Microfoundations of Effective Demand

Transcription

1 4. Department Economics University Missouri Kansas City November 30,

2 Contents 4. 1 Introduction 2 Methodology 3 The in Veblen s Institutional Economics 4 5 Theories : A Critical Review 6 7 Conclusions 6.

3 Statement Purpose 4. To set up the microundations effective demand from an Institutionalist and Post Keynesian perspective. 1 Methodology heterodox microundations 2 The theory business enterprise 3 The principle effective demand 6.

4 Questions and Conclusions How can we conceptualize microundations in heterodox economics? 4. 6.

5 Questions and Conclusions How can we conceptualize microundations in heterodox economics? Heterodox microundations: linking micro and macro. The generation macro-outcomes through purposeful micro-actions. Structure Agency Causal Mechanism

6 Questions and Conclusions How can we conceptualize microundations in heterodox economics? Heterodox microundations: linking micro and macro. The generation macro-outcomes through purposeful micro-actions. Structure Agency Causal Mechanism. Why/What/How? 4. 6.

7 Questions and Conclusions How can we conceptualize microundations in heterodox economics? Heterodox microundations: linking micro and macro. The generation macro-outcomes through purposeful micro-actions. Structure Agency Causal Mechanism. Why/What/How? 1 Problems NC microundations and HT macroundations. 2 Expenditure decisions determine output, employment, and income + Actions embedded in causal mechanisms and socio-economic structures. 3 Input-Output Matrix and Price-Quantity Model

8 Contributions Challenging conventional wisdoms: The micro-macro dichotomy, neoclassical microundations, PW/PK macroundations, and (macro) theories effective demand

9 Contributions 4. Challenging conventional wisdoms: The micro-macro dichotomy, neoclassical microundations, PW/PK macroundations, and (macro) theories effective demand. The micro-macro synthetic approach: by way Veblen and Post Keynesians (Kalecki, Eichner, and Lee); Critical Realism. 6.

10 Contributions 4. Challenging conventional wisdoms: The micro-macro dichotomy, neoclassical microundations, PW/PK macroundations, and (macro) theories effective demand. The micro-macro synthetic approach: by way Veblen and Post Keynesians (Kalecki, Eichner, and Lee); Critical Realism. Enhancing the principle effective : by incorporating micro and by identifying structures, casual mechanisms, and the role agency. 6.

11 Why and What Methodology? Methodology: inquiry into the structure science (visions, assumptions, theory, methods, and applications)

12 Why and What Methodology? 4. Methodology: inquiry into the structure science (visions, assumptions, theory, methods, and applications). Limitations foundations projects: Neoclassical microundations, Post Walrasian macroundations, and Post Keynesians approaches. The methodological principles microundations effective demand. 6.

13 Neoclassical 4. Scarcity and rationality; methodological individualism, closed-system. Micro-reductionism, the fallacy composition, the fallacy aggregation (under-specification), the absence emergent properties and social relations 6.

14 Post Walrasian Macroundations 4. Heterogeneity, institutional constraints, bounded rationality, emergent properties, and path-dependency The priority macro-constraints on individual choices Rational choice + (dis)equilibrium approach in a more complex context 6.

15 Heterodoxy: Marx, Veblen, and Keynes Marx s Political Economy: Micro-macro issues are integrated at the class level; class relations and material conditions. Reciprocal influence between micro and macro 4. 6.

16 Heterodoxy: Marx, Veblen, and Keynes 4. Marx s Political Economy: Micro-macro issues are integrated at the class level; class relations and material conditions. Reciprocal influence between micro and macro Veblen s Evolutionary Institutionalism: synthesis. Agency is co-existing with structure (institutions). Active agency at the center evolutionary process 6.

17 Heterodoxy: Marx, Veblen, and Keynes Marx s Political Economy: Micro-macro issues are integrated at the class level; class relations and material conditions. Reciprocal influence between micro and macro Veblen s Evolutionary Institutionalism: synthesis. Agency is co-existing with structure (institutions). Active agency at the center evolutionary process Keynes s Non-ergodic Economics: Analytical dualism between micro and macro with an emphasis on the latter. But Keynes had micro ideas which paved the way for macro theories.

18 Post Keynesian Approaches PK macroundations: Dominance macro over micro. Legitimizing micro-reality via macroundations. Lack micro-reality, fallacy aggregation, incompatibility between macroundations and open-system ontology

19 Post Keynesian Approaches 4. PK macroundations: Dominance macro over micro. Legitimizing micro-reality via macroundations. Lack micro-reality, fallacy aggregation, incompatibility between macroundations and open-system ontology. Sraffian structural approach: Theory value, distribution, and output are integrated. Structural forces and long-period approach. Absence actions (agency) and diverse institutional settings. 6.

20 Post Keynesian Approaches PK macroundations: Dominance macro over micro. Legitimizing micro-reality via macroundations. Lack micro-reality, fallacy aggregation, incompatibility between macroundations and open-system ontology. Sraffian structural approach: Theory value, distribution, and output are integrated. Structural forces and long-period approach. Absence actions (agency) and diverse institutional settings. Kaleckian microundations: Macro analysis grounded in micro-reality (degree monopoly, class relations), which sheds lights on the micro-macro synthetic approach

21 Heterodox 4. Structures: Circular production economy, surplus production economy, and monetary production economy. Input-Output Matrix: Irreducible and indecomposable reality. Inter-industrial flows intermediate goods, surplus (final goods), and total outputs in value terms 6.

22 Heterodox 4. Structures: Circular production economy, surplus production economy, and monetary production economy. Input-Output Matrix: Irreducible and indecomposable reality. Inter-industrial flows intermediate goods, surplus (final goods), and total outputs in value terms Agency and Causal mechanisms: Agency renders structures open and going through causal mechanisms. 6.

23 Input-Output Matrix Value intermediate output Value final output (surplus) Value total commodity output Value material inputs + = Value added (wage+prit) Value total industry output + =

24 Dichotomy: A Veblenian view Micro-macro dichotomy microundations, micro-reductionism, formalism; Utilitarian Marginalist Newtonian. A settled habit thought that rules the way analyzing the real world

25 Dichotomy: A Veblenian view 4. Micro-macro dichotomy microundations, micro-reductionism, formalism; Utilitarian Marginalist Newtonian. A settled habit thought that rules the way analyzing the real world. Alternative approaches and ideas are ignored and vulgarized since they challenge the status quo, conventional wisdoms, and vested interests. Theory for the sake ory: ceremonial adequacy 6.

26 Veblen s Cultural, complex, social, historical, realistic, emergent, open-ended, path-dependent, dynamic, phylogenetic, interdisciplinary, and evolutionary 4. 6.

27 Veblen s Cultural, complex, social, historical, realistic, emergent, open-ended, path-dependent, dynamic, phylogenetic, interdisciplinary, and evolutionary Agency: social animal instincts, knowledge, skills, habits, and actions

28 Veblen s 4. Cultural, complex, social, historical, realistic, emergent, open-ended, path-dependent, dynamic, phylogenetic, interdisciplinary, and evolutionary Agency: social animal instincts, knowledge, skills, habits, and actions. Society and Agency: interaction by way formation and the evolution institutions. 6.

29 Veblen s Cultural, complex, social, historical, realistic, emergent, open-ended, path-dependent, dynamic, phylogenetic, interdisciplinary, and evolutionary Agency: social animal instincts, knowledge, skills, habits, and actions. Society and Agency: interaction by way formation and the evolution institutions. Evolutionary Process: Social structure and culture action (origination) institutions at the macro (diffusion & adaption) structure and culture (retention)...

30 Neo-Schumpeterian : Micro-Meso-Macro Evolutionary process: complex adaptive system formal evolutionary model; system dynamics, simulation, evolutionary games

31 Neo-Schumpeterian : Micro-Meso-Macro Evolutionary process: complex adaptive system formal evolutionary model; system dynamics, simulation, evolutionary games. Meso: knowledge, rules, routines, network

32 Neo-Schumpeterian : Micro-Meso-Macro Evolutionary process: complex adaptive system formal evolutionary model; system dynamics, simulation, evolutionary games. Meso: knowledge, rules, routines, network. Veblen Vs. Neo-Schumpeterians Veblen Neo-Schumpeterians Center Analysis Habitual action Knowledge and Rules Cause Evolution Purposeful action Innovative knowledge Agency Complex social being Rule-maker, Rule-carrier Institution Settled habits thought Settled rules Individuals Heterogeneous Heterogeneous Culture System institutions System rules Rationality Procedural Bounded Uncertainty Fundamental Partial Method Narrative Formal Social ontology Holistic Individualistic (non-atomistic)

33 The : Institutionalist approach The directing force capitalist system. (Veblen) An organized going concern, a collective agent, an emergent social institution 4. 6.

34 The : Institutionalist approach The directing force capitalist system. (Veblen) An organized going concern, a collective agent, an emergent social institution Accumulation pecuniary wealth and power (survival and growth over time) 4. 6.

35 The : Institutionalist approach 4. The directing force capitalist system. (Veblen) An organized going concern, a collective agent, an emergent social institution Accumulation pecuniary wealth and power (survival and growth over time) The most powerful agent in the industrial society: business interest public interest 6.

36 The : Institutionalist approach 4. The directing force capitalist system. (Veblen) An organized going concern, a collective agent, an emergent social institution Accumulation pecuniary wealth and power (survival and growth over time) The most powerful agent in the industrial society: business interest public interest Control prices and output 6.

37 The : Institutionalist approach The directing force capitalist system. (Veblen) An organized going concern, a collective agent, an emergent social institution Accumulation pecuniary wealth and power (survival and growth over time) The most powerful agent in the industrial society: business interest public interest Control prices and output principles (emulation, efficiency, vendibility) become dominant over public (social) principle (cooperation, effectiveness, and reciprocity)

38 The : Post Keynesian approach Michal Kalecki, Alfred Eichner 4. 6.

39 The : Post Keynesian approach Michal Kalecki, Alfred Eichner Degree monopoly, Megacorp 4. 6.

40 The : Post Keynesian approach 4. Michal Kalecki, Alfred Eichner Degree monopoly, Megacorp Strategic pricing and investment based on socio-economic structures and relations 6.

41 The : Post Keynesian approach 4. Michal Kalecki, Alfred Eichner Degree monopoly, Megacorp Strategic pricing and investment based on socio-economic structures and relations from micro to macrodynamics 6.

42 Pricing Three pricing mechanisms in relation to production and costing structures enterprise

43 Pricing Three pricing mechanisms in relation to production and costing structures enterprise. 1 Mark-up pricing 2 Normal cost pricing 3 Target rate return pricing 4. 6.

44 Pricing 4. Three pricing mechanisms in relation to production and costing structures enterprise. 1 Mark-up pricing 2 Normal cost pricing 3 Target rate return pricing administered prices stable prices reproduction, not market-clearing 6.

45 Investment and Pricing Goal Planning Long-run & Short-run Investment proposal Price proposal 4. Rejection Approval Evaluation Financing Pricing Prits Accounting Production & Sales 6. Selection & Implementation

46 Linking Micro and Macro Aggregate output, employment, and distribution are mainly the results strategic business activities circumscribed by the structure industry

47 Linking Micro and Macro Aggregate output, employment, and distribution are mainly the results strategic business activities circumscribed by the structure industry. No reason to assume that investment behavior is identical in each industry and over time 4. 6.

48 Linking Micro and Macro 4. Aggregate output, employment, and distribution are mainly the results strategic business activities circumscribed by the structure industry. No reason to assume that investment behavior is identical in each industry and over time Ex: Concentration industry increasing average prit mark-up stagnant investment and consumption decreasing effective demand decreasing output, income, employment, and growth 6.

49 Linking Micro and Macro Aggregate output, employment, and distribution are mainly the results strategic business activities circumscribed by the structure industry. No reason to assume that investment behavior is identical in each industry and over time Ex: Concentration industry increasing average prit mark-up stagnant investment and consumption decreasing effective demand decreasing output, income, employment, and growth For the persistent growth economy, private and public investment should be managed by active industrial policy

50 Keynes s Principle Capitalist economic system is coordinated by effective demand: drives the economy Y Z 4. Y e E D 6. 0 N e N f N

51 Keynes s Principle Capitalist economic system is coordinated by effective demand: drives the economy Persistent unemployment Y Z 4. Y e E D 6. 0 N e N f N

52 Keynes s Principle 4. Capitalist economic system is coordinated by effective demand: drives the economy Persistent unemployment Significance money and investment; generalized behavioral relations. Y Y e E Z D 6. 0 N e N f N

53 Sraffian Long-period Approach to Long-period: the center gravitation in which the uniform rate prit prevails; institution-free state

54 Sraffian Long-period Approach to Long-period: the center gravitation in which the uniform rate prit prevails; institution-free state. Effd in the long-period: theory normal output determination. Q 4. nt e Q f = Q0 a b c C' C Q f Q c 6. O Q 1 t 1 d t 2 Time

55 Critiques Keynes and Sraffians Keynes s generality: independent micro actions, relations, and industrial structures. Absence enterprise investment

56 Critiques Keynes and Sraffians Keynes s generality: independent micro actions, relations, and industrial structures. Absence enterprise investment. Structure matters: industrial structure, the degree monopoly 4. 6.

57 Critiques Keynes and Sraffians Keynes s generality: independent micro actions, relations, and industrial structures. Absence enterprise investment. Structure matters: industrial structure, the degree monopoly Sraffian pure theory: institution- and behavior-free. Only the system matters

58 Critiques Keynes and Sraffians 4. Keynes s generality: independent micro actions, relations, and industrial structures. Absence enterprise investment. Structure matters: industrial structure, the degree monopoly Sraffian pure theory: institution- and behavior-free. Only the system matters. Agency matters. Institution results in space- and history-contingent actualization. 6.

59 Critiques Keynes and Sraffians 4. Keynes s generality: independent micro actions, relations, and industrial structures. Absence enterprise investment. Structure matters: industrial structure, the degree monopoly Sraffian pure theory: institution- and behavior-free. Only the system matters. Agency matters. Institution results in space- and history-contingent actualization. Sraffian convergence to the LP equilibrium 6.

60 Critiques Keynes and Sraffians Keynes s generality: independent micro actions, relations, and industrial structures. Absence enterprise investment. Structure matters: industrial structure, the degree monopoly Sraffian pure theory: institution- and behavior-free. Only the system matters. Agency matters. Institution results in space- and history-contingent actualization. Sraffian convergence to the LP equilibrium The cumulative evolutionary process does not necessarily end up with the pre-supposed long-period position.

61 Micro-analysis and Kalecki, Eichner, Post Keynesian microeconomists 4. 6.

62 Micro-analysis and 4. Kalecki, Eichner, Post Keynesian microeconomists Technical condition & market structure Cost structure Pricing Production & Sales Financing Investment Output, Income, Distribution, and Employment 6.

63 Structures, Causal Mechanisms, Agency, and Institutions 4. Structure production output, employment, wage, prits, surplus, and income structures Causal mechanisms: Consumption (households), pricing and investment (business enterprises), government spending (the State) Institutions confine actions and the operations causal mechanisms. 6.

64 Structure Economy 4. 6.

65 Structure Economy g 11 g 1n l 11 l 1z g 21 g 2n l 21 l 2z... g m1 g mn l m1 l mz q 1 q q m (1) 4. 6.

66 Structure Economy g 11 g 1n l 11 l 1z g 21 g 2n l 21 l 2z... g m1 g mn l m1 l mz q 1 q q m (1) G + L Q d Structure Production (2) Q 1 + Q 2 = Q Structure Output (3) Q 2 = Q 2C + Q 2I + Q 2G Structure Final (4) 4. 6.

67 Structure Economy g 11 g 1n l 11 l 1z g 21 g 2n l 21 l 2z... g m1 g mn l m1 l mz q 1 q q m (1) G + L Q d Structure Production (2) Q 1 + Q 2 = Q Structure Output (3) Q 2 = Q 2C + Q 2I + Q 2G Structure Final (4) Gp 1 + Lw + Π = Q d p Monetary structure (5) Q d Bw = Lw Employment structure (6) w = e(lw) Total wage bill (7) π = (Q p) e[gp 1 + Lw] Total prits (8) s = e(q d2 p 2 ) Value surplus (9) Q d2 p 2 = Q d2c p 2 + Q d2i p 2 + Q d2g p 2 Monetary structure (10) final demand e(q d2 p 2 ) = c wlw + c cπ + reπ National income (11)

68 Causal Mechanisms 4. eq d2c p 2 = c w Lw klw + c c Π Consumption (12) eq d2i p 2 = reπ f Investment (13) eq d2g p 2 = klw + f Gov. spending (14) [m i p 1 + n i w][1 + r i ] = p i Pricing (15) 6.

69 Price-Quantity Model 4. [R][Mp 1 + Nw] = p Price model (16) Â Q + Q 2 = Q Quantity model (17) Q d Âp + ˆQ d2 p = Q d p Price-Quantity model (18) 6.

70 4. R; M, N, w, p 1 { } p Q 2C, Q 2I, Q 2G ; A, B { Q Q c w, c c, k, re 2, Q d p } 1 Indecomposable and irreducible emergent causal mechanisms p and Q are determined separately Technical conditions (M, N, A, B), w, p, R, re, and f Investment demand { } L Π 6.

71 Keynes s Principle 4. { } w p r s k { } f(mec, i) p f(lp, M) d k { } { } p s k p p d k k I Y = C + I + G C = αy I = S Z = D Multiplier : dy di = 1 1 α 6.

72 Input-output table: U.S Table 7. The Use Commodities by Industries: U.S, 2002 Commodities/ Agri-... Manu-... Finance... Govern- Total inter- Total final Total com- Industries culture facturing insurance ment mediate uses* modity output Agriculture 55, ,434 1,510 1, ,512 35, ,306 Mining ,358 1,451 9, ,059-61,579** 180,481 Utilities 5,958 48,427 28,519 48, , , ,440 Construction 895 8,118 28,388 48, , , ,440 Manufacturing 46,582 1,257,656 80, ,326 2,396,539 1,400,908 3,797,446 Wholesale trade 10, ,251 9,909 29, , , ,423 Retail trade ,269 11, , ,831 1,001,177 Transportation 7, ,205 27,436 35, , , ,017 Information 1,178 38,819 27,802 58, , , ,932 Finance, insurance 14, , ,465 75,169 1,337,903 1,877,909 3,215,812 Pressional services 4, , , ,095 1,728, ,383 2,113,039. Government 113 3,232 9,147 9,607 71,523 1,646,870 1,718,393 Total intermediate 151,875 2,501,094 1,097, ,947 8,267,088 Total value added 98,616 1,351,630 2,125,736 1,326,717 10,480,820 Total industry output 250,491 3,852,724 3,223,070 2,128,664 18,747,908 Source: Survey Current 2003, Department Commerce, U.S. Notes: All numbers are in millions Dollars * Total final uses are composed consumption, inventories, net exports, and government consumption. **This value is negative since net exports is negative and greater than the sum other final uses.

73 Macro Data Figure: GDP Growth Rates: Per cent gdp C I

74 Investment by Industry Table: U.S Capital Expenditures by Industry: 2000 to 2004 Industry Total expenditures 1,090 1, Forestry, fishing, agriculture Mining Utilities Construction Manufacturing Wholesale trade Retail trade Transportation Information Finance/insurance Real estate, rental, leasing Pressional, science, technical services Management Administrative and support services Educational services Health care and social assistance Arts, entertainment, and recreation Accommodation and food services Other services Structure and equipment expenditures Source: U.S Census Bureau, Annual Capital Expenditures, Series ACE. Notes: In billions dollars. Covers only companies with employees.

75 Contributions to GDP by Industry Table: Contributions to Percent Change in Real GDP by Industry, GDP growth Private industries Forestry/fishing/agriculture Mining Utilities Construction Manufacturing Wholesale trade Retail trade Transportation Information Finance/insurance/real estate/rental Pressional services Educational/health care/social service Arts/ entertainment/accommodation/food Other services Government Source: U.S. Bureau Economic Analysis, Survey Current, May 2005.

76 Employment by Industry Table: Number Employees by Industry: U.S. 2000, 2002, and Total employees 114, , ,398 Forestry/fishing/agriculture Mining Utilities Construction 6,573 6,307 6,381 Manufacturing 16,474 14,394 14,132 Wholesale trade 6,112 5,860 5,864 Retail trade 14,841 14,820 14,868 Transportation 3,790 3,581 4,068 Information 3,546 3,536 3,600 Finance and insurance 5,963 6,415 6,484 Real estate, rental, and leasing 1,942 2,017 2,045 Pressional services 6,816 7,046 7,340 Management 2,874 2,914 2,879 Admin/support waste mgt/remediation 9,138 8,299 8,511 Educational services 2,532 2,702 2,777 Health care and social assistance 14,109 14,900 15,472 Arts/entertainment 1,741 1,801 1,833 Accommodation and food 9,881 10,049 10,440 Other services 5,293 5,420 5,367 Source: U.S Census Bureau, County Patterns. Note: Numbers are in thousands.

77 : Conclusion 1 The principle effective demand without industrial effects has limited practical implications

78 : Conclusion 4. 1 The principle effective demand without industrial effects has limited practical implications. 2 Industrial variations in investment, contributions each industry to GDP, industry-specific employment pattern Concrete picture generation and changes in GDP, income, employment, and growth 6.