Neoclassical Equilibrium Research Articles

The Great Financial Crisis: an Ethical Rejoinder

The Great Financial Crisis that broke in 2008 and the Great Recession that followed has led many to question the very structure of contemporary economies. Some argue that the economic model of the past forty years is now broken. Criticism has also been directed at the orthodoxies of economics. For example, neoclassical equilibrium economics, the mainstream economics of the day, is accused of failing to understand some of the most basic aspects of the modern economy (debt and money), of supporting policies that have led to the economic breakdown (deregulation), and of failing to see the crisis coming (Bezemer 2012, Keen 2011). Consequently, heterodox thinking in economics is getting a hearing as never before. Heterodox economics offers itself as the requisite radical reconstruction of the science of economics and also proposes policies for the radical reconstruction of the major economics.Yet to talk of the reconstruction of the modern market economy is at the same time to raise the ethical question: what shape ought the market economy to take? Heterodox economics may acutely analyse the inadequacies of real economies and propose plausible reforms, but as an essentially descriptive science there will be limits on its ability to state what ought to be. Rather, what is required seems to be a systematic prescriptive ethics. In other words, recent events in the world of economics have provided an opening for what ethical philosophy should be best at providing. Determining whether a specific ethical philosophy, to be identified shortly, has the capacity to address the questions raised by heterodox economics is the task of this paper.

Global simulations of tokamak microturbulence: finite-β effects and collisions

In this paper, we present global nonlinear gyrokinetic simulations including finite βe effects and collisions in tokamak geometry. Global electromagnetic simulations using conventional δf particle in cell methods are very demanding, with respect to numerical resources, in order to correctly describe the evolution of the non-adiabatic part of the electron distribution function. This difficulty has been overcome using an appropriate adjustable control variate method in the conventional δf scheme. Linearized inter-species and like-species collision operators have also been introduced in the model. The inclusion of the collisional dynamics makes it possible to carry out simulations of microturbulence starting from a global neoclassical equilibrium and to study the effect of collisions on the transport induced by electrostatic microinstabilities.

Macroeconomic effects of zero corporate income tax on retained earnings

International tax competition has led to a lowering of corporate tax rates worldwide. Estonia was the first country to reduce the tax rate on retained earnings to zero, while distributed profits remained taxed at the pre-reform level. This paper seeks to analyse the effects of this unique tax reform implemented in year 2000. We apply a neoclassical exogenous growth general equilibrium model with an extension for endogenous corporate finance. Our findings indicate that the reform had a strong positive effect on capital accumulation and a modest positive effect on output and consumption, while preferential treatment of retained earnings increased equity finance and reduced debt finance.

O desenvolvimento do socialismo de mercado

The paper describes and analyses the debate among neoclassical economists that took place in the third decade of 20th. century regarding the possibility of central planning. We trace the development of the “market socialism” models – attempts to use neoclassical equilibrium theory to create allocative mechanisms that could simulate actual markets. We defend the methodological thesis that such attempts failed because its supporters disregarded asymmetries between explanation and prediction existing in economic theory: in every step in the development of market socialism, elements of actual markets that were neglected in theoretic simplifications prevented the model to work properly, inviting further modifications that reintroduced market elements.

Neoclassical equilibria as starting point for global gyrokinetic microturbulence simulations

The implementation of linearized operators describing inter- and like-species collisions in the global gyrokinetic particle-in-cell code ORB5 [S. Jolliet, Comput. Phys. Commun. 177, 409 (2007)] is presented. A neoclassical axisymmetric equilibrium with self-consistent electric field can be obtained with no assumption made on the radial width of the particle trajectories. The formulation thus makes it possible to study collisional transport in regions where the neoclassical approximation breaks down such as near the magnetic axis. The numerical model is validated against both analytical results as well as other simulation codes. The effects of the poloidally asymmetric Fourier modes of the electric field are discussed, and the contribution of collisional kinetic electrons is studied. In view of subsequent gyrokinetic simulations of turbulence started from a neoclassical equilibrium, the problem of numerical noise inherent to the particle-in-cell approach is addressed. A novel algorithm for collisional gyrokinetic simulation switching between a local and a canonical Maxwellian background for, respectively, carrying out the collisional and collisionless dynamics is proposed, and its beneficial effects together with a coarse graining procedure [Y. Chen and S. E. Parker, Phys. Plasmas 14, 082301 (2007)] on noise and weight spreading reduction are discussed.

Global collisional gyrokinetic simulations of ITG microturbulence starting from a neoclassical equilibrium

Linearized operators describing inter-species and like-species collisions have been discretized and implemented in the gyrokinetic Particle-In-Cell (PIC) code ORB5 [S. Jolliet, Comp. Phys. Comm. 177, 409 (2007)] based on the delta-f approach. Simulation results for neoclassical transport are compared with both analytical predictions as well as results from other codes. This new version of ORB5 including collisional dynamics thus makes it possible to carry out simulations of microturbulence starting from a global neoclassical equilibrium including self-consistent electric fields. First results of ITG microturbulence simulations carried out in this way are presented. The issue of numerical noise, inherent to the PIC approach and further accentuated by the implementation of collisions in the delta-f scheme, is addressed. It is shown how a noise reduction scheme based on a coarse graining procedure [Y. Chen and S. E. Parker, Phys. Plasmas 14, 082301 (2007)] ensures the physical relevance of such simulations. Furthermore, a novel delta-f algorithm is presented, which switches between a canonical and a local Maxwellian background for carrying out the collisonless and collisional dynamics respectively, and its advantages are discussed.

Entropy production rate in tokamak plasmas with helical magnetic perturbations

This paper presents a variational principle based on an extremum of entropy production rate allowing the calculation of the full neoclassical equilibrium (particles, heat and momentum) in tokamaks with an arbitrary helical perturbation.

PPP Financing in the Road Sector: A Disequilibrium Analysis Based on the Monetary Circuit

This paper discusses public and private financing of infrastructure against the background of monetary equilibria, where money is not neutral and financing has an impact on allocation through distribution. These correspond to “disequilibrium positions” in the neoclassical barter equilibrium, as they violate some of its optimality conditions. In these contexts, evaluating welfare before and after the realisation of a project implies a comparison between two suboptimal positions. Such a comparison reveals that, contrary to a widely held view, there are not many rational arguments that may lead to prefer private financing to public financing of road infrastructure, particularly where local incomes are low. Post Keynesian analysis in general and its monetary variant of the circuit, are useful tools for the analysis of public investment policies in such a disequilibrium context. In particular, some features of the monetary circuit approach are well suited to address the economic problems raised by the analysis of public private partnerships (PPP), notably: (a) the integration of the banking sector and the recognition of its role in monetary creation by the private sector; (b) the monetary creation by the State within a macroeconomic framework fully integrating public finance; and, (c) the necessary link between uncertainty and disequilibrium. Combined with a partial equilibrium analysis based on realistic microeconomic configurations of costs and transport demand parameters, the analysis of the circuit highlights that PPP in the road sector do not add anything to the level of effective demand, being in fact the other flip of the coin of restrictive budgetary policies. PPP play a role in mobilizing part of the accumulated savings that the State is forbidden to attract directly because of debt ceilings. They have a softening effect on the Government budgetary constraints similar to those that could be reached if the Government was allowed to accrue investment like the private sector, but are a less transparent solution, because the relevant debt is not necessarily recognized in the balance sheet that services it.

Entropy production rate in tokamaks with nonaxisymmetric magnetic fields

A variational principle based on an extremum of entropy production rate is derived for an integrable Hamiltonian system in the presence of two perturbations, which are resonant on neighboring or identical resonant surfaces. This method can be used to calculate the neoclassical transport in a magnetic fusion device with a nonaxisymmetric magnetic field. When applied to a tokamak with ripple, it provides an efficient means to discriminate between various regimes, depending on collisionality and ripple amplitude. This technique provides a means to test simplified collision operators suitable for gyrokinetic codes. It is found that these operators need only satisfy modest requirements in order to recover the correct neoclassical equilibrium, at least in the large aspect ratio limit. Finally, it appears that the toroidal viscous damping rate due to ripple is usually not negligible, thus removing the degeneracy between the radial electric field and the toroidal velocity.

Colonial dependency, core-periphery, and capitalism: a case study of the Guyana economy

This paper presents the economic development of Guyana, from several novel analytic technical perspectives. The development spans three dominant regimes in Guyana, starting just before its independence from Great Britain in 1966. The country has moved from a colonial type of development strategy to a modified socialist system and returned to a capitalist approach over the last 40 years. New paradigms such as information theory, game theory, convergence theory, and cross-border analysis have improved our insights into economic development through improvement of classical and neoclassical equilibrium models. However, rather than using the traditional equilibrium model, we will, through a rivalry hypothesis, examine patterns of behavior among Guyana's sectors and its external trading partners for the different regimes. We will also point out anomaly in the behavior of the service sector, unjustified inverted leader-follower relationship among trading partners, unheeded signaling of information from cross-border financial ratios and overlooked implications of non-convergence. We believe that the results of this case study will enhance our understanding of the development process.

Pedagogical approaches to theories of endogenous versus exogenous money

Pedagogical pluralism is difficult to implement in practice. This paper contrasts two approaches to the modelling of money in macroeconomics: the stock-flow consistent macroeconomic model of Godley and Lavoie and the mainstream neoclassical dynamic general equilibrium model of Barro. Students can contrast and compare approaches effectively when thematic overlaps are significantly large to make comparisons obvious. Only then should a pluralist approach be considered desirable.

The Nature of Equilibrium in Macroeconomics: A Critique of Equilibrium Search Theory

Abstract The standard Walrasian equilibrium theory requires that the marginal value product of production factor such as labor is equal across firms and industries. However, productivity dispersion is widely observed in the real economy. Search theory allegedly fills this gap by encompassing apparent disequilibrium phenomena in the neoclassical equilibrium framework. Taking up Lucas and Prescott (1974) as a primary example, we show that the neoclassical search theory cannot explain the observed pattern of productivity dispersion. Non-self-averaging, a concept little known to economists, plays the major role. Empirical observation suggests strongly the presence of disturbing forces which dominate equilibrating forces due to optimizing behavior of economic agents. We must seek a new concept of equilibrium different from the standard Walrasian equilibrium in macroeconomics.

Neoclassical equilibrium in gyrokinetic simulations

This paper presents a set of model collision operators, which reproduce the neoclassical equilibrium and comply with the constraints of a full-f global gyrokinetic code. The assessment of these operators is based on an entropy variational principle, which allows one to perform a fast calculation of the neoclassical diffusivity and poloidal velocity. It is shown that the force balance equation is recovered at lowest order in the expansion parameter, the normalized gyroradius, hence allowing one to calculate correctly the radial electric field. Also, the conventional neoclassical transport and the poloidal velocity are reproduced in the plateau and banana regimes. The advantages and drawbacks of the various model operators are discussed in view of the requirements for neoclassical and turbulent transport.

The Crisis in Russia: Sources and Lessons

The article criticizes neoclassical equilibrium theory which is, to the authors opinion, unable to explain crisis phenomena in the modern economy. The author also criticizes the policy of the Russian government and suggests using Keynesian ideas as a theoretical ground for economic policy as well as switching the attention from monetary issues to the problems of the real sector of economy.

IS LABOUR MARKET FLEXIBILITY DESIRABLE OR HARMFUL? A FURTHER DYNAMIC PERSPECTIVE

A common belief of mainstream economics as well as underpinning government policy is that the more flexible real wage is, the lower is unemployment. In this paper we study the dynamics of a standard neoclassical labour market under the simplest Walrasian adjustment rule. We show that when consumption and leisure are sufficiently low substitutes, an increase in real wage flexibility may destabilize the unique Walrasian equilibrium of the economy, triggering fluctuations in wages and employment. Minimal departures from strict (Walrasian) neoclassical equilibrium modelling are required to obtain instability results for wage flexibility.

Equilibrium Reconstruction and Estimation of Neoclassical Effect in Low-Aspect-Ratio Reversed Field Pinch Experiments on RELAX

A neoclassical equilibrium for low-aspect-ratio reversed field pinch (RFP) plasma is reconstructed from initial experimental results of the standard discharge in a low-aspect-ratio RFP device (RELAX). We estimate the magnitude of the bootstrap current, which is a self-induced plasma parallel current, from the reconstructed equilibrium, and illustrate how the bootstrap current depends on plasma parameters.

Education, Research and the Impact of Tuition Fees

The present paper analyses the behaviour of a university within a neoclassical equilibrium framework. Demand for enrolments is traced back to the decision of potential students which aim at maximizing expected lifetime income. Here, the key factors are the students’ preferences and abilities, the quality of education offered by the university and several external determinants like, e.g., tuition fees and differences in income between graduates and non-graduates. In turn, the behaviour of the university in terms of educational efforts and the strength of academic standards depends on the demand for enrolments, on financial resources available and on the specific objectives pursued by the university. The main emphasis is on the implications of different funding mechanism (governmental grants vs. tuition fees) in combination with different objectives pursued (maximizing enrolments vs. maximizing prestige via research output). It is shown that for given financial resources a university that aims at maximizing prestige always provides only a lower quality of education for a smaller number of students compared to a university that aims at maximizing enrolments. Moreover, the effects caused by changes in governmental grants or tuition fees are quite different depending on the university’s objectives. Yet, there is also one common feature: Irrespective of which utility function is maximized, partially substituting governmental grants by tuition fees would change neither educational efforts nor academic standards, but it would inevitably lead to decreasing enrolments. As a positive sideeffect, however, the average ability of the remaining population of students would increase.

Dialectics and the Austrian School: A Surprising Commonality in the Methodology of Heterodox Economics?

This paper is prompted by the concluding comments to a recent paper (Denis "Hypostatisation"), which suggests that the neoclassical use of the concept of equilibrium expresses a formal mode of thought. Heterodox tendencies from Marxian to Austrian and Post Keynesian economics, that paper continues, exemplify a dialectical mode of thought in their common rejection of neoclassical equilibrium theorising. Heterodox currents in economics are-particularly in terms of their analysis and policy prescription-often as divided amongst themselves as they are from the orthodoxy. Nevertheless, the present paper suggests, there may be something profound uniting these disparate heterodox trends: the adoption of a dialectical method. The paper draws on the work of Sciabarra ("Marx", "Total"), who argues that Marxian and Austrian economics are intellectual cousins sharing a methodological approach. He suggests that making process primary, which we might expect of Austrian economists, is the essence of dialectics, which we might identify with Marxism. If that is the case, then perhaps (a) we can only understand the method of neoclassical economics by contrasting it with a dialectical approach, and (b) we can explore methodological common ground between the various heterodox currents by examining their attitude, both implicit and explicit, to dialectics. Pluralism in economics requires, not merely toleration-though indeed it does require that-but mutual engagement, a conversation. For that to take place we need an understanding of what divides and unites the various approaches. This paper is offered as a contribution to the development of that mutual understanding.

On Amenities, Natural Advantage and Agglomeration

A prominent feature of economic geography in America is the positive correlation amongst local incomes, housing costs and city population. This paper embeds a “black box” agglomeration economy within a more neoclassical general equilibrium model of local wages, rents and population to assess the ability of various conceptual models to predict this cross-sectional variation. I use exogenous changes in housing supply to induce changes in population and examine whether the changes in rents and wages move in the same direction under neo-classical assumptions, agglomeration economies in production, congestion in production, or urbanization economies in consumption. On their own, none of these urban scale effects generate the observed pattern. All urban scale effects generate a negative correlation between rents and population. Combining natural advantage with the urban scale effects improves the models’ output. It generally predicts positive correlations amongst the three variables, although some of these effects are ambiguous in the production agglomeration model. If natural advantage and housing supply constraints vary more-or-less independently, the results suggest a better fit of the data is provided by either the congestion in production or the agglomeration in consumption models. The micro-economics of such consumption-oriented agglomeration economies have received less attention than production-oriented agglomeration economies. The results of this model thus suggest that consumption-oriented agglomeration and congestion should receive more attention in the future.

The Nature of Equilibrium in Macroeconomics: A Critique of Equilibrium Search Theory

The standard Walrasian equilibrium theory requires that the marginal value product of production factor such as labor is equal across firms and industries. However, productivity dispersion is widely observed in the real economy. Search theory allegedly fills this gap by encompassing apparent disequilibrium phenomena in the neoclassical equilibrium framework. Taking up Lucas and Prescott (1974) as a primary example, we show that the neoclassical search theory cannot explain the observed pattern of productivity dispersion. Non-self-averaging, a concept little known to economists, plays the major role. Empirical observation suggests strongly the presence of disturbing forces which dominate equilibrating forces due to optimizing behavior of economic agents. We must seek a new concept of equilibrium different from the standard Walrasian equilibrium in macroeconomics.