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

  • Hein, Eckhard

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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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34115.

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Date of creation: Oct 2011
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Handle: RePEc:pra:mprapa:34115
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  1. 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.
  2. Gilberto Tadeu Lima & Antonio J. A. Meirelles, 2004. "A Macrodynamics Of Debt Regimes, Financial Instability And Growth," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32th Brazilian Economics Meeting] 074, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  3. Hein, Eckhard & Truger, Achim, 2010. "Finance-dominated capitalism in crisis: The case for a Global Keynesian New Deal," IPE Working Papers 06/2010, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
  4. 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.
  5. Sydney Ludvigson & Charles Steindel, 1999. "How important is the stock market effect on consumption?," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 29-51.
  6. �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.
  7. 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.
  8. 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.
  9. 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.
  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. Lavoie, M., 1993. "Interest Rates in Post-Keynesian Models of Growth and Distribution," Working Papers 9314e, University of Ottawa, Department of Economics.
  13. 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.
  14. Christian Dreger & Jiri Slacalek, 2007. "Finanzmarktentwicklung, Immobilienpreise und Konsum," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 74(35), pages 533-536.
  15. 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.
  16. Amitava Krishna Dutt, 2006. "Maturity, Stagnation And Consumer Debt: A Steindlian Approach," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 339-364, 07.
  17. 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.
  18. 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.
  19. 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.
  20. 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.
  21. Eckhard Hein, 2009. "A (Post-) Keynesian perspective on "financialisation"," IMK Studies 01-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  22. 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.
  23. 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.
  24. Till van Treeck, 2008. "The political economy debate on ‘financialisation’ – a macroeconomic perspective," IMK Working Paper 01-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  25. 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.
  26. Engelbert Stockhammer, 2004. "Financialisation and the slowdown of accumulation," Cambridge Journal of Economics, Oxford University Press, vol. 28(5), pages 719-741, September.
  27. Robert Wade, 2009. "From global imbalances to global reorganisations," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 539-562, July.
  28. 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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