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Finance-dominated capitalism, re-distribution, household debt and financial fragility in a Kaleckian distribution and growth model

Author Info

  • Eckhard Hein

    ()

    (Berlin School of Economics and Law and Institute for International Political Economy(IPE))

Abstract

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.

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Article provided by Economia civile in its journal PSL Quarterly Review.

Volume (Year): 65 (2012)
Issue (Month): 260 ()
Pages: 11-51

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Handle: RePEc:psl:pslqrr:2012:12
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Keywords: Finance-dominated capitalism; distribution; household debt; financial fragility; growth; Kaleckian model;

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Find related papers by JEL classification:
  • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
  • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
  • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
  • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
  • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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  1. Engelbert Stockhammer, 2000. "Financialization and the Slowdown of Accumulation," Working Papers geewp14, Vienna University of Economics and Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
  2. Eckhard Hein, 2006. "Interest, Debt and Capital Accumulation—A Kaleckian Approach," International Review of Applied Economics, Taylor & Francis Journals, vol. 20(3), pages 337-352.
  3. Eckhard Hein, 2009. "A (Post-) Keynesian perspective on "financialisation"," IMK Studies 01-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  4. Thomas I. Palley, 1994. "Debt, Aggregate Demand, and the Business Cycle: An Analysis in the Spirit of Kaldor and Minsky," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 16(3), pages 371-390, April.
  5. Robert Wade, 2009. "From global imbalances to global reorganisations," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 539-562, July.
  6. Lavoie, M., 1993. "Interest Rates in Post-Keynesian Models of Growth and Distribution," Working Papers 9314e, University of Ottawa, Department of Economics.
  7. Sydney Ludvigson & Charles Steindel, 1998. "How important is the stock market effect on consumption?," Research Paper 9821, Federal Reserve Bank of New York.
  8. Antonio J.A. Meirelles & Gilberto Tadeu Lima, 2006. "Debt, financial fragility, and economic growth: a Post Keynesian macromodel," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 29(1), pages 93-115, October.
  9. Hein, Eckhard, 2004. "Interest rate, debt, distribution and capital accumulation in a post-Kaleckian model," WSI Discussion Papers 133, Wirtschafts- und Sozialwissenschaftliches Institut (WSI), Hans-Böckler-Stiftung.
  10. Robert Guttmann & Dominique Plihon, 2010. "Consumer debt and financial fragility," International Review of Applied Economics, Taylor & Francis Journals, vol. 24(3), pages 269-283.
  11. Sebastien Charles, 2008. "A Post-Keynesian Model of Accumulation with a Minskyan Financial Structure," Review of Political Economy, Taylor & Francis Journals, vol. 20(3), pages 319-331.
  12. Hein, Eckhard & Truger, Achim, 2010. "Finance-dominated capitalism in crisis – the case for a Global Keynesian New Deal," MPRA Paper 21175, University Library of Munich, Germany.
  13. Sébastien Charles, 2008. "Teaching Minsky's financial instability hypothesis: a manageable suggestion," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 31(1), pages 125-138, September.
  14. Gilberto Tadeu Lima & Antonio J. A. Meirelles, 2007. "Macrodynamics of debt regimes, financial instability and growth," Cambridge Journal of Economics, Oxford University Press, vol. 31(4), pages 563-580, July.
  15. �zlem Onaran & Engelbert Stockhammer & Lucas Grafl, 2011. "Financialisation, income distribution and aggregate demand in the USA," Cambridge Journal of Economics, Oxford University Press, vol. 35(4), pages 637-661.
  16. Amitava Krishna Dutt, 2006. "Maturity, Stagnation And Consumer Debt: A Steindlian Approach," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 339-364, 07.
  17. Till van Treeck, 2008. "Reconsidering The Investment-Profit Nexus In Finance-Led Economies: An Ardl-Based Approach," Metroeconomica, Wiley Blackwell, vol. 59(3), pages 371-404, 07.
  18. Laurence Boone & Nathalie Girouard, 2002. "The Stock Market, the Housing Market and Consumer Behaviour," OECD Economic Studies, OECD Publishing, vol. 2002(2), pages 175-200.
  19. Amit Bhaduri & Kazimierz Laski & Martin Riese, 2006. "A Model Of Interaction Between The Virtual And The Real Economy," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 412-427, 07.
  20. Robert Guttmann, 2009. "Asset Bubbles, Debt Deflation, and Global Imbalances," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 38(2), pages 46-69, July.
  21. Eckhard Hein & Till Van Treeck, 2010. "Financialisation and Rising Shareholder Power in Kaleckian/Post-Kaleckian Models of Distribution and Growth," Review of Political Economy, Taylor & Francis Journals, vol. 22(2), pages 205-233.
  22. Eckhard Hein, 2008. "Shareholder value orientation, distribution and growth – short- and medium-run effects in a Kaleckian model," Department of Economics Working Papers wuwp120, Vienna University of Economics and Business, Department of Economics.
  23. Yash P. Mehra, 2001. "The wealth effect in empirical life-cycle aggregate consumption equations," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 45-67.
  24. Palma, J.G., 2009. "The Revenge of the Market on the Rentiers: Why neo-liberal Reports of the end of history turned out to be premature (Updated 19 December 2011)," Cambridge Working Papers in Economics 0927, Faculty of Economics, University of Cambridge.
  25. Cynamon Barry Z. & Fazzari Steven M., 2008. "Household Debt in the Consumer Age: Source of Growth--Risk of Collapse," Capitalism and Society, De Gruyter, vol. 3(2), pages 1-32, October.
  26. Christian Dreger & Jiri Slacalek, 2007. "Finanzmarktentwicklung, Immobilienpreise und Konsum," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 74(35), pages 533-536.
  27. Sébastien Charles, 2008. "Corporate debt, variable retention rate and the appearance of financial fragility," Cambridge Journal of Economics, Oxford University Press, vol. 32(5), pages 781-795, September.
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Cited by:

  1. Jakob Kapeller & Bernhard Schütz, 2012. "Debt, Boom, Bust: A Theory of Minsky-Veblen Cycles," Economics working papers 2012-14, Department of Economics, Johannes Kepler University Linz, Austria.
  2. Charpe, Matthieu & Flaschel, Peter, 2013. "Workers’ debt, default and the diversity of financial fragilities," Structural Change and Economic Dynamics, Elsevier, vol. 27(C), pages 48-65.
  3. Carlo D'Ippoliti, 2014. "Introduction: welcoming a new editorial board," PSL Quarterly Review, Economia civile, vol. 67(268), pages 3-8.
  4. Thomas Goda, 2013. "Changes in income inequality from a global perspective: an overview," Working Papers PKWP1303, Post Keynesian Economics Study Group (PKSG).
  5. Thomas Goda, 2013. "The role of income inequality in crisis theories and in the subprime crisis," Working Papers PKWP1305, Post Keynesian Economics Study Group (PKSG).
  6. Jakob Kapeller & Bernhard Schütz, 2012. "Conspicuous consumption, inequality and debt: The nature of consumption-driven profit-led regimes," Economics working papers 2012-13, Department of Economics, Johannes Kepler University Linz, Austria.
  7. Alper Duman, 2013. "Household Debt in Turkey: The Critical Threshold for the Next Crisis," EcoMod2013 5259, EcoMod.

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