making the same mistake again or is this time different the world faces an economic crisis of unprecedented proportions but much of the policy response has certainly not lacked for precedent national governments and international organisations including the international monetary fund imf have looked to crises of the past for solutions to the present and austerity has become a familiar theme the inability to effectively resolve the current crisis however gives rise to the question is this time different this article provides a broad overview to the origins and development of the recent economic crisis and the resort to policies of austerity although there is historical precedent for the resort to austerity such as the uk treasury view during the 1920s and 1930s this time things are different many of the current problems are deeply rooted and reflect the impact of the shift towards free market economics that started in the 1970s 2 the origins of the crisis since the beginning of the 1970s the private sector finance in particular has reorganised on an increasingly global scale it has innovated in terms of both structure and products and it has experienced significant growth as tridico 2012 this issue shows this financialisation was characterised by a ballooning of stock exchanges as many firms decided not only to list their shares but also to become involved in speculative finance in response to pressures on firms to maximise shareholder value together with the progressive erosion of worker and trade union rights and influence labour markets became more flexible and real wages stagnated concurrently profits rebounded leading to burgeoning inequality in this context aggregate demand and consumption were bolstered by easy credit and the wealth effects of speculative bubbles first in stocks and shares and then in housing

implicit collusion in non exclusive contracting under adverse selection this paper studies how implicit collusion may take place through simple non exclusive contracting under adverse selection when multiple buyers e g entrepreneurs with risky projects non exclusively contract with multiple firms e g banks it shows that any price schedule can be supported as equilibrium terms of trade in the market if each firm s expected prot is no less than its reservation profit firms sustain collusive outcomes through the triggering trading mechanism in which they change their terms of trade contingent only on buyers reports on the lowest average price that the deviating firm s trading mechanism would induce it suggests that a good can be overpriced in a competitive market even with fully rational traders and without firms explicit collusive agreement

the role of the media in fiscal consolidation programmes the case of ireland a number of european countries have implemented austerity programmes since the onset of the current economic crisis this paper focuses on fiscal consolidation a central aspect of such programmes using the case of ireland it investigates the significant role of the mass media in presenting such policies to the public a role which has so far remained unexamined conceiving of the irish experience over the past few decades as a case of neoliberalisation it uses a critical political economic conceptualisation of news organisations to consider 431 editorials and opinion articles discussing fiscal consolidation in three leading irish newspapers between 2008 and 2012 it finds that the majority of articles present viewpoints in favour of fiscal consolidation and display a preference for spending cuts over tax hikes which substantiates the claim that ireland has adopted neoliberal policies to address the crisis only a minority of articles oppose fiscal consolidation these mostly contest specific spending cuts but usually fail to criticise fiscal consolidation itself by calling for economic alternatives such as keynesian stimulus differences between newspapers are also discussed highlighting their ideological cleavages

adverse selection commitment and renegotiation extension to and evidence from insurance markets with asymmetric information full commitment to long term contracts may permit markets to approach first best allocations however commitment can be undermined by opportunistic behavior notably renegotiation we reexamine commitment in insurance markets we present an alternative model which extends laffont and tirole s procurement model to address uncertainty and competition which involves semipooling in the first period followed by separation this and competing models e g single period models and no commitment models have different predictions concerning temporal patterns of insurer profitability a test using california data suggests that some automobile insurers use commitment to attract selective portfolios comprising disproportionate numbers of low risks

incentive effects in the demand for health care a bivariate panel count data estimation this paper contributes in three dimensions to the literature on health care demand first it features the first application of a bivariate random effects estimator in a count data setting to permit the efficient estimation of this type of model with panel data second it provides an innovative test of adverse selection and confirms that high risk individuals are more likely to acquire supplemental add on insurance third the estimations yield that in accordance with the theory of moral hazard we observe a much lower frequency of doctor visits among the self employed and among mothers of small children copyright 2002 john wiley sons ltd

fiscal deficits economic growth and government debt in the usa a simple model illustrates interactions between the primary fiscal deficit total deficit minus interest payments economic growth and debt the deficit income ratio responds countercyclically to growth while growth may respond positively a keynes case or negatively ala merkel to the deficit the recent great recession in the usa was atypical in that there was a weak countercyclical fiscal response the increase in government net borrowing was significantly less than the decrease in private borrowing an historically unprecedented asymmetry econometric esti mates verify the historical pattern and further suggest that there is a strong positive effect on growth of a higher primary deficit even when possible increases in the interest rate are taken into account

the basic paradigms of eu economic policy making need to be changed the anaemic growth of the european union euro area derives from its economic paradigms the principle one size fits all behind european central bank policy activates centrifugal forces diverging trends in unit labour costs external competitiveness and external balances follow german policy actively supports this excessive external surplus procedures against countries generating large surpluses at the expense of domestic consumption and the partners rising debt should be instituted the stability and growth pact needs modification the 3 fiscal deficit gdp mark may prevent automatic stabilisation insistence on the budgetary positions being close to balance or in surplus lacks rationale when the private sector s propensity to save is larger than its propensity to invest that requirement cannot be observed a permanent fiscal deficit may be a secular necessity problems related to rising public debt may also need to be addressed for the euro area these problems could be rendered far less serious than often believed

an evolutionary analysis of insurance markets with adverse selection abstract the equilibrium nonexistence problem in rothschild and stiglitz s insurance market is reexamined in a dynamic setting insurance firms are boundedly rational and offer menus of insurance contracts which are periodically revised profitable competitors contracts are imitated and loss making contracts are withdrawn occasionally a firm experiments by withdrawing or innovating a random set of contracts we show that rothschild and stiglitz s candidate competitive equilibrium contracts constitute the unique long run market outcome if innovation experiments are restricted to contracts which are sufficiently similar to those currently on the market

the role of transportation costs in the economics of commodity markets transportation costs still play an important role in the economics of commodity markets in this paper i present a theoretical framework aimed at describing spatial arbitrage under uncertainty i analyze the effect of changing transport costs on different yet related variables volume of trade volatility of prices and levels of spatial price differentials as a tribute to enke and samuelson the model is referred to as the stochastic enke samuelson model it provides predictions for variables such as price volatilities or correlations which cannot be defined in the deterministic framework of the standard spatial price equilibrium model the statistical tests display a convergent array of evidence in favor of the model

keynes and the confidence faeries budgetary constraints were never the primary object of policy for john maynard keynes they were constraints not objectives however keynes identified the psychological channels through which budgetary discipline and other policy conventions might influence investment he even accepted that in rare circumstances the psychological factors might overwhelm direct policy interventions unfortunately the polarisation of the current debate means traditional keynesians are unlikely to search out this aspect of his work and the confidence faeries are unlikely to read any of keynes s work this article draws attention to this aspect of his work

female agricultural workers wages male female wage differentials and agricultural growth in a developing country india the data on indian agricultural wages for the period 1966 88 reveal a clearly rising trend in female agricultural wage workers earnings in terms of both nominal and real wages because of the green revolution agriculture in india also witnessed during this period phenomenal yield increases of major crops in several agricultural regions growth in agricultural output has been attributed largely to the adoption of biochemical technological innovations and expansion of irrigational facilities the descriptive data on agricultural wages also reveal a few noticeable rural labor market phenomena particularly pertaining to female agricultural wage workers first the estimated all india agricultural average daily real wage rates for male and female wage workers show that female workers wages continue to be lower than male workers wages fig 1 a trend that holds across the 16 states studied second substantial cross state differences continue to exist in the daily wage rates of female agricultural wage workers ranging from as low as rs 1 72 in tamilnadu to rs 4 77 in punjab third although the overall male female earnings gap has declined over time fig 2 quite large differentials continue to exist across the major agricultural regions of the country fourth and rather surprisingly some of the regions with relatively high levels of yield and agricultural development are also characterized by a combination of relatively lower female agricultural workers wages and higher male female wage differentials than are the poorer states with comparatively low agricultural yields for example female agricultural wage workers earn on the average only 64 of male workers wages in tamilnadu 67 in maharashtra 75 in haryana and 78 in punjab whereas in relatively

the end of the uk s liberal collectivist social model the implications of the coalition government s policy during the austerity crisis this paper reviews change and continuity in social policy up to summer 2011 contrasting the liberal collectivist approach of new labour with the reinforced neoliberalism of the coalition government given the ongoing uncertainty of economic conditions and the obvious difficulty of forecasting the stability of coalition policy it is not possible to arrive at a firm conclusion as to the sustainability of the recent change of policy direction nevertheless in a critical assessment of policy in three areas labour market governance the life course and the public sector the paper argues that the uk is witnessing an intensified neoliberal policy emphasis a redrawing or abolition of minimum standards and failures to meet changing patterns of social needs while the collectivist elements of new labour s social policy approach were contradictory in many respects the coalition government through a withdrawal of the state and obtuse pronouncements about the big society is seeking to embed in the uk a stronger neoliberal approach to social policy flawed assumptions about the scope for traditional families and localised big society programmes to compensate for state withdrawal mean the trajectory of change is not clear cut preferences for collectivist and publicly accountable solutions to issues of social policy are unlikely to be easily eroded however ongoing policy change during the austerity crisis is already inflicting radical change with adverse impacts upon many groups of society

introduction the global financial crisis there cannot now be a shadow of a doubt that the flaw in his ideology admitted by alan greenspan in response to a question by henry a waxman chairman of the us house of representatives committee on oversight and government reform whether he felt that your ideology pushed you to make decisions that you wish you had not made is both significant and permanent the current financial and economic crisis that has forced the likes of greenspan to question the coherence of dominant conceptual frameworks is unprecedented in global reach and systemic gravity some basic figures speak for themselves according to mckinsey s mapping global financial markets october 2008 global financial assets rose from us 12 trillion in 1980 to us 196 trillion in 2007 the international monetary fund s global financial stability report imf 2009a estimate for the latter figure is considerably higher at us 241 trillion global cross border capital flows more than doubled between 2002 and 2007 with foreign investors holding one in four debt securities and one in five equities while in 2000 only 11 countries had financial assets of more than 350 of gross domestic product gdp 25 countries had deepened their financial markets to the same extent by 2007 as early as 1990 money managers had increased their control of us corporate equities from 8 in 1950 to 60 porter 1992 p 6 whalen 2002 p 402 similarly pension funds had extended their share of total business equities from less than 1 to just short of 39 and their fraction of corporate debt from 13 to 50 ghilarducci 1992 p 117 whalen 2002 p 402 in the period from 1986 to 2006 the us financial sector as a whole increased its share of corporate profits from 10 to 30 while its outstanding debts grew from 20 of gdp in 1980 to 116 in 2007 fed 2009 according to gillian tett from the financial times outstanding credit defaults swaps cds today amount to no less than us 60 trillion with the risk embodied after discounting mutually off setting contracts still as high as us 14 trillion tett 2009 p 264 as we know the curtains have now come down on this dance of the trillions palma 2009 the immediate hang over in the form of a pile of toxic debt is surreal not only in its

complementarity and substituability in multiple risk insurance markets we study imperfect competition between insurers in a multiple risk environment in the absence of asymmetric information equilibria are efficient and we determine the degrees of specialization under which the specialized insurers are able or unable to capture the surplus we show in contrast that under adverse selection specialization systematically prevents second best efficiency concluding on the role of our notions of strategic complementarity substituability on the tradeoff between efficiency and fairness of the allocation we give indications on the desirable structure of the insurance industry

us government deficits and debt amid the great recession what the evidence shows this paper examines three sets of major questions regarding the current u s government s fiscal defi cit and outstanding debt tied to the 2009 economic stimulus program the american recovery and reinvest ment act arra first i consider the claim that high levels of government borrowing drives up interest rates these high rates then produce a heavy burden of government debt as well as heavy inflationary pressures the evidence we review regarding each of these concerns demonstrates that none have emerged as serious matters since the enactment of the arra given this conclusion the paper then questions why the arra did not then succeed in generating a strong economic recovery i first consider the possible impact of ricardian equivalence the position that government stimulus programs by their nature are self defeating after argu ing against this position i advance three reasons for the failure of the arra to achieve a strong recovery 1 the arra relied too heavily on tax cuts as a means of bolstering private spending 2 household wealth de clined dramatically during the recession tied to the collapse of the financial bubble this in turn weakened the willingness of households to increase spending and 3 credit markets were locked up especially for smaller businesses despite the highly expansionary monetary policy stance adopted by the federal reserve building on these findings i then develop a series of policy proposals aimed at promoting both a strong recovery in the short term and at reducing any remaining structural deficit issues in the longer term the short term program focuses on extending loan guarantees especially to small businesses and taxing the excess reserves held by commercial banks the longer term agenda focuses on reducing government costs for health care and the military and on increasing revenue through establishing taxes on financial market transactions

is ireland really the role model for austerity this paper describes the causes and consequences of ireland s economic crisis in the context of the policy solution implemented to contain that crisis protracted fiscal austerity i describe the causes of the recent crisis in ireland and look at the logic of austerity with a simple model i compare the current crisis to the crisis of the 1980s when fiscal austerity was touted as the trigger for the celtic tiger i discuss the measures implemented to date in the current crisis tracing their effects on sectors of ireland s macroeconomy i show that ireland is not the role model for austerity policies

dangerous interconnectedness economists conflicts of interest ideology and financial crisis this study investigates potential conflicts of interest among academic economists and some measures to address them we investigated the financial affiliations of 19 prominent academic financial economists who were associated with two economist groups proposing financial reform measures in the wake of the 2008 financial crisis we assessed whether they had private financial affiliations and identified the degree to which these economists disclosed these affiliations in their academic and media publications from 2005 to 2009 and again from january 2011 through april 2011 we found that private affiliations were common but that these academic economists disclosed these affiliations infrequently and inconsistently we advocate the adoption of a code of ethics by the economics profession similar to those commonly implemented by other disciplines prescribing more transparent conduct for economists facing such potential conflicts of interest

austerity and fraud under different structures of technology and resource abundance we present the implications of a simple analytical theory in which economic crisis emerges from rising real resource costs in systems with high fixed costs relative to variable costs we show the integral role played by financial fraud in this process and explain the effects of austerity and stimulus policies in the face of crisis under differing combinations of fixed and variable costs

building faith in a common currency can the eurozone get beyond the common market logic building faith in a common future which is at the core of the making of a common currency has been declining since the turn of the 1980s the economic neoliberalism that diffused worldwide after the collapse of the gold exchange standard and the economic crisis of the mid 1970s challenged the european project could a specific european model of social market economy help to forge the solidarity and discipline required to meet this challenge it turned out that members had different understandings of the european model especially regarding the role of central government meanwhile in all forced adjustments of the european union eu to a more open and competitive world be it enlargements new treaties or new institutions the german conception of social market economy prevailed mainly because germany was in a better position than its partners in most cases a rising discontent progressively eroded the faith in the eu project even in germany where a difficult reunification became a major national source of worries by the end of the 1990s when the euro was finally created the eu project had lost its momentum the relative success of the euro in the early 2000s was much linked with the weakness of the dollar answers to the 2008 financial then economic crisis that rest on harsh austerity plans can only worsen the situation a reconstruction of the eu project clearly needs a new pact of solidarity measures integration of the youths in all member countries stands as a good rallying common objective copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

a note on america s 1920 21 depression as an argument for austerity this note argues that recent interest in the 1920 21 depression in the usa as a historical precedent for austerity is inappropriate most of the austerity measures preceded the depression which had already begun receding by the time warren harding implemented the relatively modest spending and tax cuts that are cited by modern proponents of austerity the evidence suggests that the 1920 21 depression was the result of a variety of supply constraints rather than a deficiency of effective demand and is therefore a poor test of the efficacy of keynesian fiscal policy

non exclusive competition in the market for lemons in order to check the impact of the exclusivity regime on equilibrium allocations we set up a simple akerlof like model in which buyers may use arbitrary taris under exclusivity we obtain the zero profit separating riley rothschilds stiglitz allocation under non exclusivity there is also a unique equilibrium allocation that involves a unique price as in akerlof 1970 these results can be applied to insurance in the dual model in yaari 1987 and have consequences for empirical tests of the existence of asymmetric information

russia austerity and deficit reduction in historical and comparative perspective this paper looks at russian experience with austerity programmes since the breakdown of the former soviet union in 1991 downsizing of the state was one of the major elements in a reform package designed to transform the centrally planned economy into a market one together with deregulation privatisation macroeconomic stabilisation and the opening up of the closed economy this downsizing however proved to be the single most important reason for the collapse of state institutions which in turn deepened the transformational recession contributed to the dramatic rise of income inequalities corruption and crime and the decline in life expectancy the story of the successes and failures of transition is not really the story of consistent shock therapy and inconsistent gradualism the major plot of the postsocialist transformation novel is the preservation of strong institutions in some countries very different in other respects from central europe and estonia to china uzbekistan and belarus and the collapse of these institutions in other countries at least 90 of this story is about government failure the strength of state institutions and not about market failure liberalisation copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

wages economic development and the customary standard of life this paper examines empirically the evolution of the customary standard of life and how this relates to real wages and economic development its starting point is sraffa s reintroduction of the classical notion of wages as the cost of reproducing labour so that they are necessarily a charge on production however when considering a production system generating a surplus sraffa offered no explanation of how the surplus might be realised and distributed rather he concentrated on the choice of technique as the profit share varied from 0 to 1 his approach was one of taking a snapshot of a productive system at a point in time in contrast this paper explores the trend in wages in the uk over the past 150 years and the evolving level and composition of what became the social necessities of worker consumption i e the customary standard of life in this process four dynamically interacting processes can be identified i a progressive increase in the productive potential of the system ii the diffusion of a greater quantity and varieties of consumer goods the growth of property ownership by consumers and their use of credit in a cumulative improvement in their customary standard of life iii the consolidation of the customary standard of life into real wages by collective bargaining and iv diffusion of improved living standards by an extension of collective bargaining coverage to include groups previously excluded and the growth of the welfare state in which the failure to achieve the customary standard of life defines poverty and triggers policy designed to alleviate it the central role played by the customary standard of life in driving real wages means that the inputs of labour power into commodity production can be represented by the commodity composition of the customary standard of life in sraffa style analyses in this the successive cross sections in the historical flow of economic development showing the commodity flows into and out of production will be ever changing like the still frames in a moving picture show moreover such a historical approach rules out the possibility that at any time changes in the rate of profit will precipitate the switching of methods of production past choices of techniques are historically embedded in the capital stock the composition of which is modified by new investment and the scrapping of old as it wears out becomes technically outmoded and or demand for its products declines nevertheless changes in the distribution of income have consequences for the future path of economic and social development and what this might be is arguably the most useful area for economic and social research copyright oxford university press

testing a spatial interacting markets hypothesis two models for competitive spatial pricing between retail outlets in a single urban area are presented the models are distinguished in terms of first their relationships to underlying supply and demand conditions in the market and second the spatial forms of inter site competition described properties of the models are identified the statistical theory appropriate to these models is reviewed and the models then fitted to data for retail gasoline prices during periods of falling and then rising average price levels

iceland s rise fall stabilisation and beyond iceland is an unusually pure example of the dynamics that blocked regulation and caused financial fragility across the developed world for 20 years this essay describes the statist and corporatist political economy of the country as it soared from near the bottom of the western european income hierarchy at the end of the world war ii to up near the top by the 1980s it illustrates how a group of neoliberal politicians and allied civil servants drove through selective deregulation and privatisation in the 1990s and 2000s in the space created for newly privatised banks icelandic financiers grew the banks and linked private equity firms through mergers and acquisitions abroad to the point where by 2007 tiny iceland supported three banks in the world s biggest 300 banks with assets eight times the gdp second highest in the world after switzerland as profits from these overseas operations were partly redistributed back to iceland the economy boomed in the grip of super minsky processes the government the banks and the media interpreted the boom as testimony to the validity of neoliberal policies and went out of their way to hide increasing financial fragility from view preventing a negative or self correcting policy feedback loop the accident waiting to happen happened in the wake of the lehman collapse in september 2008 the essay charts the zigzags of the government s response and the citizens response and discusses the prospects for a resumption of growth on a more sustainable basis it suggests that iceland illustrates in miniature the ratcheting down of mass living standards underway across the western world now that the cushion of debt has been removed even as financiers and others in the top few percentiles of national income distributions increase their share of national income but economic institutions and politics matter in iceland the large devaluation spread the cut in a relatively apolitical way the government let the banks go bust rather than bail them out at taxpayers expense it imposed capital controls on outflows and it used fiscal transfers to protect the bottom half of the population from disproportionate cuts

integration and causality in international freight markets modeling with error correction and directed acyclic graphs 1 introductionin january 1985 the baltic exchange developed the then known baltic freight index bfi which in may 1985 would become the underlying asset of the baltic international freight futures exchange biffex contract a contract designed to hedge uncertainty associated with volatile freight rates on the basis of their exposure to the risk of adverse freight rate fluctuations ship owners and cargo owners charterers could buy or sell biffex contracts to protect their freight rate revenue or control their freight rate cost respectively in addition to its once use for futures trading the bfi is also considered to be the leading indicator of the condition in the dry bulk shipping markets on a daily basis it provides accurate information about the level of freight rates across a variety of shipping routes worldwide this information is extremely valuable for shipping market agents and is an invaluable tool in their decision making process this is so because in an industry such as shipping where trades are being concluded across the globe there is not a central reporting place to record and monitor the level of activity in the markets the principal objective of this article is to assess the degree of interconnectivity between the major shipping routes that constitute the bfi across different time horizons reflecting the typical trading patterns in this market to this end we employ directed acyclic graphs dags spirtes glymour and scheines 1993 which enable us to assess this issue in a dynamic manner based on an error correction model ecm of freight rates we also develop a framework for estimating forecast error decompositions by employing dags from a practical standpoint the information provided by innovation accounting techniques coupled with dag analysis provides an intuitive method for assessing the information flows from the shipping markets and allows us to make an assessment on whether the underlying freight index on which the futures contract is traded is correctly composed the current article therefore makes significant contributions to the literature from several angles to date research has not estimated the relationships in a truly dynamic manner and has as such failed to discuss the implications for derivatives and physical trading in addition the application of innovation accounting in this study is different from most other studies in the sense that we use the causal ordering of variables as indicated by the estimated dags for the orthogonalization of the contemporaneous innovation covariance as suggested by swanson and granger 1997 this step is crucial in providing sound inference in innovation accounting techniques finally investigation of this issue has important implications for the purposes of futures trading as the biffex contract was eventually delisted in april 2002 in this article we identify whether the index is correctly composed and whether there are any obvious patterns or redundancies within the index that may have led to the demise of the futures contract indeed our analysis provides a mechanism for deciding upon the correct index and has obvious yet profound implications for other research in the area of index construction the rest of the article is as follows section 2 offers a brief discussion of freight indices section 3 outlines the methodologies employed in the article including an introduction to dags and section 4 describes the underlying properties of the data series section 5 presents the empirical results and section 6 concludes 2 freight indices and freight futuresgiven uncertainty surrounding freight rates the benefits of providing a futures market in freight rates has been recognized by market practitioners for a long time however the freight futures market was eventually established only in 1985 the reason is that the underlying asset of the market the service of seaborne transportation is not a physical commodity that can be delivered at the expiry of the futures contract

the uk s coalition government and heterodox economics the uk coalition government s economic policy was primarily aimed at reducing the large fiscal deficit that it inherited mainly by cutting expenditure this was considered irrational by heterodox economists on the grounds that it would harm employment and output politicians influenced by this tradition advocated a plan b experience has shown that the coalition government s policy was not irrational employment reached record heights and economic growth resumed the paper draws attention to the implications of these facts for heterodox economics and economic policy it is concluded that just as mainstream economics had to rethink after the economic crisis of 2008 09 so heterodox economics has to rethink after the recovery of 2014 15

contradictions of austerity the global economic and financial crisis has been marked by the following paradox a much more severe depression than the global slump of 2008 09 was prevented by determined state intervention in the form of bank bailouts and fiscal stimuli yet this bout of apparently successful keynesianism has been followed by a turn to fiscal austerity justified in terms reminiscent of the treasury view against which keynes relentlessly polemicised in the 1930s this article explores the sources of this policy shift among the factors considered are the ideology of neoliberalism the economic and political power of the banks and the relative weight of finance in individual economies the broader context of financialisation is also considered the conclusion is reached that an oscillation between bouts of austerity and laxer policies encouraging the development of asset bubbles may be built into neoliberalism as an economic policy regime the implication is that alternatives to austerity must embrace broad institutional transformation copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

ricardian equivalence in the presence of capital market imperfections abstract it is a common claim that ricardian equivalence fails if capital markets are imperfect the validity of this claim is examined for the case of informationally imperfect capital markets we present three alternative models of adverse selection and analyze the effects of debt finance in these models it is shown that a debt financed tax cut can lead to pareto improvement in some cases in the theoretically most preferable model however ricardian equivalence survives in spite of genuine imperfections in the capital market the results point to the importance of specifying the exact nature of imperfection

governance regulation and financial market instability the implications for policy just as the 1929 stock market crash discredited classical economic theory and policy and opened the way for keynesianism a consequence of the collapse of confidence in financial markets and the banking system and the effect that this has had on the global macro economy is currently discrediting the conventional wisdom of neo liberalism this paper argues that at the heart of the crisis is a breakdown in governance that has its roots in the co evolution of political and economic developments and of economic theory and policy since the 1929 stock market crash and the great depression that followed however while many are looking back to the great depression and to the theories and policies that seemed to contribute to recovery during the first part of the twentieth century we argue that the current context is different from the earlier one and there are more recent events that may provide better insight into the causes and contributing factors giving rise to the present crisis and to the implications for theory and policy that follow

competitive storage and commodity price dynamics by buying cheap and selling dear risk neutral commodity speculators can smooth commodity prices and induce serial dependence in price even when none would exist under a simple process of supply and demand commodity prices are variable and strongly positively correlated from one year to the next the variability is often explained by supply factors and the autocorrelation by the activities of speculators we show that this explanation is not consistent with the evidence speculation can substantially increase autocorrelation for prices that are weakly autocorrelated in its absence but not to the high levels that are observed in the data

competitive insurance markets under adverse selection and capacity constraints abstract ever since the seminal work by rothschild and stiglitz q j econom 90 1976 629 on competitive insurance markets under adverse selection the problem of non existence of equilibrium in pure strategies has received much attention in the literature we extend the original analysis by considering firms which face capacity constraints which might be due to limited capital we show that under mild assumptions an equilibrium exists where every consumer obtains his appropriate rothschild stiglitz contract

the four fallacies of contemporary austerity policies the lost keynesian legacy the contemporary wide scale austerity measures are likely to fail in most countries the first fallacy derives from the false diagnosis that the present crisis is the outcome of lax public spending policy when it is actually the outcome of a private credit led speculative boom the second fallacy assumes the possibility or even the generality of the so called expansionary fiscal contractions this neglects the short term negative effects on domestic demand and overestimates the generality of ricardian equivalence the importance of crowd in effects related to lower interest rates and the positive impact on trade balances the third fallacy one size fits all is problematic since greece and portugal cannot replicate the hard won german success their productive institutional and political configurations differ drastically and thus they require different policies the fourth fallacy states that the spill over from one country to another may resuscitate the inefficient and politically risky beggar my neighbour policies from the interwar period

financial crisis and global imbalances its labour market origins and the aftermath the objective of this paper is to articulate how the 2007 09 economic crisis is rooted in the uneven income distribution and inequality caused by the current finance led model of growth the process of financialisation that took place in the 1980s in the usa and then in the european union was coupled with labour flexibility wage moderation and soaring profits the flexibility agenda of the labour market and the end of wage increases along with the contraction of indirect wages i e public social expenditure diminished workers purchasing power this was partly compensated with increased borrowing opportunities and the boom of credit consumption all of which helped workers to maintain unstable consumption capacity however in the long term unstable consumption patterns derived from precarious job creation job instability and poor wages have weakened aggregate demand hence labour market issues such as flexibility uneven income distribution poor wages and the financial crisis are two sides of the same coin both have a direct impact on the economic crisis and the current global imbalances copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

the tragedy of uk fiscal policy in the aftermath of the financial crisis the evolving response of the uk fiscal authorities to the financial crisis and recession are briefly outlined with a focus on the fiscal austerity programme introduced by the incoming coalition government during 2010 the reasoning for that programme is critically examined and largely dismissed it is argued that the drive for major cuts in public expenditure comes from seeking to achieve a balanced structural budget and reductions in estimated potential output the significance of the latter are discussed the paper is completed by a brief consideration of alternatives

a note on the specification of inter firm communication in insurance markets with adverse selection abstract this paper reconsiders the proposition due to jaynes that the rothschild stiglitz wilson insurence market with adverse selection has a nash equilibrium once the sharing of information about customers is treated endogenously as part of the game among firms the proposition is shown to be correct if and only if each firm s communication behaviour is conditioned on the set of contracts that are offered by the other firms this type of conditioning introduces a reactive element which is akin to the alternative approach of wilson

the effect of barge and ocean freight price volatility in international grain markets this paper looks at the potential role of time varying volatility of mississippi river barge and ocean freight prices on commodity prices in illinois at the us gulf and in rotterdam using a vector error correction garch in mean model the model is used to infer the extent to which transportation price risk affects price dynamics in international grain markets results from a simulation exercise indicate that both barge and ocean price volatility influence grain prices but barge price volatility tends to have a greater impact on grain prices and marketing margins than that arising from ocean price volatility consistent with most studies that evaluate the role of risk in marketing channels results here suggest that a reduction in barge rate risk would reduce marketing margins between illinois and the us gulf and between the us gulf and rotterdam the existence of an ocean freight futures contract coupled with the lack of a futures contract for barge rates may be partially responsible for the finding that barge rates have a significant influence on grain prices and contribute most to wide marketing margins found throughout the international grain marketing system

the macroeconomic stabilisation effects of social security and 401 k plans this paper investigates how various retirement institutions impact the macroeconomy we find that for every 1 percentage point increase in the output gap net flows of various government programmes including social security decrease by 0 34 percentage points while net flows of 401 k plans increase by 0 05 percentage points in levels for every 1 increase in real gross domestic product net flows from various government programmes shrink by 45 cents whereas net flows from 401 k plans increase by 4 6 cents in other words 401 k plans reduce the automatic stabilisation impact of government programmes by 10 15 moreover we find that social security has a net negative effect on household consumption while 401 k retirement accounts work the opposite way in fact the destabilising effect of 401 k plans on consumption is twice as strong as the one attributed to social security these results highlight a significant problem with 401 k retirement plans and any retirement plan that is dependent on financial markets copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

the great austerity war what caused the us deficit crisis and who should pay to fix it rapidly rising deficits at both the federal and state and local government levels along with long term financing problems in the social security and medicare programs have triggered a one sided austerity focused class war in the us similar class conflicts have broken out around the globe a coalition of the richest and most economically powerful segments of society and conservative politicians who represent their interests has demanded that deficits be eliminated by public sector austerity severe cuts at all levels of government in spending that either supports the poor and the middle class or funds crucial public investment these demands constitute a deliberate attempt to destroy the new deal project begun in the 1930s whose goal was to subject capitalism to democratic control the right wing coalition seeks to replace that project with a modernized version of the free market capitalism of the 1920s in this paper i argue that our deficit crisis is the result of a shift from the new deal based economic model of the early post war period to today s neoliberal free market model a shift initiated under ronald reagan and continued under the presidents who succeeded him the new model has generated slow growth rising inequality and rising deficits rising deficits in turn created demands for austerity after tracing the long term evolution of our current deficit crisis i show that this crisis can be resolved by raising taxes on upper income households and large corporations cutting war spending and adopting a canadian or european style health care system there is no need to accept austerity calls for austerity should be seen as what they are an attack by the rich and powerful against the basic interests of the american people