When the policy maker contemplates the current aggregate demand (AD), she/he does so given implicitly the current state of income inequality. And, policy goals should be set based…
Abstract
Purpose
When the policy maker contemplates the current aggregate demand (AD), she/he does so given implicitly the current state of income inequality. And, policy goals should be set based on the distance between this demand and some “optimal” AD from the viewpoint of optimal income inequality. The purpose of this paper is to relate this policy concern to the sources of modern inequality.
Design/methodology/approach
To characterize optimality, recent research in inequality reveals that paternalistic inheritance is the decisive source of it. Inequality is the outcome of an intergenerational externality according to which the current entrepreneurs (physical-capital formation agents) bequeath to descendants who use the inheritance as rentiers rather than as entrepreneurs. Several policy measures have been proposed to correct for this externality. Yet, it is found that if the “dynastic” character of inequality is disregarded, the distance between actual and optimal AD will be ever increasing.
Findings
Policy should be addressing the motive of the descendants to act as rentiers, which is found to be easy to attain once the policy maker adopts a natural-resource view of sizeable inheritance and proceeds to reassign property rights over it across generations.
Originality/value
Optimality is identified with the Cantorian (total) ordering of the social economy, which is inhibited by the institution of dynastic property rights. One way to deal with this problem is to view inheritance as a depletable natural resource.
Details
Keywords
Gerasimos T. Soldatos and Erotokritos Varelas
The purpose of this paper is to introduce the factor of emotional intelligence (EI) into the calculus of neoclassical analysis under precautionary saving aiming at stabilizing…
Abstract
Purpose
The purpose of this paper is to introduce the factor of emotional intelligence (EI) into the calculus of neoclassical analysis under precautionary saving aiming at stabilizing consumption in the case of an exogenous output shock.
Design/methodology/approach
The introduction of EI differentiates individual firms in handling production uncertainty and individual consumers in coping with consumption uncertainty, but the source of uncertainty is exogenous and affects all the same; there are no idiosyncratic risks and uncertainties. This in conjunction with the median-voter-theory like approach to agent heterogeneity prompted by EI, replicates the result that aggregates quantitative predictions are almost indistinguishable from their representative agent counterpart in life cycle models of precautionary saving.
Findings
EI corroborates stabilization greatly but only the introduction of a monetary authority would fully stabilize the system by injecting or withdrawing money depending on the state of the economy. Money becomes centrally issued and it would be destabilizing if it was accompanied by central and/or commercial bank seigniorage. Median EI is found to coincide with homo economicus' rationality. These results point to the importance of preserving the institutional character of capitalism as a free enterprise but also a competitive system under a government in the service of the private sector.
Originality/value
Methodologically, this paper acknowledges the mutual interdependence between human action and social structure in the liberal setting in which free enterprise is a socioeconomic process that identifies value through exchange under the sociopolitical process of democracy.