (the information it gathered will apparently now be obtained in the single race-and-ethnicity question). The paper is historical in focus. It surveys how the classification system prior to 1980 dealt with the tension between ethno-racial continuity and assimilation (differently for each major type of group); how the political pressures producing the changes of 1980 and 2000 changed the treatment of that tension; and, finally, the building pressure for a further change.

  • Working Paper No. 854 | November 2015
    Graph Theory and Macroeconomic Regimes in Stock-flow Consistent Modeling

    Standard presentations of stock-flow consistent modeling use specific Post Keynesian closures, even though a given stock-flow accounting structure supports various different economic dynamics. In this paper we separate the dynamic closure from the accounting constraints and cast the latter in the language of graph theory. The graph formulation provides (1) a representation of an economy as a collection of cash flows on a network and (2) a collection of algebraic techniques to identify independent versus dependent cash-flow variables and solve the accounting constraints. The separation into independent and dependent variables is not unique, and we argue that each such separation can be interpreted as an institutional structure or policy regime. Questions about macroeconomic regime change can thus be addressed within this framework.

    We illustrate the graph tools through application of the simple stock-flow consistent model, or “SIM model,” found in Godley and Lavoie (2007). In this model there are eight different possible dynamic closures of the same underlying accounting structure. We classify the possible closures and discuss three of them in detail: the “standard” Godley–Lavoie closure, where government spending is the key policy lever; an “austerity” regime, where government spending adjusts to taxes that depend on private sector decisions; and a “colonial” regime, which is driven by taxation.

  • Working Paper No. 846 | October 2015
    Steindl after Summers

    The current debate on secular stagnation is suffering from some vagueness and several shortcomings. The same is true for the economic policy implications. Therefore, we provide an alternative view on stagnation tendencies based on Josef Steindl’s contributions. In particular, Steindl (1952) can be viewed as a pioneering work in the area of stagnation in modern capitalism. We hold that this work is not prone to the problems detected in the current debate on secular stagnation: It does not rely on the dubious notion of an equilibrium real interest rate as the equilibrating force of saving and investment at full employment levels, in principle, with the adjustment process currently blocked by the unfeasibility of a very low or even negative equilibrium rate. It is based on the notion that modern capitalist economies are facing aggregate demand constraints, and that saving adjusts to investment through income growth and changes in capacity utilization in the long run. It allows for potential growth to become endogenous to actual demand-driven growth. And it seriously considers the role of institutions and power relationships for long-run growth—and for stagnation.

  • Working Paper No. 841 | July 2015

    Marx’s theory of money is critiqued relative to the advent of fiat and electronic currencies and the development of financial markets. Specific topics of concern include (1) today’s identity of the money commodity, (2) possible heterogeneity of the money commodity, (3) the categories of land and rent as they pertain to the financial economy, (4) valuation of derivative securities, and (5) strategies for modeling, predicting, and controlling production and exchange of the money commodity and their interface with the real economy.

  • Working Paper No. 836 | April 2015

    This paper evaluates the presence of heterogeneity, by household type, in the elasticity of substitution between food expenditures and time and in the goods intensity parameter in the household food and eating production functions. We use a synthetic dataset constructed by statistically matching the American Time Use Survey and the Consumer Expenditure Survey. We establish the presence of heterogeneity in the elasticity of substitution and in the intensity parameter. We find that the elasticity of substitution is low for all household types.

  • Working Paper No. 824 | January 2015
    A New Framework for Envisioning and Evaluating a Mission-oriented Public Sector

    Today, countries around the world are seeking “smart” innovation-led growth, and hoping that this growth is also more “inclusive” and “sustainable” than in the past. This paper argues that such a feat requires rethinking the role of government and public policy in the economy—not only funding the “rate” of innovation, but also envisioning its “direction.” It requires a new justification of government intervention that goes beyond the usual one of “fixing market failures.” It also requires the shaping and creating of markets. And to render such growth more “inclusive,” it requires attention to the ensuing distribution of “risks and rewards.”

    To approach the innovation challenge of the future, we must redirect the discussion, away from the worry about “picking winners” and “crowding out” toward four key questions for the future:

    1. Directions: how can public policy be understood in terms of setting the direction and route of change; that is, shaping and creating markets rather than just fixing them? What can be learned from the ways in which directions were set in the past, and how can we stimulate more democratic debate about such directionality?
    2. Evaluation: how can an alternative conceptualization of the role of the public sector in the economy (alternative to MFT) translate into new indicators and assessment tools for evaluating public policies beyond the microeconomic cost/benefit analysis? How does this alter the crowding in/out narrative?
    3. Organizational change: how should public organizations be structured so they accommodate the risk-taking and explorative capacity, and the capabilities needed to envision and manage contemporary challenges?
    4. Risks and Rewards: how can this alternative conceptualization be implemented so that it frames investment tools so that they not only socialize risk, but also have the potential to socialize the rewards that enable “smart growth” to also be “inclusive growth”?