the crash of the knowledge economy this paper advances the hypothesis that some of the roots of the present crisis are to be found in the present institutions of the knowledge economy while protectionism is seen as a possible dangerous outcome of the crisis the extent of protectionism inherent to the strengthening and globalisation of intellectual property rights iprs associated in particular with the signing of the trade related aspects of intellectual property rights agreement is not generally perceived as one of its possible causes indeed iprs have acted as super tariffs they have particularly raised the cost of investments for countries that had neither abundant cheap labour nor high amounts of intellectual property resources moreover iprs may have later exerted negative effects even on ip rich firms as the proliferation of conflicting rights has led firms to increasingly inhibit each other s investments the resulting investment strike has manifested itself as a saving glut and has mainly affected the usa in a situation aggravated by inadequate regulations if intellectual monopolies are one of the causes of the crash the remedies should not only focus on monetary policy financial regulations or even on standard keynesian policies aggregate demand stimulus should be coupled with policies that decrease the level of intellectual monopolisation of the economy

the limits of central bank policy economic crisis and the challenge of effective solutions the paper examines the development of central bank policy prior to and during the recent financial crisis the argument is made that it contained multiple failures that not only generated constraints on adequately identifying and addressing the crisis but also contributed to that crisis those failures derived from a combination of theory and institutional practice specifically the use of forms of inflationary targeting based on broad adherence to the taylor rule framework and the use of versions of a conventional theoretical macro model ctmm were both problematic this was particularly so in the way policy was focused through issues of the primacy of price stability the institutional arrangements of the central banks were also problematic the division of labour between the central banks and other regulatory bodies and the limited information available within a liberalised finance system hampered efforts to fully appreciate the gravity of the situation partly due to the constraints imposed by the thinking and strategies that had been developed the central banks never got to grips with the fundamental problems of the crisis interest rate policy and liquidity provision were undertaken in ways that steadily radicalised the approaches of the banks but always in a way that was event led and always in ways that could not resolve those fundamental problems the nature of the crisis highlights the importance of transforming the approach and institutional framework of the central banks relatedly it highlights the need for a more keynesian and heterodox approach to economics within decision making bodies at central banks

structural causes of the global financial crisis a critical assessment of the new financial architecture we are in the midst of the worst financial crisis since the great depression this crisis is the latest phase of the evolution of financial markets under the radical financial deregulation process that began in the late 1970s this evolution has taken the form of cycles in which deregulation accompanied by rapid financial innovation stimulates powerful financial booms that end in crises governments respond to crises with bailouts that allow new expansions to begin as a result financial markets have become ever larger and financial crises have become more threatening to society which forces governments to enact ever larger bailouts this process culminated in the current global financial crisis which is so deeply rooted that even unprecedented interventions by affected governments have thus far failed to contain it in this paper we analyse the structural flaws in the financial system that helped bring on the current crisis and discuss prospects for financial reform

models of currency crises with self fulfilling features the discomfort a government suffers from speculation against its currency determines the strategic incentives of speculators and the scope for multiple currency market equilibria after describing an illustrative model in which high unemployment may cause an exchange rate crisis with self fulfilling features the paper reviews some other self reinforcing mechanisms recent econometric evidence seems consistent with the practical importance of these mechanisms

the demand for ldc exports of manufactures estimates from hong kong exports of manufactures from developing countries are generally believed to be sensitive to changes in the level of income in the developed countries their major market this belief is grounded on both casual observation especially from the experience of recent recessions and on extensive econometric evidence of low price elasticities and high income elasticities of demand for ldc exports in developed countries this paper argues that both casual observation and previous econometric evidence are misleading the aim of the paper is to show the order of magnitude of the bias contained in previous econometric estimates of price and income elasticities of demand for ldc exports of manufactures due to neglect of supply side influences previous econometric work has neglected the supply side of ldc exports for the simple reason that it is difficult to model it is difficult to model properly the supply of aggregate ldc exports since the determinants of export supply differ from country to country even for a single country modelling export supply is complicated since in addition to foreign demand and domestic supply exports are determined in part by domestic demand for exportables furthermore in most ldcs the incentive to export is strongly influenced by complex and continually changing industrial and trade policy measures there is one major exception hong kong one of the developing world s largest and most successful exporters of manufactured goods the manufacturing sector in hong kong is almost completely specialised exporting 95 of output consequently domestic demand plays no part in determining the volume of exports furthermore factor markets and the manufacturing sector are almost completely free from government intervention the main exception being the textile export restraints imposed at the insistence of importing countries the voluntary restraint agreements vras to which hong kong is subject no doubt affect the composition of exports but not necessarily the volume of aggregate exports if resources in the restrained sectors can easily be redeployed elsewhere in the economy judging from past export growth rates the vras do not appear to have had a significant effect on aggregate export growth in hong kong the results reported below also suggest that hong kong has effectively circumvented the trade barriers it faces the hong kong manufacturing sector in many ways resembles a firm in the

a developing country view of the current global crisis what should not be forgotten and what should be done macroeconomic theory will surely be affected by the current global crisis there are signs that some old theories and insights will have a comeback this paper argues that among them economists should not forget the lessons that have been learnt from three decades of several financial crises in developing countries we emphasise two important lessons first preventing crises in developing countries requires not only the regulation of domestic financial systems but also a consistent set of macroeconomic policies in particular we stress the need for consistency between the exchange rate rule the capital account regime and the domestic financial market regulations second financial crises in developing countries tend to worsen both the balance of payments and the fiscal balance traditional adjustment policies tend to exacerbate the recessive trends in output and employment this is just the opposite of what is required and what governments in developed countries are able to do developing countries should push for an agenda that helps them deal with these problems

capital market crises liberalisation fixed exchange rates and market driven destabilisation everyone knows the epigraph to anna karenina happy families are all alike every unhappy family is unhappy in its own way tolstoy may well have been right about families but the extension of his judgement to economies hit by capital market crises distinctly fails their causes and unhappy consequences in latin america and asia over the past 20 years have many elements in common

marketing the third world the contradictions of portfolio investment in the global economy abstract while international portfolio investment pi in emerging markets has flourished during the 1990s the macroeconomic and political dilemmas introduced into these site economies by this development have not been adequately explored this paper presents a keynesian analysis of the effects of these inflows the paper argues that a dependence on pi can constrain the autonomy of macroeconomic policy and introduce increased risk in site economies the paper then applies this framework to recent mexican experience the paper concludes with a call for aggressive management of portfolio investment and outlines some measures toward this end

dynamics of government revenues and expenditures in industrial economies the sources of growth in government revenues and expenditures in 22 oecd countries is addressed the question of whether the revenue constraint is binding on the growth of government expenditures or whether the displacement effect of expenditure growth is binding is considered controls for the effects of the output gap and inflation rate on government revenues and expenditures in each of the 22 countries are presented a major conclusion is that reductions in spending are essential to reducing budget deficits and controlling government size

sustainability of the deficit process with structural shifts this article discusses the condition for deficit sustainability and searches for shifts in the structure of u s deficit policy i show that contrary to the current literature cointegration between revenues and expenditures inclusive of debt payment is not a necessary but a sufficient condition for a strict interpretation of deficit sustainability the necessary condition requires that debt grow slower than the borrowing rate for tests on structural shifts i use a test for structural change that searches for shifts in the rank of the cointegrating matrix i find that there is a shift in deficit policy in the early 80s so that cointegration between revenue and expenditure inclusive of interest payments holds only up to 1980 i show however that the deficit process is still sustainable despite the failure of cointegration in the 80s the finding of shifts in the deficit process is more uncertain when i normalize by gross national product or population but the deficit is shown to be sustainable regard

capital flows to emerging economies minsky in the tropics capital inflows to emerging economies have a significant exogenous component they are very large when scaled to the size of the domestic financial sectors of recipients and they have large real macroeconomic effects they also sow the seeds for the ensuing sudden stops or capital flow reversals observed in financial crises in emerging markets this paper tests the implications of applying the kindleberger minsky model of financial crises to capital account reversals in emerging economies or sudden stops as they have been called in the recent literature it uses a panel probit framework with heterogeneous unobserved country effects the most important variables that account for sudden stops are preceding capital surges the share of flows other than foreign direct investment the size of the current account deficit contagion from sudden stops in other emerging markets and the ratio of external debt to exports the main policy conclusion is that emerging economies need specific policies to deal with capital surges in addition macroeconomic policies geared toward preserving sustainable macroeconomic balance may be necessary to avoid sudden stops but they are clearly insufficient copyright the author 2010 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

financialised internationalisation and structural hierarchies a mixed method study of exchange rate determination in emerging economies this paper conducts an extensive mixed method study of exchange rate determination in the brazilian foreign exchange market it combines semi structured interviews with foreign exchange market participants in brazil and london and advanced time series econometrics in line with post keynesian theory and critical realist ontology the interviews uncover the context specific expectations and underlying processes and structures that condition exchange rate dynamics in brazil and emerging economies more generally the results point to important structural changes in brazil s financial integration in the form of currency internationalisation and financialisation moreover they show that this internationalisation has been mediated through a structured and hierarchic international monetary system which fundamentally distinguishes exchange rate drivers in emerging economies from those in developed ones

instability of collective decisions testing for cyclical majorities the issues of cyclical majorities and instability of collective choices have been in the fore front in the discussion of social choice mechanisms cycling lack of equilibria and so called chaos theorems have been prevalent in the public choice literature whether cycling actually occurs in processes that are decided by majority rule has been a long standing question however cycling has not been made quantifiable nor has it been clear how one would determine empirically whether majorities are cyclical in this paper cycling has been given an empirical meaning this paper provides a method to test for cyclical majorities and applies it to decisions made in the us congress the test results indicate stability and the presence of persistent winners and losers in congress

third world debt and its effects on the british economy a southern view of economic mismanagement in the north when citicorp one of the largest banks in the world announced its decision to make a us 3 billion provision against third world loans in may 1987 almost every commentator agreed that it represented a turning point in the debt crisis it marked the end of the major banks policy of turning a blind eye to the debt crisis after years of unrealistic projections false hopes and promises in the north and with a third world debt already well above us 1 000 billion the banks suddenly began to speak of debt realities see for instance morgan guaranty s world financial markets june july 1987 this realism was a pre condition for overcoming one of the main stumbling blocks to any solution of the crisis namely the reluctance of the main creditor banks to acknowledge the impossibility of recovering the full face value of their ldcs loans

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

debt and development in historical perspective the external constraints of late industrialisation revisited through south korea and brazil current debates about the role of external finance in development mostly overlook the insights from early development economics that late industrialisation generates a structural tendency to run trade deficits thereby exacerbating rather than relieving external foreign exchange constraints the developmental role of external finance is therefore based on its strategic marginal contribution to relieve such constraints external debt in particular also allows countries to pursue industrial strategies without reliance on foreign direct investment these insights are revisited in this paper as a critical input to both mainstream and heterodox contemporary scholarship on debt and development while the mainstream generally avoids discussion of state led industrial policy the heterodox has converged on a view that developing countries should avoid external finance the contrasting external account histories of south korea and brazil are examined to demonstrate the validity of the classic insights and the contemporary fallacies while the south korean case speaks much to its geopolitical context this does not necessarily refute the principle that post war late development engenders an intensive demand for external finance which must be met if industrialisation strategies are not to be stymied as in the case of brazil no matter how effectively domestic strategies are conceived and implemented

the industrial organization of congress or why legislatures like firms are not organized as markets this paper provides a theory of legislative institutions that parallels the theory of the firm and the theory of contractual institutions like market institutions legislative institutions reflect two key components the goals or preferences of individuals here representatives seeking reelection and the relevant transactions costs we present three conclusions first we show how the legislative institutions enforce bargains among legislators second we explain why given the peculiar form of bargaining problems found in legislatures specific forms of nonmarket exchange prove superior to market exchange third our approach shows how the committee system limits the types of coalitions that may form on a particular issue

political preferences for the pork barrel a generalization this paper provides a rational explanation for the observation of oversized coalitions often approaching unanimous size in the realm of distributive policies distributive policies are those which concentrate benefits in specific geographic areas states congressional districts while spreading costs through general taxation the explanation offered here that legislators may rationally prefer universalism to hard ball coalition politics generalizes earlier work of weingast and fiorina in particular it extends their results to pork barrel politics i e projects that are economically inefficient and demonstrates how packages of economically inefficient projects can nevertheless be politically popular the main theoretical feature that induces preferences for universalism is uncertainty over the composition of winning coalitions and consequently the desire for the political insurance that universalism provides

latin america and the global financial crisis the current world economic crisis has hit latin america very hard although financial conditions have deteriorated particularly since september 2008 the financial shock has been less severe than during the two previous crises thanks to improvements in external balance sheets there has been room for counter cyclical credit and monetary policies the decision to absorb large capital inflows during the boom as foreign exchange reserves is one of the major sources of the increased room to manoeuvre however these strengths have been insufficient in the face of a strong trade shock the region s economies should therefore seriously think again in the domestic market with regional integration and active production sector policies as engines of growth copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

from miracle to cronyism explaining the great asian slump explanations are about the only thing not in short supply in the asian crisis for all their diversity they can be collapsed into two meta interpretations reflecting deeper differences in beliefs about rationality and markets those whose world view emphasizes rationality self adjusting markets and market failure as exceptional except when governments introduce distortions tend to see the crisis as the result of rational calculations in a situation of market distorting government interventions and institutional weaknesses in asian economies those whose world view stresses non rationality or a different kind of rationality than that assumed by neoclassical theory routine failure of well working markets and the need for government interventions to modify market outcomes tend to see it as the result of non rational calculations in under regulated financial markets both national and international

why the subprime crisis is different a minskyian approach minsky s financial instability model suggests that financial crises can be resolved efficiently with lender of last resort and big government interventions the crisis that began in 2007 hereafter the 2007 crisis has been different it has been more profound and resistant to policy interventions this paper examines why our approach is to expand minsky s balance sheet approach in several ways first we incorporate two factors minsky missed because he built his model in the 1970s the impact of racial exclusion and u s cross border imbalances on u s financial dynamics in addition we draw out the analytical implications of the systematic differences between banks and non banks balance sheets minsky didn t do this but because of the transformation of banking after 1980 these differences have become deeply significant one key effect of so doing is to see that asset liability balances as well as cash flows are crucial in financial dynamics this paper concludes that the 2007 crisis has been so profound and unresponsive to policy intervention for several reasons banks no longer bear as well as originate credit risk banks made exploitative loans to minority borrowers and then generalized these loans as housing prices rose and subprime homeowners and structured investment vehicles became more leveraged than banks copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

expectations the business cycle and the mexican peso crisis the 1994 95 peso crisis did not display characteristics which allow it to be easily captured by traditional crisis models models based on minsky s financial fragility hypothesis offer more persuasive accounts but have been supported by relatively little direct empirical evidence this paper provides such evidence with particular attention being paid to the role of domestic financial liberalisation in the process minsky s hypotheses about the evolution of expectations over the business cycle are tracked using business survey data in addition crisis indicators are constructed reflecting the changing vulnerability of the economy to shocks the findings support a minskyian interpretation of the crisis copyright 2006 oxford university press

international overborrowing a decomposition of credit and currency risks summary the severity of the financial crises enveloping the tiger economies of southeast asia in 1997 came as a surprise to many observers this paper uses a simple fisherian model of the overborrowing syndrome to compare the asian crises of 1997 with earlier overborrowing episodes in mexico and chile while important similarities exist the crises in southeast asia have been exacerbated by the unhedged foreign exchange positions of asian banks these open currency positions not only imposed significant additional losses on the banks following devaluation they also magnified the scale of overborrowing during the cycle s initial boom phase failure to limit the exposure of banks to foreign exchange risk therefore increased the magnitude of the boom bust overborrowing cycle both ex ante and ex post the paper highlights the importance of effective regulation and supervision of capital markets with a focus on limiting the speculative currency positions of banks especially those that form the core of the domestic payments system and therefore enjoy a possibly implicit public guarantee improving the institutional infrastructure of financial supervision is the only effective way of mitigating the macroeconomic costs of overborrowing

attendance rates political shirking and the effect of post elective office employment attendance rates political shirking and the effect of post elective office employment i introduction political shirking the degree to which a politican s actions deviate from the wishes of his constituents can take many different dimensions economists e g amacher and boyes 1978 davis and porter 1989 dougan and munger 1989 kalt and zupan 1984 lott 1987d nelson and siberberg 1987 and peltzman 1984 have debated whether shirking exists in how a politician votes when he does vote this divergence is measured through some particular special interest voting ratings e g american conservative union americans for democratic action etc however shirking can obviously take as many forms as there are outputs that a politician produces besides how he votes he also produces services for his constituents involving everything from being personally available to listen to the constituents grievances to ensuring effective handling of case work by his staff see for example fiorina 1977 fenno 1978 and cain et al 1987 1 one dimension that has not been sufficiently examined is the extent to which politicians shirk by failing to vote on pending legislation 2 no attention has been given to which mechanisms will make this particular type of shirking relatively more costly most economists agree that opportunitic behavior by politicians is limited by the threat of reelection e g amacher and boyes 1978 barro 1973 kalt and zupan 1984 nelson 1976 and telser 1976 3 by implication the level of shirking should be the greatest when a politician decides to leave office however this opportunistic behavior might be reduced to the extent that political parties or constituencies impose costs for shirking through affecting politicisns post elective office career or the careers of their children thus a politicians last term in elective office may not represent his last period in any meaningful sense the next section outlines the differing views on how politicians act when they no longer face the threat of reelection section iii describes some empirical evidence on what mechanisms may prevent this last period problem the final section discusses the impliactions of these results ii the last period whether economists view politicians as ideologues e g kau and rubin 1979 and kalt and zupan 1984 or as simply attempting to maximize political support e g barro 1973 ferejohn 1986 nelson 1976 and peltzman 1984 the threat of reelection is seen as preventing shirking as kalt and zupan 1984 298 phrase it it appears that the proximity of the next election inhibits ideological shirking even those who do not view the last period as affecting how a politician votes argue that it will affect how often he votes lott 1987a 1987b has argued that if voters can determine and elect politicians that have ideological preferences corresponding exactly to the wishes of constituents politicians voting patterns should continue to reflect those values even when the cost of shirking in terms of forgone future votes is low the penalty to ideologues of not votingfor their constituency in the last period when they no longer face reelection is the forgone utility from not doing what they personally value assuming that politicians also desire leisure politicians should continue to vote for what they believe in but they should vote less frequently since they no longer receive the additional return of larger future support mechanisms to overcome this last period problem have been suggested by becker and stigler 1974 9 10 they argue that opportunistic behavior can be controlled if officeholders face the loss of a pension or equivalently a posted bond in the event of opportunistic behavior in their last term however the actual pension system does not effectively eliminate the last period for politicians since retirement payments are not based on cheating in the last period

government spending interest rates prices and budget deficits in the united kingdom 1701 1918 abstract the british data from the early 1700s through wwi provide an unmatched opportunity for studying temporary changes in government purchases temporary increases which appeared mainly as wartime spending raised long term interest rates but significantly increased the growth rates of money and prices only during suspensions of the gold standard 1797 1821 and 1914 1918 temporary changes in military spending accounted for the bulk of budget deficits over the sample of more than 200 years i found only two major non war deficits one associated with compensation payments to slaveowners in 1835 1936 and the other with a dispute over the income tax in 1909 1910 interest rates did not react much to these exogenous deficits

recontracting trustworthiness and the stability of vote exchanges tullock 1981 has recently restated a discrepancy between theory and observation that exists in collective decisions and made a start toward explaining the discrepancy the discrepancy stated simply is this the theory of rational action in collective decisions implies that any outcome which requires vote exchanges to be achieved is unstable in that it can be overturned by a coalition all of whom find it their interest to do so yet a high degree of stability is observed in legislation despite the fact that much of this legislation required vote exchanges in order to be passed tullock accounts for this stability in part by pointing out that defections necessary to create the instability e g a defector induced to become an aristocrat in an inegalitarian coalition create an exposed position for the defector and the possible instability is likely to inhibit the defection in the first place tullock looks at two extreme forms that a winning coalition could take given a set of bills each of which has a special interest for one legislator a logrolling form which encompasses all of nearly all the legislature and a minimal winning coalition although the latter dominates the former in a game theoretic sense tullock argues that the latter will be unstable because of the power of enticement held by the excluded minority logrolling which includes nearly all the legislature is although formally dominated stable because of the absence of this potential enticement thus for tullock if i understand correctly his argument the potential instability of minimal winning coalitions leads any one of them to be succeeded not by another minimal winning coalition but by a non minimal winning coalition that it formally dominates shepsle and weingast in a subsequent paper argue that the institutional structure of actual legislatures restricts the richness of logrolling and coalition possibilities that under pure majority rule without such institutions could overturn a proto coalition or reverse an outcome shepsle and weingast 1981 511 thus they explain stability by stability inducing institutions

financial crisis in southeast asia dispelling illusion the minskyan way this paper extends minsky s financial instability hypothesis to the case of the open liberalised economy making it possible to put forward a specifically minskyan account of the road to the financial crisis in southeast asia 1997 1998 the analysis suggests that the threats to growth and employment emanating from the financial sector which minsky identified in the closed economy setting are much intensified in open liberalised developing economies financial liberalisation is an important key factor in this process rival explanations of the crisis are examined and rejected in favour of the extended minskyan explanation the policy implications are derived and discussed copyright 2002 oxford university press

can portfolio rebalancing explain the dynamics of equity returns equity flows and exchange rates we explore whether the pattern of international equity returns equity portfolio flows and exchange rate returns are consistent with the hypothesis that unhedged global investors rebalance their portfolio in order to limit their exchange rate exposure when there are 1 relative equity return and 2 exchange rate shocks we also explore whether 3 equity flow shocks influence the exchange rates and relative equity prices in the estimation of the var system we do not impose any causal ordering upon the primitive shocks but instead identify the system based on theoretical priors about the contemporaneous conditional correlations between the three variables international data for the five largest equity markets are consistent with a theory in which equity returns and portfolio rebalancing are an important source of exchange rate dynamics

the political economy of benefits and costs a neoclassical approach to distributive politics this essay offers a rational political explanation for the notorious inefficiency of pork barrel projects with an optimization model of legislative behavior and legislative institutions the model emphasizes the economically arbitrary from a welfare point of view importance of the geographic incidence of benefits and costs owing to the geographic basis for political representation we explore the implications of a legislator s objective function and derive conditions under which a representative legislature will select an omnibus of projects each of which exceeds the efficient scale

universalism in experimental committees most rational choice theories of committee decision making predict a process of competitive coalition formation leading to a minimum winning coalition committee experiments reported to date tend to support these theories however both theories and committee experiments are contradicted by the evidence of real world legislatures making distributive decisions these decisions are characterized by coalitions of the whole providing virtually all members with a share of distributive benefits the results in this article help to resolve this contradiction by showing that if the committee experimental design includes a universalistic alternative which provides a high level of expected benefits for committee members it will be selected competitive coalition formation occurs in experimental settings which do not include such an alternative the results call into question the generality of ordinalist theories of competitive coalition formation

why don t the bailouts work design of a new financial system versus a return to normalcy the innovative support measures introduced by the us central bank and treasury in response to the current crisis to bolster bank balance sheets have had little success in restoring liquidity to financial markets these policies mirror similar policies employed in the 1930s in the usa and the 1990s in japan in both cases with little impact this paper identifies three policies impacting incomes rather than prices the assessment of system failure and proposals for system design that were employed in dealing with prior financial crises that they have not been introduced in response to the present crisis may explain why current measures have not yet had their intended impact of restoring bank lending to the productive economy

developing countries changing nature of financial integration and new forms of external vulnerability the brazilian experience this article argues using the example of brazil that the changing nature of developing and emerging countries decs financial integration has created new forms of external vulnerability causing large and volatile capital and exchange rate movements despite sound fundamentals and a substantial reduction in its traditional external vulnerabilities the brazilian real has been one of the most volatile currencies over recent years the article argues that this has been the result of the surging exposure of foreign investors in an increasingly complex set of very short term domestic currency assets following a minskyan analysis we demonstrate that the changing nature of brazil s external vulnerability confirms both the inherent and endogenous instability of international capital flows and decs subordinate role in the international financial system we conclude with policy recommendations to reduce decs external vulnerability sustainably

do revenues or expenditures respond to budgetary disequilibria the post world war ii increase in the size of the federal government has led to a number of theoretical and empirical investigations of the sources of this growth in particular economists have questioned whether increases in the size of the federal budget tend to be initiated by changes in expenditures followed by revenue adjustments by the reverse sequence or both friedman for example argues that governments adjust expenditures to the level of revenues so that control of taxation is essential to limit growth in government 13 alternatively the spend and tax model posits that revenues will be adjusted to finance any politically chosen level of expenditures a third perspective reflecting the institutional separation of allocation and taxation functions of the federal government hypothesizes the independent determination of revenues and expenditures the goal of this investigation is to test these three alternative theories of the budgetary process for the united states

government budget deficits and trade deficits are present value constraints satisfied in long term data abstract we test whether long term data from the u s and u k are consistent with the intertemporal government budget constraint and external borrowing constraint both individually and simultaneously a very strong test is provided by our focus on whether the present value constraints pvcs continue to hold despite unusual events such as wars that cause a structural break in the short run dynamic behavior of the variables we find that the pvcs hold over the whole sample period the data also indicate that the pvcs continue to hold following events that cause a structural break in the short run dynamics

capital market imperfections and financialization of real sectors in emerging markets private investment and cash flow relationship revisited summary the paper analyzes the impacts of cash flow from multiple investments in real and financial sectors on the new fixed investment spending of real sector firms the empirical results based on the euler equation approach and semi annual firm level data from two major emerging markets mexico and turkey suggest that profits and rates of returns from fixed and financial assets have differential effects on fixed investment spending of real sector firms accordingly increasing availability and accessibility of alternative investment opportunities in financial markets can become instrumental in channeling real sector savings to short term financial investments instead of long term fixed capital formation and thus lead to deindustrialization

the costs of coupling the global crisis and the indian economy the view that the indian economy would be less adversely affected by the global economic crisis because of limited integration and other inherent strengths has proved to be wrong the economic boom in india that preceded the current downturn was dependent upon greater global integration in three ways greater reliance on exports particularly of services increased dependence on capital inflows especially of the short term variety and the role these played in underpinning a domestic credit fuelled consumption and investment boom these in turn made the growth process more vulnerable to internally and externally generated crises as is now becoming clear

why so much stability one of duncan black s 1958 more important contributions was a classically simple proof that with complex issues and majority voting a stable outcome is unlikely this very simple proof that there would normally be no motion which can get a majority against all others and hence that any possible outcome is dominated by another has been elaborated and made more precise by later work without most improbable conditions endless cycling would be expected this is particularly true when logrolling is present as it normally is if we look at the real world however we observe not only is there no endless cycling but acts are passed with reasonable dispatch and then remain unchanged for very long periods of time thus theory and reality seem to be not only out of contact but actually in sharp conflict it is the purpose of this article to demonstrate that our existing theory when properly looked at does indeed imply a relatively stable outcome to voting in some cases however this stability will not be a true equilibrium because a random member of a large set will be chosen and then that random outcome will be left unchanged for long periods of time it does not dominate all other outcomes but is retained merely because of its particular history there are already several possible explanations for the observed stability in the literature we will take them up as they become relevant to the general line of reasoning i should however warn the reader that my own previous work including joint work with buchanan will play a major role here this may simply reflect egotism but i think that some of the early work which is now partially forgotten can provide solutions for more modern problems much recent public choice work has involved spatial models and these models frequently ignore logrolling the reason presumably is that it is very hard to put logrolling in a two dimensional diagram we shall begin considering such special models and assume that the issues are the sort that does not lead to logrolling and then turn to more complex logrolling problems with respect to the first situation in which logrolling does not occur there is already one possible explanation for the observed stability in the literature

the intertemporal relation between government revenue and expenditure in the united kingdom 1750 to 2004 we examine the intertemporal relation between government revenue and expenditure in the uk during 1750 to 2004 we pay particular attention to long run trends by applying a battery of unit root and cointegration techniques to the data and we use a modified granger causality test on data spans organized around structural breaks in the series the results suggest that allowing for structural breaks uk real revenue and spending are i 1 series and cointegrated and that granger causality runs from government spending to revenue as such the spend tax hypothesis appears to best characterize the long run intertemporal relation between government revenue and spending in the uk

tax and spend spend and tax or fiscal synchronization new evidence for ten countries cointegration and vector autoregression are used to test the tax and spend spend and tax and fiscal synchronization for ten countries using annual time series data over the period 1951 to 1996 three of them are part of the newly industrialized countries of asia south korea taiwan and thailand and seven are industrialized countries australia canada japan new zealand south africa uk and the usa this paper includes gdp as a control variable into the model like baghestani and mcnown 1994 ross and payne 1998 and koren and stiassny 1998 the johansen 1988 and johansen and juselius 1990 cointegration test results indicate that these three variables are cointegrated with two cointegrating vectors for south korea one vector for australia canada south africa taiwan uk and the usa and no vector for japan new zealand and thailand the results from granger causality tests suggest unidirectional causality running from revenues to spending supporting the tax and spend hypoth

voter influence and big policy change the positive political economy of the new deal what conditions cause major policy changes under representative government this article addresses that question by providing a theoretically grounded analysis of a massive policy change the new deal it explains how the economic problems of the early 1930s initiated changes on several dimensions of policy federal spending labor market regulation and civil rights the article concludes by considering the broader lessons learned from the political economy of the new deal

three and a half cycles of mania panic and asymmetric crash east asia and latin america compared this paper argues that despite some significant differences the 1982 debt crisis the 1994 mexican crisis and the 1997 east asian crisis share the common characteristic that over lending and over borrowing are basically endogenous market failures of over liquid and under regulated financial markets along the lines described by kindleberger s manias panics and crashes although these crashes have tended to be asymmetric as the largest international lenders have emerged relatively intact the paper concludes with a discussion of brazil s increasing vulnerability to a sudden collapse of confidence and withdrawal of finance which indicates the probability of another impending crisis

transaction costs and coalition stability under majority rule 1 introduction under a majority voting rule representatives of specific political districts must bargain with representatives of other districts to build a coalition for enacting legislation that benefits their narrow constituencies but the theoretical public choice literature warns of potential for unstable majorities minimum winning coalitions divide program benefits just among their members creating incentives for those left out to entice defection by offering rewards to those who leave and form a different coalition as noted in mueller 1989 new coalitions emerge undermining the old ones leading to cyclical majorities short term programs and highly skewed distributions of program benefits 1 despite these dire predictions there is a general consensus in the literature such as tullock 1981 that programs are more stable and allocations more equal than the theory suggests 2 in an effort to explain the discrepancy between prediction and observation researchers have pointed to institutional rules and practices in congress for example as stated in shepsle and weingast 1981a and weingast and marshall 1988 the committee system provides a structure induced equilibrium that limits the possible range of vote trading and thereby helps maintain coalitions further shepsle and weingast 1981b miller and oppenheimer 1982 and collie 1988 argue that universalist sharing of program benefits enlarges the winning coalition and extends its political support 3 in this article we offer additional evidence of broad stable sharing in many programs enacted by congress by describing interstate distributions from the federal highway trusts fund htf the allocation formula for the htf was initiated in 1916 but despite wide divergence across the states in growth of various economic factors over the rest of the twentieth century such as vehicle registration and population that might have led to redirection of highway funds there were comparatively limited htf allocation adjustments analysis of state receipts from the htf relative to tax payments into the fund reveals that some states collect much more than they contribute whereas others pay in more than they receive even so interstate ratios of htf apportionments to payments have remained stable across the years varying less than changes in highway use measures would suggest going beyond this specific program we examine overall federal expenditure and tax shares among the states from 1975 to 1997 and show that there has been a similar continuity in the interstate distribution of federal funds and taxes 4 as with the highway program there is broad stable sharing of federal expenditures across the states with some receiving more than they contribute in taxes to the federal government to better understand this observed stability and use of relatively egalitarian sharing rules and to go beyond existing explanations we emphasize the desire of politicians to minimize the high transaction costs of negotiating and enforcing political coalitions politicians have incentive to prevent unraveling of political agreements to avoid the costs of searching for new coalition partners reaching agreement on the nature and distribution of program benefits and costs and verifying compliance these activities detract from a legislator s ability to address other voter concerns moreover legislators seek to protect constituent benefits accruing from long term programs that would be lost if coalitions unraveled 5 accordingly we argue that politicians assemble greater than minimum sized coalitions to build broad political support for their legislative programs offering benefits to a larger constituency in exchange for additional votes considerable negotiation over the distribution of program benefits a nd costs may be required so that once agreements are reached politicians will be loath to consider a major reallocation that could undermine the coalition

earmarking as a deterrent to rent seeking statistical analysis tends to support the view that quid pro quo fiscal arrangements reduce rent seeking opportunities and thereby limit campaign spending in gubernatorial races this investigation has however not examined other possible avenues of rent seeking nor has it tested the hypothesis that earmarking forces a global reduction in rent seeking activity one possibility already discussed is that higher taxes may reduce participation in gubernatorial elections but increase the demand for tax advisers nor have we considered rent seeking at different levels within government within the legislature or the highway bureaucracy for example finally we have not examined rent seeking at those critical quasi constitutional moments when earmarking rules are being established because rent seeking can occur on many different levels these issues deserve further investigation of some interest is the statistical insignificance of several variables commonly thought to contribute to campaign activity including the income of citizens and the candidate s political party and term of office our findings downplay the importance of those variables once the distinction is made between quid pro quo and unilateral government transactions buchanan s view that rent seeking tends to increase in direct proportion to government spending gains support here after controlling for earmarking and other conditions that influence campaign spending accordingly a 1 increase in non qpq spending stimulates a 1 increase in campaign activity the positive coefficient on government spending and the negative coefficient on taxes imply that campaign contributions and spending grow in conjunction with larger public deficits an ominous sign in an age of contribution maximizing candidates more optimistically our empirical results also suggest that earmarking and other quid pro quo fiscal arrangements may be among the institutional reforms most effective at limiting growth of the rent seeking society

trade finance and the great trade collapse pieces of evidence that support the trade finance channel first we show that export prices rose relative to domestic manufacturing prices across a large number of countries second we find that import and export prices of goods shipped by sea which are likely to be affected most by trade finance contractions rose disproportion ately more than those shipped by air or land

testing for the cointegrating rank of a var process with structural shifts tests for the cointegrating rank of a vector autoregressive process are considered that allow for possible exogenous shifts in the mean of the data generation process the break points are assumed to be known a priori it is proposed to estimate and remove the deterministic terms such as mean linear trend term and a shift in a first step then systems cointegration tests are applied to the adjusted series the resulting tests are shown to have known limiting null distributions that are free of nuisance parameters and do not depend on the break point the tests are applied for analyzing the number of cointegrating relations in two german money demand systems

are contributors rational untangling strategies of political action committees empirical public choice literature and casual observation suggest that the behavior of political action committees is remarkably unsophisticated meaning that pacs give to those legislators who would support their interests anyway thus it is suggested that contributor behavior deviates from rational behavior which is a cornerstone of economic analysis in this paper a switching regression model is estimated that allows for strategies of pacs to vary for different contribution recipients i analyze the behavior of farm pacs over three election cycles in contrast to previous findings i find that contributor behavior is not inconsistent with rational behavior contributors who attempt to influence the voting behavior of members of congress give the most money to legislators whose constituency interest suggests that they are likely to be undecided on how to vote and pacs give less money to legislators who represent districts with larger farm populations because those legislators are likely to vote in con

from global imbalances to global reorganisations the world feels itself to be in transition but to what is unclear will the liberal market model retain its normative primacy once some semblance of normality is restored or will other varieties of capitalism with a bigger role of the state acquire more legitimacy the answer depends partly on one s explanation for the current crisis this essay argues first that global imbalances had too important a role to ignore in contrast to a mainstream view that focuses on mistakes in monetary policy and financial regulation it argues second that in light of global dynamics the crisis is likely to become worse by early 2010 which on the face of it makes significant reorganisations of capitalism more likely the third section lays out what should be done to reconfigure capitalism at national and international levels the final section discusses the political economy of policy reforms in terms of the difficult translation from what should be done to what can be done the broad conclusion is that in five years from now the liberal market model will have been restored to normative primacy and we must have more globalization will again be the elite rallying cry but the crisis will have left behind sufficient doubts about factual propositions and value priorities that political parties and economists advocating alternatives will have more scope than they have had for the past three decades

effect of the global financial meltdown on india s aggregate export volumes this paper sets up a demand supply model to analyse india s export performance in terms of volumes rather than values between 2000q1 2014q4 the main objective is to determine the impact of the f

out of the corridor keynes and the crisis we should learn from keynes to focus on the macroproblems of our day today s problem is the financial crisis and the resulting great recession neither the standard keynesian policies of decades past nor the monetary policy doctrine of recent years provides useful solutions dynamic stochastic general equilibrium theory is part of the crisis wreckage but turning to old or to new keynesian theory will be of little use a balance sheet recession requires that policy address the problems in the private sector s capital as well as its income accounts we need serious theoretical work on problems of system stability using for example agent based methods monetary theory needs to develop analysis of processes in which intertemporal budget constraints are violated network theory will be useful in that quest

amend the old or address the new broad based legislation when proposing policies is costly if each legislator wishes to encourage other legislators to address new problems in future periods then a subgame perfect nash equilibrium can exist with the following properties 1 no legislator finds it worthwhile to make a narrow proposal that appeals to a minimum majority 2 instead legislators propose policies that appeal to all members not for fear of retaliation but rather to encourage other members to work on new problems in succeeding periods 3 in succeeding periods no legislator amends the existing broad policy we find an equilibrium with these properties in finite as well as infinite period games

the rise and fall of money manager capitalism a minskian approach we are in the midst of a global financial crisis accompanied by a deep and probably long lasting economic downturn indeed some analysts are already calling this the first depression of the post world war ii era in this article i argue that this is a systemic crisis a crisis of what hyman minsky called money manager capitalism i link this to the analyses of hilferding and veblen of an earlier period finance capitalism and argue that this is in effect the second failure of this type of capitalism the essential characteristics of early finance capitalism are relatively small government use of external finance for investment and growing concentration of economic power in the hands of trusts or what we might today call megacorporations with varied interests and diverse affiliations across industry finance and insurance unlike the first phase the second phase of finance capitalism took place in the context of a big government neoconservative model minsky s analysis helps us to understand how the new deal and big government created a paternalistic capitalism after world war ii which favoured high consumption high employment greater equality and financial stability however that stability was destabilising because it permitted the rise of managed money over time innovation and deregulation increased fragility which generated increasingly frequent and severe financial crises while previous crises were resolved quickly enough to prevent it another debt deflation from happening again this crisis appears to be sufficiently severe that the very survival of money manager capitalism is thrown into question the article examines the contributing factors to the current crisis including the real estate boom and bust the rise of risky financial instruments such as securitised debts and credit default swaps the commodities market bubble and the fiscal squeeze the article concludes with some suggestions concerning the possible outcome of the failure of this form of finance capitalism copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

electoral incentives public policy and the new deal realignment this paper develops a model of the effects of electoral incentives on policy then applies the model to the new deal realignment in the model policy is the outcome of an agenda setter game between the president and legislators specifically the president sets policy subject to legislative approval the president s ability to concentrate benefits in states with high electoral payoffs depends in part on his or her power to influence legislators prospects for reelection regression analysis shows that new deal spending and roll call voting patterns in the house of representatives support the model historical accounts of other aspects of new deal policy including labor and civil rights issues are consistent with the model together the theoretical results and the empirical evidence help to explain several striking features of the policy and politics of the 1930s including i why a government dominated by the democratic party would provide high benefits to swing states and much lower benefits to the traditionally democratic south ii why favoritism of swing states increased from the 1933 1934 period to the 19371938 period iii why favoritism of swing states decreased from 1938 to 1939 and iv why with the rise of the conservative coalition in congress in the late 1930s it was the representatives from traditionally loyal democratic districts that created the strongest democratic opposition to roosevelt and the new deal this paper develops a model of the effects of electoral incentives on policy then applies the model to the new deal realignment in the model policy is the outcome of an agenda setter game between the president and legislators specifically the president sets policy subject to legislative approval the president s ability to concentrate benefits in states with high electoral payoffs depends in part on his or her power to influence legislators prospects for reelection regression analysis shows that new deal spending and roll call voting patterns in the house of representatives strongly support the model historical accounts of other aspects of new deal policy including positions on labor and civil rights issues are also consistent with the model together the theoretical results and the empirical evidence contribute to the understanding of several striking features of the policy and politics of the 1930s