Economic Instability and Stabilization Policy: On the Path from Crises to State Directed Economies

Description

This book pleads for a new orientation of government economic policy, as well as central bank policy, rejecting the traditional government stabilization policy that leads to a dead-end of economic instability and social inequality in the long run. Growing economic instability and increasing state stabilization characterize the development of the capitalist market economy since the major world economic crises of the last century. The book examines these crises and the measures states take to overcome them. Additionally, it addresses the effectiveness and consequences of state intervention. In presenting the main features of Keynes’ and Minsky’s macroeconomics, the book provides a conceptual basis for an outlook on government stabilization in a changing market economy. It thus also offers a suitable framework for current economic policy discussions. Finally, the book examines the wider context of economic history for lessons to be learned. This book is a must-read for scholars and students of economics, as well as policy-makers and practitioners, interested in a better understanding of macroeconomics, central bank policy, and the results of state intervention.  Preface Contents About the Author Abbreviations and Symbols 1 Introduction: Views on Economic Crises in the Twenty-First Century Abstract 1.1 Financial Crisis at the Beginning of the Twenty-First Century 1.2 Economic Development in the USA: Competitive Advantages Through Innovation 1.3 Transformation of the Economy 1.4 Crisis in the Euro Countries 1.5 Economic Crises and Stabilization 1.6 Keynes’ and Minsky’s Economic Approach 1.7 Traditional Economic Policy in the Crisis 1.7.1 Economic Policy in an Impasse 1.7.2 Reorientation of Economic Policy in Democratically Constituted States 1.8 Key Theses 1.9 Summary References 2 A Review of the History of the Economy and Its Concepts: Change Is a Constant Abstract 2.1 The Agricultural Revolution 2.2 Capital Accumulation, Economic Growth, and Industrial Revolution (Smith) 2.3 Invisible Hand, Market, Profit, Division of Labor, Productivity, and International Trade (Smith and Ricardo) 2.4 Globalization Versus National Mercantilism 2.5 Market Economy and Market Society (Polanyi) 2.6 Basic Elements of Microeconomics (Walras and Debreu) 2.6.1 Market Equilibrium, Price Mechanism, Competition, and Profit 2.6.2 Constitutive Elements of Microeconomics and Their Critical Evaluation 2.7 Economic Crisis and Macroeconomic Stabilization by the Government (Keynes) 2.8 Economic Evolution Through Innovation and Credit Creation (Schumpeter) 2.9 Economic Instability due to Dominant Financial Market and Increasing Indebtedness (Minsky) 2.10 Sluggish Growth and Social Inequality 2.11 Central Bank’s Stabilization Policy in the Context of Weak Growth, Instability, and Inequality 2.12 People and the Economy 2.13 Recent Transformation in the Global Economy 2.13.1 ICT Revolution (Baldwin and Milanovic) 2.13.2 Globalization and the Economic Change to the Disadvantage of the Old Industrial Nations 2.13.3 Inequality, Blitzscaling, and New Monopoly Formation 2.13.4 Central Bank Policy, Market Risks, and Moral Hazard 2.13.5 The Narrative of the Self-regulating Market 2.13.6 Economic Concepts and Traditional Economic Policy 2.13.7 Globalization and the International Competitive Struggle (Marx) 2.13.8 China on the Path of Globalization to Become a Leading Economic Power 2.14 Realignment of Government Economic and Social Policy 2.14.1 Democracy, Capitalism, and Prosperity (Iversen and Soskice) 2.14.2 State, Economy, Democracy, Society, and Ecology 2.15 Summary References 3 Keynes’ and Minsky’s Macroeconomics Abstract 3.1 Main Principles of Keynesian Macroeconomics 3.1.1 Basic Concept 3.1.2 Commodity Market and Equilibrium Curve IS in the ISLM Model 3.1.3 Money Market, Equilibrium Curve LM, and Underemployment Equilibrium in the ISLM Model 3.1.4 Government Intervention to Stabilize the Commodity and the Labor Market: Fiscal and Monetary Policy 3.1.5 Critical Evaluation of the ISLM Model and the Public Stabilization Policy 3.1.6 The ISLM Model and the Power of Simplification 3.1.7 Microeconomic Dynamics, Debt Financing, Profits, and Expectations 3.1.8 Keynes-Minsky Momentum 3.2 Main Features of Minsky’s Macroeconomics 3.2.1 Basic Elements 3.2.2 Interdependence Between Profit and Investment 3.2.3 The Mark-Up Approach and Price Levels 3.2.4 Evaluation of the Formal Minsky Approach 3.2.5 Finance Market: Private Banks, Debt Financing, and Instability 3.2.6 Minsky’s Approach and the Changes in Economic Activity 3.3 Summary References 4 Outlook on the Transformation of the Market Economy and Its Stabilization Abstract 4.1 Interest Rate Effect on Minsky’s Profit–Investment Dynamics, on Inequality, and on Monetary Policy 4.2 Inequality of Income and Wealth 4.3 Piketty on Inequality 4.4 Scheidel on Inequality 4.5 Private Banks: Equity Ratio, Banking Business, Risks, and Regulation 4.5.1 Equity Ratio 4.5.2 Banking Activities 4.5.3 Risks and Risk Management 4.5.4 Basel Banking Regulation and EU Banking Union 4.6 Debt Financing and Risks: Good Times and Bad Times 4.7 Inflation and Deflation: Good Times and Bad Times 4.8 Capital, Growth and Sluggish Growth 4.9 Globalization: Good Aspects and Bad Aspects 4.10 Economic Processes and Their Analysis 4.10.1 Levels of Economic Processes 4.10.2 Quantitative Numerical Analysis 4.10.3 Understanding Using Partial Models 4.10.4 Formal Quantitative, Qualitative Analysis 4.11 Stabilization Policy in the Post-Keynesian Era 4.11.1 Central Bank Policy 4.11.2 Monetary and Fiscal Policy in the Eurozone 4.11.3 Profits and Losses of Central Banks 4.12 Consequences of Economic Change and State Stabilization: Instability and Inequality, Distorted Markets, and Intertemporal Imbalance 4.13 Summary References 5 Conclusion: Changing Economic Policies Abstract 5.1 Economic Crises and State Intervention 5.2 On the Path from Crises with Old Methods to State Directed Economies 5.3 Reorientation of Government Economic and Social Policy 5.4 Summary References