IDEAS home Printed from https://ideas.repec.org/p/new/wpaper/1806.html
   My bibliography  Save this paper

Varieties of Capitalism, Increasing Income Inequality, and the Sustainability of Long-Run Growth

Author

Listed:
  • Mark Setterfield

    () (Department of Economics, New School for Social Research)

  • Yun K. Kim

    () (Department of Economics, University of Massachusetts-Boston)

Abstract

We model US household debt accumulation during the neoliberal boom as a response to emulation e ects and the decline of the social wage, which has "privatized" an increasing share of the costs of providing for services such as health and education. The debt dynamics of the US economy are then studied under alternative assumptions about the con guration of distributional variables, which is shown to differ across varieties of capitalism that have "neoliberalized" to di erent degrees. A key result is that distributional change alone will not make US neoliberal capitalism financially sustainable due, in part, to the paradoxical nature of inequality as a spur to household borrowing, and hence a source of both demand-formation and financial fragility. Achieving sustainability requires, instead, more wide-ranging reform.

Suggested Citation

  • Mark Setterfield & Yun K. Kim, 2018. "Varieties of Capitalism, Increasing Income Inequality, and the Sustainability of Long-Run Growth," Working Papers 1806, New School for Social Research, Department of Economics.
  • Handle: RePEc:new:wpaper:1806
    as

    Download full text from publisher

    File URL: http://www.economicpolicyresearch.org/econ/2018/NSSR_WP_062018.pdf
    File Function: First version, 2018
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Till Treeck, 2014. "Did Inequality Cause The U.S. Financial Crisis?," Journal of Economic Surveys, Wiley Blackwell, vol. 28(3), pages 421-448, July.
    2. Petach, Luke & Tavani, Daniele, 2017. "Keeping up with the Joneses: Other-regarding Preferences and Endogenous Growth," EconStor Preprints 169416, ZBW - Leibniz Information Centre for Economics.
    3. Jan Behringer & Till van Treeck, 2017. "Varieties of capitalism and growth regimes," FMM Working Paper 09-2017, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    4. Setterfield, Mark & Kim, Yun K., 2016. "Debt servicing, aggregate consumption, and growth," Structural Change and Economic Dynamics, Elsevier, vol. 36(C), pages 22-33.
    5. Leske, Ariela D.C, 2018. "A review on defense innovation: from spin-off to spin-in," Brazilian Journal of Political Economy, Brazilian Journal of Political Economy (Brazil), vol. 38(2), April-Jun.
    6. Annamaria Lusardi & Daniel Schneider & Peter Tufano, 2011. "Financially Fragile Households: Evidence and Implications," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 83-150.
    7. Marc Lavoie, 2014. "Post-Keynesian Economics: New Foundations," Post-Print hal-01343652, HAL.
    8. Stockhammer, Engelbert, 1999. "Robinsonian and Kaleckian growth. An update on post-Keynesian growth theories," Department of Economics Working Paper Series 67, WU Vienna University of Economics and Business.
    9. Eckhard Hein, 2012. "The Macroeconomics of Finance-Dominated Capitalism – and its Crisis," Books, Edward Elgar Publishing, number 14931.
    10. Christina Anselmann & Hagen M. Kr�mer, 2015. "Income inequality and top incomes: some recent empirical developments with a focus on Germany," International Review of Applied Economics, Taylor & Francis Journals, vol. 29(6), pages 770-786, November.
    11. 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.
    12. Jon Wisman, 2009. "Household Saving, Class Identity, and Conspicuous Consumption," Journal of Economic Issues, Taylor & Francis Journals, vol. 43(1), pages 89-114.
    13. Stefano Bartolini & Luigi Bonatti & Francesco Sarracino, 2014. "The Great Recession and the bulimia of US consumers: deep causes and possible ways out," Cambridge Journal of Economics, Oxford University Press, vol. 38(5), pages 1015-1042.
    14. Jon D. Wisman, 2013. "Wage stagnation, rising inequality and the financial crisis of 2008," Cambridge Journal of Economics, Oxford University Press, vol. 37(4), pages 921-945.
    15. David Bunting, 1998. "Distributional Basis of Aggregate Consumption," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 20(3), pages 389-413, March.
    16. James Cloyne & Clodomiro Ferreira & Paolo Surico, 2020. "Monetary Policy when Households have Debt: New Evidence on the Transmission Mechanism," Review of Economic Studies, Oxford University Press, vol. 87(1), pages 102-129.
    17. Simon Mohun, 2006. "Distributive shares in the US economy, 1964--2001," Cambridge Journal of Economics, Oxford University Press, vol. 30(3), pages 347-370, May.
    18. Mark Setterfield & Yun K. Kim & Jeremy Rees, 2016. "Inequality, Debt Servicing and the Sustainability of Steady State Growth," Review of Political Economy, Taylor & Francis Journals, vol. 28(1), pages 45-63, January.
    19. Karolin Kirschenmann & Tuomas Malinen & Henri Nyberg, 2014. "The risk of financial crises: Is it in real or financial factors?," Working Papers 336, ECINEQ, Society for the Study of Economic Inequality.
    20. Peter Skott & Soon Ryoo, 2008. "Macroeconomic implications of financialisation," Cambridge Journal of Economics, Oxford University Press, vol. 32(6), pages 827-862, November.
    21. Robert Boyer, 2016. "A World of Contrasted but Interdependent Inequality Regimes: The Latin America Paradox," Review of Political Economy, Taylor & Francis Journals, vol. 28(1), pages 1-22, January.
    22. Marc Lavoie, 1992. "Foundations of Post-Keynesian Economic Analysis," Books, Edward Elgar Publishing, number 275.
    23. Christopher Brown, 2008. "Inequality, Consumer Credit and the Saving Puzzle," Books, Edward Elgar Publishing, number 12877.
    24. Stockhammer, Engelbert & Wildauer, Rafael, 2018. "Expenditure Cascades, Low Interest Rates or Property Booms? Determinants of Household Debt in OECD Countries," Review of Behavioral Economics, now publishers, vol. 5(2), pages 85-121, September.
    25. Robert Boyer, 2015. "A World of Contrasted but Interdependent Inequality Regimes: China, United States and the European Union," Review of Political Economy, Taylor & Francis Journals, vol. 27(4), pages 481-517, October.
    26. Mark Setterfield & Yun K. Kim, 2017. "Household borrowing and the possibility of 'consumption-driven, profit-led growth'," Review of Keynesian Economics, Edward Elgar Publishing, vol. 5(1), pages 43-60, January.
    27. Thomas I. Palley, 2002. "Economic contradictions coming home to roost? Does the U.S. economy face a long-term aggregate demand generation problem?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 25(1), pages 9-32.
    28. Raghuram G. Rajan, 2010. "Fault Lines: How Hidden Fractures Still Threaten the World Economy," Economics Books, Princeton University Press, edition 1, number 9111, October.
    29. Jeffrey Thompson, 2018. "Rising Top Incomes And Increased Borrowing In The Rest Of The Distribution," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 686-708, April.
    30. Marc Lavoie & Wynne Godley, 2001. "Kaleckian Models of Growth in a Coherent Stock-Flow Monetary Framework: A Kaldorian View," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 24(2), pages 277-311, December.
    31. Costas Lapavitsas & Jeff Powell, 2013. "Financialisation varied: a comparative analysis of advanced economies," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 6(3), pages 359-379.
    32. Berlemann, Michael & Salland, Jan, 2016. "The Joneses’ income and debt market participation: Empirical evidence from bank account data," Economics Letters, Elsevier, vol. 142(C), pages 6-9.
    33. Aldo Barba & Massimo Pivetti, 2009. "Rising household debt: Its causes and macroeconomic implications--a long-period analysis," Cambridge Journal of Economics, Oxford University Press, vol. 33(1), pages 113-137, January.
    Full references (including those not matched with items on IDEAS)

    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. Mark Setterfield & Yun K. Kim & Jeremy Rees, 2016. "Inequality, Debt Servicing and the Sustainability of Steady State Growth," Review of Political Economy, Taylor & Francis Journals, vol. 28(1), pages 45-63, January.
    2. Setterfield, Mark & Kim, Yun K., 2016. "Debt servicing, aggregate consumption, and growth," Structural Change and Economic Dynamics, Elsevier, vol. 36(C), pages 22-33.
    3. Yun K. Kim, 2020. "Household Debt Accumulation and the Great Recession of the United States: A Comparative Perspective," Review of Radical Political Economics, Union for Radical Political Economics, vol. 52(1), pages 26-49, March.
    4. Yun K. Kim, 2017. "Rise of Household Debt and the Great Recession in the US: Comparative Perspectives," Working Papers 2017_03, University of Massachusetts Boston, Economics Department.
    5. 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.
    6. Mark Setterfield, 2019. "Long-run variation in capacity utilization in the presence of a fixed normal rate," Cambridge Journal of Economics, Oxford University Press, vol. 43(2), pages 443-463.
    7. Mark Setterfield, 2014. "Using Interest Rates as the Instrument of Monetary Policy: Beware Real effects, Positive Feedbacks, and Discontinuities," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(70), pages 7-22, June.
    8. Mark Setterfield, 2014. "Rising Income Inequality, Increased Household Indebtedness, and Post Keynesian Macrodynamics," Working Papers 1403, New School for Social Research, Department of Economics.
    9. Mark Setterfield, 2020. "Managing the discontent of the losers," Review of Social Economy, Taylor & Francis Journals, vol. 78(1), pages 77-97, January.
    10. Hein, Eckhard, 2018. "Inequality and growth: Marxian and post-Keynesian/Kaleckian perspectives on distribution and growth regimes before and after the Great Recession," IPE Working Papers 96/2018, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    11. Yun K. Kim & Alan G. Isaac, 2017. "Firms’ Retention Behavior, Debt, and Macroeconomic Dynamics," Working Papers 2017_04, University of Massachusetts Boston, Economics Department.
    12. Hein, Eckhard & Prante, Franz, 2018. "Functional distribution and wage inequality in recent Kaleckian growth models," IPE Working Papers 110/2018, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    13. Ozlem Albayrak, 2020. "Household Consumption, Household Indebtedness, and Inequality in Turkey: A Microeconometric Analysis," Economics Working Paper Archive wp_954, Levy Economics Institute.
    14. Thomas Goda & Özlem Onaran & Engelbert Stockhammer, 2017. "Income Inequality and Wealth Concentration in the Recent Crisis," Development and Change, International Institute of Social Studies, vol. 48(1), pages 3-27, January.
    15. Yun K. Kim & Mark Setterfield & Yuan Mei, 2014. "A theory of aggregate consumption," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 11(1), pages 31-49, April.
    16. Eckhard Hein & Walter Paternesi Meloni & Pasquale Tridico, 2019. "Welfare models and demand-led growth regimes before and after the financial and economic crisis," FMM Working Paper 41-2019, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    17. Hein, Eckhard. & Mundt, Matthias., 2012. "Financialisation and the requirements and potentials for wage-led recovery : a review focussing on the G20," ILO Working Papers 994709323402676, International Labour Organization.
    18. van Treeck, Till. & Sturn, Simon., 2012. "Income inequality as a cause of the Great Recession? : A survey of current debates," ILO Working Papers 994709343402676, International Labour Organization.
    19. Till Treeck, 2014. "Did Inequality Cause The U.S. Financial Crisis?," Journal of Economic Surveys, Wiley Blackwell, vol. 28(3), pages 421-448, July.
    20. Mark Setterfield & Yun K. Kim, 2017. "Household borrowing and the possibility of 'consumption-driven, profit-led growth'," Review of Keynesian Economics, Edward Elgar Publishing, vol. 5(1), pages 43-60, January.

    More about this item

    Keywords

    Varieties of capitalism; neoliberalism; inequality; growth; financial fragility; financial sustainability;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

    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:1806. See general information about how to correct material in RePEc.

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

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.