Pseudo-Goodwin cycles in a Minsky model

Goodwin cycles result from the dynamic interaction between a profit-led demand regime and a reserve army effect in income distribution. The paper proposes the concept of a pseudo-Goodwin cycle. We define this as a counter-clockwise movement in output and wage share space which is not generated by the usual Goodwin mechanism. In particular, it does not depend on a profit-led demand regime. As a demonstration, a simple Minsky model is extended by adding a reserve army distribution mechanism such that the wage share responds positively to output. In the extended Minsky model, cycles are generated purely through the interaction between financial fragility and demand. In a first step we assume no feedback from income distribution to demand. We demonstrate that the model generates a pseudo-Goodwin cycle in output–wage share space. In a second step, we show that the result continues to hold even if a wage-led demand regime is introduced, although this can introduce instability. Our models demonstrate that the existence of a counter-clockwise movement of output and the wage share cannot be regarded as proof of the existence of a Goodwin cycle and a profit-led demand regime.