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Economy

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The following articles are the spin-off to research we did on deleveraging, economic stability and reducing structural and cyclical unemployment.

2018 05 19 Why the Concept of Hicks, Harrod, Solow Neutral and even Non-Neutral Augmented Technical Progress is flawed - Abstract and conclusion only

This research is for sale to Central Banks, Governmental and private organisations, which use production functions in their economic models.

This misconception strikes the economic theory in its soul.

Abstract

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It is already known for several decades that the implementation of capital augmented technical progress, as is done to date, leads to the conclusion that the CES production has to be Cobb-Douglas or there exists labor augmented technical progress only. This is the so-called Cobb-Douglas labor augmented only paradox. Institutions keep on using this way of thinking in their models in spite of the theoretical inconsistency. We reject the old concept, i.e. all kind of neutral and non-neutral capital and labor augmented technical progress and introduce a new implementation of technical progress to avoid this theoretical problem. We also analyze the problem on how to estimate the coefficient of elasticity of substitution. Economic growth is presented as partly exogenous, due to technical progress, and partly endogenous, due to capital growth. We introduce formulas to convert total factor productivity into economic growth to show the connection. This new theory is not limited to growth models but can be used also in DSGE models and possibly also in other areas where CES functions are useful. And last but not least it will give you a different angle of view on the Solow model.

 

2015 10 17 Do Inada Conditions imply Cobb-Douglas Asymptotic Behavior or only a Elasticity of Substitution equal to one

Abstract

Barelli and De Breu Passôa proved that Inada conditions imply asymptotic Cobb-Douglas behavior of the production function. This was corrected by Litina and Palivos by putting that only the elasticity of substitution is equal to one. We will correct both proof and arguments and come up with a proof without limitations, leaving the conclusion of Barelli unaltered but with a less restrictive proof. In addition we show that the asymptotic Cobb-Douglas power of capital can be estimated by taking the limit of kf'/f for k to zero and infinity. Furthermore if Inada conditions apply then the elasticity of substitution is bounded.

 

2015 02 16 Jones on Piketty's r-g: A critique

Abstract

The book 'Capital in the Twenty-First Century' by the French economist Piketty about the inequality of income and wealth distribution is already quite a while in the spotlights. Jones in his paper ‘Pareto and Piketty: The Macroeconomics of Top Income and Wealth Inequality’is describing the link between the empirical facts and macroeconomic theory. Jones derived a formula for the Pareto wealth coefficient where he focused on the influence of inheritance tax and the birth death process in a simple AK model with regard to Piketty’s r>g , the birth rate n and the death rate d. We could not agree with him on his normalization process, although the Pareto coefficient stays the same. We show that the concept of normalized wealth, Jones is using, is wrong, because he is transferring the same concept to the driving power of wealth, which is not allowed. We conclude that due to the considered capital gain and inheritance process with an inheritance tax between 0 and 1, there is an ongoing upward pressure toward maximum wealth inequality if there is no redistribution and an ongoing downward pressure towards no inequality if the redistribution is equal to the mean wealth.

 

2014 10 20 The (F)Laws of Piketty's Capitalism: A Fundamental Approach

Abstract

The book 'Capital in the Twenty-First Century' by the French economist Piketty about the inequality of income and wealth distribution is already quite a while in the spotlights. Throughout his book he uses two formulas which he has named ‘the first fundamental law of capitalism’ and ‘the second fundamental law of capitalism’. With his reasoning he tries to show that, with these laws in place, he is capable to explain phenomena with respect to the income and wealth distribution. Without going into the significance of his reasoning and conclusions, we will show that the use of the laws, the way he does, is fundamentally wrong. We also suggest alternative formulas and a new approach. The inequality r>g is in our opinion not a meaningful equation with respect to inequality.

 

2013 12 10 An Inconsistency in Using Stock Flow Consistency in Modelling the Monetary Profit Paradox

With his book Debunking Economics Steve Keen certainly made his point. Except the fundamental mistake in Chapter 14 of his work and in several of his papers I love the verb: Debunking Economics. A more critical attitude towards existing theory won't hurt and could improve our limited fundamental knowledge on macro economics.

 

2013 10 08 The Monetary Profit Paradox and a Sustainable Economy - A Fundamental Approach

 

2013 08 21 Okun's Law: Dead or Alive (updated version per 2014 08 13 with estimator for unemployment)

 

2011 09 12 Exploring stability and other fundamentals in a simple economy model (last update 2015 09 16)

This is an article about stability in a simple economy model. It provides you a tool which will help you to show under which conditions a economy is stable or unstable. It is interesting to notice that you can interchange the simple Cobb-Douglas production function by any complex CES function you likebecause this will not change the principle outcome. Notice also that I did not describe explicitly the boundary conditions of our economy which need another part X. X could be e.g. a banking and/or monetary system for which I did not formulate the internal working by formulas so far.

 

 

Here you find a link to a Black-Scholes Option app for android. The app calculates the value of a European option taking in account dividend payments spread out over the year in a compound interest way. This is the Garman-Kohlhagen model (1983).  As an extra features we added to the standard Greeks the sensitivity for dividend payment to the Greeks. You are allowed to use this app as is for free. However, De la Fonteijne is under no circumstances responsponsible for its correctness nor for the consequences for the use of this app.  We appreciate feedback of your experiences. We do not intent to develop a version for another software platform.

 

This is a link to a animation of the dutch economy in term of essential values called the  conjunctuurklok of the CBS institute. Interesting to exersize with.

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