Finance-dominated capitalism, re-distribution, household debt and financial fragility in a Kaleckian distribution and growth model
DOI:
https://doi.org/10.13133/2037-3643/9937Keywords:
Finance-dominated capitalism, distribution, household debt, financial fragility, growth, Kaleckian modelAbstract
In a Kaleckian distribution and growth model with workers’ debt we examine the short and long run effects of three stylized facts of “finance-dominated capitalism”: a fall in animal spirits of the firm sector with respect to real investment in capital stock, re-distribution of income at the expense of the wage share, and increasing lending of rentiers to workers for consumption purposes. In particular, we specify the conditions for long-run stability of the workers’ debt-capital ratio. We thus identify the threshold for this ratio to turn unstable causing increasing financial fragility and finally financial crisis due to systemic stock-flow or stock-stock dynamics.
JEL Codes: E12, E21, E22, E25, O41
References
BARBA A. and PIVETTI M. (2009), “Rising household Debt: its Causes and Macroeconomic Implications – a Long-period Analysis”, Cambridge Journal of Economics, vol. 33, pp. 113-137.
BHADURI A. (2011), “Financialisation in the Light of Keynesian Theory”, PSL Quarterly Review, vol. 64 n. 256, pp. 7-21.
BHADURI A. (2011), “A Contribution to the Theory of Financial Fragility and Crisis”, Cambridge Journal of Economics, vol. 35, pp. 995-1014.
BHADURI A., LASKI K. and RIESE M. (2006), “A Model of Interaction between the Virtual and the Real Economy”, Metroeconomica, vol. 57, pp. 412-427.
BIBOW J. (2008), “The International Monetary (non-)order and the ‘Global Capital Flows Paradox’”, in Hein E., Niechoj T., Spahn P. and Truger A. (eds.), Finance-led Capitalism? Macroeconomic Effects of Changes in the Financial Sector, Marburg: Metropolis, pp. 219-248.
BLECKER R.A. (2002), “Distribution, Demand and Growth in Neo-Kaleckian Macro- Models”, in Setterfield M. (ed.), The Economics of Demand-led Growth, Cheltenham: Edward Elgar, pp. 129-152.
BOONE L. and GIROUARD N. (2002), “The Stock Market, the Housing Market and Consumer Behaviour”, OECD Economic Studies, n. 35, pp. 175-200.
CHARLES S. (2008), “Corporate Debt, Variable Retention Rate and the Appearance of Financial Fragility”, Cambridge Journal of Economics, vol. 32, pp. 781-795.
CHARLES S. (2008), “A Post-Keynesian Model of Accumulation with a Minskyan Financial Structure”, Review of Political Economy, vol. 20, pp. 319-331.
CHARLES S. (2008), “Teaching Minsky’s Financial Instability Hypothesis: a Manageable Suggestion”, Journal of Post Keynesian Economics, vol. 31, pp. 125-138.
CYNAMON B. and FAZZARI S. (2008), “Household Debt in the Consumer Age: Source of Growth – Risk of Collapse”, Capitalism and Society, vol. 3, n. 2, pp. 1-30.
DREGER C. and SLACALEK J. (2007), “Finanzmarktentwicklung, Immobilienpreise und Konsum”, DIW Wochenbericht, vol. 74, pp. 533-536.
DUTT A.K. (2005), “Conspicuous Consumption, Consumer Debt and Economic Growth”, in Setterfield M. (ed.), Interactions in Analytical Political Economy: Theory, Policy and Applications, Armonk: M.E. Sharpe, pp. 155-178.
DUTT A.K. (2006), “Maturity, Stagnation and Consumer Debt: a Steindlian Approach”, Metroeconomica, vol. 57, pp. 339-364.
DUTT A.K. (2011), “Growth and Income Distribution: A Post-Keynesian Perspective”, in Hein E. and Stockhammer E. (eds.), A Modern Guide to Keynesian Macroeconomics and Economic Policies, Cheltenham: Edward Elgar, pp. 61-87.
EPSTEIN G.A. (ed.) (2005), “Financialization and the World Economy”, Cheltenham: Edward Elgar.
FITOUSSI J.-P. and STIGLITZ J. (2009), “The Ways out of the Crisis and the Building of a More Cohesive World”, OFCE Document de Travail, n. 2009-17, Paris: OFCE. GUTTMANN R. (2009), “Asset Bubbles, Debt Deflation, and Global Imbalances”, International Journal of Political Economy, vol. 38 n. 2, pp. 46-69.
GUTTMANN R. and PLIHON D. (2010), “Consumer Debt and Financial Fragility”, International Review of Applied Economics, vol. 24, pp. 269-283.
HEIN E. (2004), Verteilung und Wachstum. Eine paradigmenorientierte Einführung unter besonderer Berücksichtigung der post-keynesianischen Theorie, Marburg:Metropolis.
HEIN E. (2006), “Interest, Debt and Capital Accumulation – a Kaleckian Approach”, International Review of Applied Economics, vol. 20, pp. 337-352.
HEIN E. (2007), “Interest Rate, debt, Distribution and Capital Accumulation in a Post- Kaleckian Model”, Metroeconomica, vol. 58, pp. 310-339.
HEIN E. (2010), “Shareholder Value Orientation, Distribution and Growth – Short and Medium-Run Effects in a Kaleckian Model”, Metroeconomica, vol. 61, pp. 302- 332.
HEIN E. (2010), “A Keynesian Perspective on ‘Financialisation’”, in Arestis P. and Sawyer M. (eds.), 21st Century Keynesian Economics, International Papers in Political Economy, Basingstoke: Palgrave Macmillan, pp. 120-161.
HEIN E. (2011), “Financialisation, Re-Ristribution, and the Financial and Economic Crisis – a Kaleckian Perspective”, in Niechoj T., Onaran Ö., Stockhammer E., Truger A. and van Treeck T. (eds.), Stabilising an Unequal Economy? Public Debt, Financial Regulation, and Income Distribution, Marburg: Metropolis, pp. 35-62.
HEIN E. (2011), “Redistribution, Global Imbalances and the Financial and Economic Crisis – the Case for a Keynesian New Deal”, International Journal of Labour Research, vol. 3 n. 1, pp. 51-73.
HEIN E. and TRUGER A. (2010), “Financial Crisis, Global Recession and Macroeconomic Policy Reactions – the Case of Germany”, in Dullien S., Hein E., Truger A. and van Treeck T. (eds.), The World Economy in Crisis – The Return of Keynesianism?, Marburg: Metropolis, pp. 191-220.
HEIN E. and TRUGER A. (2011), “Finance-Dominated Capitalism in Crisis – the Case for a Keynesian New Deal at the European and the Global Level”, in Arestis P. and Sawyer M. (eds.), New Economics as Mainstream Economics. International Papers in Political Economy, Basingstoke: Palgrave Macmillan, pp. 190-230.
HEIN E. and VAN TREECK T. (2010), “‘Financialisation’ in Post-Keynesian Models of Distribution and Growth – a Systematic Review”, in Setterfield M. (ed.), Handbook of Alternative Theories of Economic Growth, Cheltenham: Edward Elgar., pp. 277-292.
HEIN E. and VAN TREECK T. (2010), “‘Financialisation’ and Rising Shareholder Power in Kaleckian/Post-Kaleckian Models of Distribution and Growth”, Review of Political Economy, vol. 22, pp. 205-233.
HORN G., DRÖGE K., STURN S., VAN TREECK T. and ZWIENER R. (2009), “From the Financial Crisis to the World Economic Crisis: The Role of Inequality”, IMK Policy Brief, October 2009, Dusseldorf: Macroeconomic Policy Institute (IMK) at Hans Boeckler Foundation.
LAVOIE M. (1992), Foundations of Post Keynesian Economic Analysis, Aldershot: Edward Elgar.
LAVOIE M (1995), “Interest Rates in Post-Keynesian Models of Growth and Distribution”, Metroeconomica, vol. 46, pp. 146 177.
LAZONICK W. and O’SULLIVAN M. (2000), “Maximizing Shareholder Value: a New Ideology for Corporate Governance”, Economy and Society, vol. 29 n. 1, pp. 13- 35.
LIMA G.T. and MEIRELLES A.J.A. (2007), “Macrodynamics of Debt Regimes, Financial Instability and Growth”, Cambridge Journal of Economics, vol. 31, pp. 563-580.
LUDVIGSON S. and STEINDEL C. (1999), “How Important is the Stock Market Effect on Consumption?”, Federal Reserve Bank of New York Economic Policy Review, July, pp. 29-51.
MEHRA Y.P. (2001), “The Wealth Effect in Empirical Life-Cycle Aggregate Consumption Equations”, Federal Reserve Bank of Richmond Economic Quarterly, vol. 87, n. 2, pp. 45-68.
MEIRELLES A.J.A. and LIMA G.T. (2006), “Debt, Financial Fragility, and Economic Growth: a Post Keynesian Macromodel”, Journal of Post Keynesian Economics, vol. 29, pp. 93-115.
ONARAN Ö., STOCKHAMMER E. and GRAFL L. (2011), “Financialisation, Income Distribution and Aggregate Demand in the USA”, Cambridge Journal of Economics, vol. 35, pp. 637-661.
ORHANGAZI Ö. (2008), “Financialisation and Capital Accumulation in the Non-Financial Corporate Sector: a Theoretical and Empirical Investigation on the US Economy: 1973-2003”, Cambridge Journal of Economics, vol. 32, pp. 863-886.
PALLEY T. (1994), “Debt, Aggregate Demand, and the Business Cycle: an Analysis in the Spirit of Kaldor and Minsky”, Journal of Post Keynesian Economics, vol. 16, pp. 371-390.
PALMA J.C. (2009), “The Revenge of the Market on the Rentiers: why Neo-Liberal reports of the end of History Turned out to be Premature”, Cambridge Journal of Economics, vol. 33, pp. 829-869.
SAPIR J. (2009), “From Financial Crisis to Turning Point. How the US ‘Subprime Crisis’ Turned into a World-Wide one and will Change the Global Economy”, Internationale Politik und Gesellschaft, n. 1, pp. 27-44.
STOCKHAMMER E. (2004), “Financialisation and the Slowdown of Accumulation”, Cambridge Journal of Economics, vol. 28, pp. 719-741.
STOCKHAMMER E. (2010), “Income Distribution, the Finance-Dominated Accumulation Regime and the Present Crisis”, in Dullien S., Hein E., Truger A. and van Treeck T. (eds.), The World Economy in Crisis – the Return of Keynesianism?, Marburg: Metropolis, pp. 63-86.
STOCKHAMMER E. (2010), “Neoliberalism, Income Distribution and the Causes of the Crisis”, Research on Money and Finance Discussion Paper, n. 19, Department of Economics, School of Oriental and African Studies (SOAS), London.
VAN TREECK T. (2008), “Reconsidering the Investment-Profit Nexus in Finance-Led Economies: an ARDL-Based Approach”, Metroeconomica, vol. 59, pp. 371-404.
VAN TREECK T. (2009), “The political economy debate on ‘financialisation’ – a macroeconomic perspective”, Review of International Political Economy, vol. 16, pp. 907-944.
UNCTAD (2009), The Global Economic Crisis: Systemic Failures and Multilateral Remedies, New York and Geneva: UNCTAD.
WADE R. (2009), “From Global Imbalances to Global Reorganisations”, Cambridge Journal of Economics, vol. 33, pp. 539-562.
Downloads
How to Cite
Issue
Section
License
