IDEAS home Printed from https://ideas.repec.org/p/new/wpaper/1514.html
   My bibliography  Save this paper

Uncertainty and Contradiction: An Essay on the Business Cycle

Author

Listed:
  • Michalis Nikiforos

    (Levy Economics Institute)

Abstract

The paper develops a model of economic fluctuations in the medium run and their relation with the short-run macroeconomic equilibrium. The business cycle is the result of two separate forces. On the one hand, there is the Harrodian instability. On the other hand, this instability is contained by the inherent contradictions of capitalism. We focus on two of these contradictions, the profit-squeeze that results from the tightening of the labor market as employment and utilization increase and the financial instability hypothesis, as formulated by Hyman Minsky. With the inclusion of overhead labor, the model can explain the U-shaped behavior of the wage share along the business cycle (wage share decreases for low levels of utilization and increases for higher levels) that prevailed in most of the post-WWII period, as well as the decrease in the wage share as utilization increases that has been observed in the most recent cycles.

Suggested Citation

  • Michalis Nikiforos, 2015. "Uncertainty and Contradiction: An Essay on the Business Cycle," Working Papers 1514, New School for Social Research, Department of Economics.
    • Handle: RePEc:new:wpaper:1514
    as

    Download full text from publisher

    File URL: http://www.economicpolicyresearch.org/econ/2015/NSSR_WP_142015.pdf
    File Function: First version, 2014
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lance Taylor & Stephen A. O'Connell, 1985. "A Minsky Crisis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(Supplemen), pages 871-885.
    2. Lavoie, Marc, 1995. "The Kaleckian Model of Growth and Distribution and Its Neo-Ricardian and Neo-Marxian Critiques," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 19(6), pages 789-818, December.
    3. Gilberto Tadeu Lima & Antonio J. A. Meirelles, 2007. "Macrodynamics of debt regimes, financial instability and growth," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 31(4), pages 563-580, July.
    4. Samuel Bowles and Robert Boyer., 1988. "Labor Discipline and Aggregate Demand: A Macroeconomic Model," Economics Working Papers 8875, University of California at Berkeley.
    5. Joan Robinson, 1962. "Essays in the Theory of Economic Growth," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-00626-7.
    6. Marc Jarsulic, 1989. "Endogenous Credit and Endogenous Business Cycles," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 12(1), pages 35-48, September.
    7. Mark Setterfield (ed.), 2010. "Handbook of Alternative Theories of Economic Growth," Books, Edward Elgar Publishing, number 12814.
    8. David Kiefer & Codrina Rada, 2015. "Profit maximising goes global: the race to the bottom," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 39(5), pages 1333-1350.
    9. Epstein,Gerald A. & Gintis,Herbert M., 2011. "Macroeconomic Policy after the Conservative Era," Cambridge Books, Cambridge University Press, number 9780521148412.
    10. Ryoo, Soon, 2010. "Long waves and short cycles in a model of endogenous financial fragility," Journal of Economic Behavior & Organization, Elsevier, vol. 74(3), pages 163-186, June.
    11. Mark Setterfield, 2004. "Financial fragility, effective demand and the business cycle," Review of Political Economy, Taylor & Francis Journals, vol. 16(2), pages 207-223.
    12. Steve Keen, 1995. "Finance and Economic Breakdown: Modeling Minsky’s “Financial Instability Hypothesis”," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 17(4), pages 607-635, July.
    13. Nelson H. Barbosa‐Filho & Lance Taylor, 2006. "Distributive And Demand Cycles In The Us Economy—A Structuralist Goodwin Model," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 389-411, July.
    14. Michalis Nikiforos, 2014. "Distribution-led Growth in the Long Run," Economics Working Paper Archive wp_814, Levy Economics Institute.
    15. Gérard Duménil & Dominique Lévy, 1999. "Being Keynesian in the Short Term and Classical in the Long Term: The Traverse to Classical Long‐Term Equilibrium," Manchester School, University of Manchester, vol. 67(6), pages 684-716, December.
    16. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    17. Soon Ryoo, 2013. "Bank profitability, leverage and financial instability: a Minsky–Harrod model," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 37(5), pages 1127-1160.
    18. Bowles, Samuel & Boyer, Robert, 1988. "Labor Discipline and Aggregate Demand: A Macroeconomic Model," Department of Economics, Working Paper Series qt8sb2623g, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    19. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-115, March.
    20. Taylor, Lance, 1990. "Real and Money Wages, Output and Inflation in the Semi-industrialized World," Economica, London School of Economics and Political Science, vol. 57(227), pages 329-353, August.
    21. Michael Assous & Amitava Krishna Dutt, 2013. "Growth and income distribution with the dynamics of power in labour and goods markets," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 37(6), pages 1407-1430.
    22. Peter Skott, 2010. "Growth, Instability and Cycles: Harrodian and Kaleckian Models of Accumulation and Income Distribution," Chapters, in: Mark Setterfield (ed.), Handbook of Alternative Theories of Economic Growth, chapter 5, Edward Elgar Publishing.
    23. Foley, Duncan K., 2003. "Endogenous technical change with externalities in a classical growth model," Journal of Economic Behavior & Organization, Elsevier, vol. 52(2), pages 167-189, October.
    24. Foley, Duncan K., 1987. "Liquidity-profit rate cycles in a capitalist economy," Journal of Economic Behavior & Organization, Elsevier, vol. 8(3), pages 363-376, September.
    25. Dutt, Amitava Krishna, 1984. "Stagnation, Income Distribution and Monopoly Power," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 8(1), pages 25-40, March.
    26. Fazzari, Steven & Ferri, Piero & Greenberg, Edward, 2008. "Cash flow, investment, and Keynes-Minsky cycles," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 555-572, March.
    27. Hyman P. Minsky, 1992. "The Financial Instability Hypothesis," Economics Working Paper Archive wp_74, Levy Economics Institute.
    28. Sébastien Charles, 2008. "Corporate debt, variable retention rate and the appearance of financial fragility," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 32(5), pages 781-795, September.
    29. Michalis Nikiforos & Duncan K. Foley, 2012. "Distribution And Capacity Utilization: Conceptual Issues And Empirical Evidence," Metroeconomica, Wiley Blackwell, vol. 63(1), pages 200-229, February.
    30. Bowles, Samuel & Boyer, Robert, 1988. "Labor Discipline and Aggregate Demand: A Macroeconomic Model," American Economic Review, American Economic Association, vol. 78(2), pages 395-400, May.
    31. Amitava Krishna Dutt, 1995. "Internal Finance And Monopoly Power In Capitalist Economies: A Reformulation Of Steindl'S Growth Model," Metroeconomica, Wiley Blackwell, vol. 46(1), pages 16-34, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Parui, Pintu, 2021. "Financialization and endogenous technological change: A post-Kaleckian perspective," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 221-244.
    2. Paul Carrillo‐Maldonado, 2023. "Partial identification for growth regimes: The case of Latin American countries," Metroeconomica, Wiley Blackwell, vol. 74(3), pages 557-583, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michalis Nikiforos, 2017. "Uncertainty and Contradiction: An Essay on the Business Cycle," Review of Radical Political Economics, Union for Radical Political Economics, vol. 49(2), pages 247-264, June.
    2. Michalis Nikiforos, 2013. "Uncertainty and Contradiction: An Essay on the Business Cycle," Economics Working Paper Archive wp_770, Levy Economics Institute.
    3. Eckhard Hein, 2017. "Post-Keynesian macroeconomics since the mid 1990s: main developments," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 14(2), pages 131-172, September.
    4. Michalis Nikiforos & Duncan K. Foley, 2012. "Distribution And Capacity Utilization: Conceptual Issues And Empirical Evidence," Metroeconomica, Wiley Blackwell, vol. 63(1), pages 200-229, February.
    5. Michalis Nikiforos & Duncan Foley, 2011. "Distribution and Capacity: Conceptual Issues and Empirical Evidence September," Working Papers 1105, New School for Social Research, Department of Economics.
    6. Juan Laborda & Vicente Salas & Cristina Suárez, 2021. "Financial constraints on R&D projects and minsky moments: containing the credit cycle," Journal of Evolutionary Economics, Springer, vol. 31(4), pages 1089-1111, September.
    7. Robert A. Blecker, 2016. "Wage-led versus profit-led demand regimes: the long and the short of it," Review of Keynesian Economics, Edward Elgar Publishing, vol. 4(4), pages 373-390, October.
    8. Ryoo, Soon, 2010. "Long waves and short cycles in a model of endogenous financial fragility," Journal of Economic Behavior & Organization, Elsevier, vol. 74(3), pages 163-186, June.
    9. Soumya Datta, 2016. "Macrodynamics of debt-financed investment-led growth with interest rate rules," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 39(4), pages 593-624, October.
    10. Mariolis Theodore & Konstantakis Konstantinos N. & Michaelides Panayotis G. & Tsionas Efthymios G., 2019. "A non-linear Keynesian Goodwin-type endogenous model of the cycle: Bayesian evidence for the USA," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 23(1), pages 1-16, February.
    11. Brenck, Clara & Carvalho, Laura, 2020. "The equalizing spiral in early 21st century Brazil: a Kaleckian model with sectoral heterogeneity," Structural Change and Economic Dynamics, Elsevier, vol. 55(C), pages 298-310.
    12. Maria Nikolaidi & Engelbert Stockhammer, 2017. "Minsky Models: A Structured Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1304-1331, December.
    13. Betül Mutlugün, 2022. "Endogenous income distribution and aggregate demand: Empirical evidence from heterogeneous panel structural vector autoregression," Metroeconomica, Wiley Blackwell, vol. 73(2), pages 583-637, May.
    14. Antonio Meirelles & Gilberto Lima, 2006. "Debt, financial fragility, and economic growth: a Post Keynesian macromodel," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 29(1), pages 93-115.
    15. Cem Oyvat & Oğuz Öztunalı & Ceyhun Elgin, 2020. "Wage‐led versus profit‐led demand: A comprehensive empirical analysis," Metroeconomica, Wiley Blackwell, vol. 71(3), pages 458-486, July.
    16. Köhler, Kasper, 2018. "The limits to profit-wage redistribution: Endogenous regime shifts in Kaleckian models of growth and distribution," IPE Working Papers 112/2018, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    17. Konstantakis, Konstantinos N. & Michaelides, Panayotis G. & Mariolis, Theodore, 2018. "A non-linear post-Keynesian Goodwin-type endogenous model of the cycle for the USA," MPRA Paper 90036, University Library of Munich, Germany.
    18. Maria Nikolaidi, 2017. "Three decades of modelling Minsky: what we have learned and the way forward," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 14(2), pages 222-237, September.
    19. Amitava Krishna Dutt, 2017. "Heterodox Theories Of Economic Growth And Income Distribution: A Partial Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1240-1271, December.
    20. Engelbert Stockhammer & Giorgos Gouzoulis & Rob Calvert Jump, 2019. "Debt-driven business cycles in historical perspective: The cases of the USA (1889-2015) and UK (1882-2010)," Working Papers PKWP1907, Post Keynesian Economics Society (PKES).

    More about this item

    Keywords

    Cycles; Harrod; Oscillations; Distribution; Minsky;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:new:wpaper:1514. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mark Setterfield (email available below). General contact details of provider: https://edirc.repec.org/data/denewus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.