This paper provides critical comments on the Peter Temin - David Vines promotion of the basic Swan Diagram as (1) a policy tool to encourage any individual debtor nation experiencing balance of payment deficits to reduce its exchange rate in order to expand exports and reduce imports and (2) the Swan Diagram as a simple model for understanding Keynes’s General Theory for an Open Economy.
We first show that, with a Kaleckian structure that is consistent with Pasinetti (1962), the relationship between distribution and growth is more robust than conventional wisdom suggests. Next, we extend our model by incorporating borrowing and emulation effects into workers’ consumption behavior, under different assumptions about how debt is serviced.
The Cambridge UK vs USA capital theory debates of the 1960s showed that the workhorse mainstream growth model relies on unsustainable assumptions. Its standard interpretation is not consistent with the last four decades of data.
The topic of this session of the INET conference is a question: does the effectiveness of fiscal policy in stabilizing an economy depend on the underlying economic context in which the policy is implemented?
John Kay’s thought-provoking essay The Map is Not the Territory: An Essay on the State of Economics argues that economists have been led astray by excessive reliance on formal models derived from assumptions that bear too little similarity to the world we live in.
Revised text of a presentation at the Conference on Microfoundations for Modern Macroeconomics, Columbia University, November 2010. I would like to thank Amar Bhidé, Roman Frydman, and Andy Haldane for helpful comments, and the Institute for New Economic Thinking for research support.
This work studies the interactions between income distribution and monetary and fiscal policies in terms of ensuing dynamics of macro variables (GDP growth, unemployment, etc.) on the grounds of an agent-based Keynesian model.