Contractionary Effects of Foreign Price Shocks (and Potentially Expansionary Effects of Inflation)

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• Working Paper No.1042 13 February 2024

  Saving Social Security

  Edward Lane
  Abstract

  For more than 25 years, the Social Security Trust Fund was projected to run out of money in 2033 (give or take a few years), potentially causing benefits to be severely reduced in the absence of corrective legislative action. Today (February 2024), projections are made by the Social Security Administration that indicate that future benefits will need to be reduced by roughly 25 percent or taxes will need to be increased by about 33 percent, or some combination to avoid benefit curtailment. While Congress will most probably prevent benefits from being reduced for retirees and those nearing retirement, the longer Congress and the president take to address the shortfall, the more politically unpalatable (and possibly draconian) the solutions will be for all others.

  Dozens of proposals are being evaluated to address the long-term problem by mainstream benefits experts, economists, think tanks, politicians, and government agencies but, with rare exceptions from a few economists, none address the short-term problem of Trust Fund depletion, provide a workable roadmap for the long-term challenges, or consider fundamental financing differences between the federal government and the private sector.

  This paper aims to address these issues by suggesting legislative changes that will protect the Social Security system indefinitely, help ensure the adequacy of benefits for retirees and their survivors and dependents, and remove confusing and misleading legislative and administrative complexity. In making recommendations, this paper will demonstrate that the Social Security Trust Funds, while legally distinct, are essentially an artificial accounting contrivance within the US Treasury that have become a tool to force program changes that, for ideological reasons, will likely shift an increasing financial burden onto those who can least bear it. Finally, while the focus of this paper is on the Social Security system, it would be incomplete without also addressing, albeit in a limited way, the larger political issue of the nation’s debt and deficit along with the implications for inflation

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• Working Paper No.1037 10 January 2024

  Markups, Profit Shares, and Cost-Push-Profit-Led Inflation

  Michalis Nikiforos, Simon Grothe and Jan David Weber
  Abstract

  The post-pandemic surge in inflation was accompanied by a surge in the corporate share of profits. As a result, several economists and policy makers have given to it names such as “profit-led inflation” or “sellers’ inflation.” The present paper discusses the extent to which profit-led inflation, as an explanation for the recent surge in inflation, is compatible with what we know about the price-setting behavior of firms, income distribution, and inflation. We do that in juxtaposition to two recent critiques: that the increase in the profit share is the result of cyclical factors, and that the increase in import prices leads to higher profit shares even under constant markups. We show that there is little evidence that the recent surge in profitability is cyclical in nature. Moreover, after outlining the Structuralist/Kaleckian theories of prices and inflation we argue that profit-led inflation does not require an increase in the markup of the firms and is consistent with these theories. In the face of large import and other price shocks even under constant markups, firms are able to pass the burden of adjustment to real wages. Thus, the term profit-led emphasizes the distributional source and consequences of inflation. We also provide an empirical examination of the markups in the post-pandemic period using data from the Compustat database. We show that, on average, firms were able to increase or maintain their markups, although there is significant heterogeneity across sectors or the position of the firms in the distribution of markups.

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• Working Paper No.1026 01 August 2023

  Banking Sector, Distributive Conflict, and Monetary Theory of Distribution

  Riccardo Zolea
  Abstract

  This paper analyzes the implications of distributional contrast for the monetary theory of distribution. The first step is to try to introduce the banking sector within Pivetti's monetary distribution theory approach. Pivetti in fact does not analyze the links between the central bank and the banking sector. It therefore seems interesting to study what role the banking sector and the financial capitalists play in this framework. Thus, an attempt is made to model the banking sector and its links to the production sector within the framework of Pivetti’s approach. As this integration does not present any particular theoretical problems, the paper discusses then the ability of the aforementioned approach to explain the coexistence of near-zero (if not negative) interest rates and low real wages. The difficulty in explaining this economic phenomenon opens the way to a more general discussion of the dynamics inherent in the contrast between workers and capitalists and between financial and productive capitalists. Thus, the analysis shows that six different distributional configurations are possible (plus two others that are unstable or unrealistic), of which only two can be explained through Pivetti's monetary theory of distribution. The other four can be explained by elaborating more recent approaches that continue, enrich, and develop Marx's approach.

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