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The Macroeconomic implications of consumption
State-of-art and prospects for the heterodox future research
18th FMM Conference Inequality and the Future of Capitalism Berlin, 30 October 01 November 2014
Ldia Brochier Universidade Estadual de Campinas (UNICAMP)
Antonio Carlos Macedo e SilvaUniversidade Estadual de Campinas (UNICAMP)
Outline
1) Introduction
2) Post-Keynesian literature: household debt and its effects on growth
3) Autonomous expenditures and the long-run growth: the Sraffian supermultipler model
4) Concluding remarks
18th FMM Conference Inequality and the Future of Capitalism Berlin, 30 October 01 November 2014
1 Introduction
Consumption depicted as well-behaved and uninteresting
The American experience showed consumption is important
A significant number of papers concerned about household indebtedness emerged
18th FMM Conference Inequality and the Future of Capitalism
1 Introduction
Berlin, 30 October 01 November 2014
1 Introduction
First moment, the paper reviews the recent, mostly theoretical, Post-Keynesian literature on personal consumption and household indebtedness
Keynesian literature: demand-led economies where investment assumes the leading role
In growth models or long-run analyses, different assumptions could be explored
18th FMM Conference Inequality and the Future of Capitalism
1 Introduction
Berlin, 30 October 01 November 2014
1 Introduction
The ultimate driver of growth may not be private investment, but residential investment, personal consumption, government expenditures or net exports
Second moment, we turn to the so-called Sraffian supermultiplier model
Reintroduced to the Post-Keynesian audience by Lavoie
18th FMM Conference Inequality and the Future of Capitalism
1 Introduction
Berlin, 30 October 01 November 2014
Three convergence points in the literature
First one, household indebtedness and credit-based consumption have positive effects in the short-run, but in the long-run deliver ambiguous results
Relative consumption and income concerns brought back to the center of attention (Veblens and Duesenberrys ideas)
Kaleckian dichotomy between two classes of agents: workers and capitalists
18th FMM Conference Inequality and the Future of Capitalism
2 Post-Keynesian literature: household debt and its effect on growth
Berlin, 30 October 01 November 2014
Palley (1994): seminal work on the subject
Before the financial crisis, two important papers dealing with household consumption and debt: Bhaduri et al. (2006) and Dutt (2006)
After the financial crisis, focus on income inequality effects on household debt and economic growth
18th FMM Conference Inequality and the Future of Capitalism
2 Post-Keynesian literature: household debt and its effect on growth
Berlin, 30 October 01 November 2014
Inter and intra-class emulation: Barba and Pivetti (2009) consider both, Kapeller and Schutz (2014) focus on the last one
Consumption emulation as an additional term in the consumption function based on borrowing mechanisms
18th FMM Conference Inequality and the Future of Capitalism
2 Post-Keynesian literature: household debt and its effect on growth
Berlin, 30 October 01 November 2014
18th FMM Conference Inequality and the Future of Capitalism
1. Main characteristics of Post-Keynesian literature reviewed
Paper Theoretical approach Period of analysis Growth regime Consumption
Palley (1994) Minsky-Kaldor Short-run Demand-led: investment Creditors and debtors
Dutt (2006) Minsky-Steindl-Kalecki
Short-run and Long-run (rate of
capacity utilization is endogenously
determined)
Demand-led: investment Workers and capitalists
Bhaduri et al. (2006) Kalecki-KeynesShort-run and medium-run (Analysis
in terms of growth rates)Demand-led: investment Homogenous consumption
Godley and Lavoie (2007,
ch.11)
Post-Keynesian (Keynes-
Kalecki)Short- run and long-run Demand-led: government expenditures Homogenous consumption
Zezza (2008)Post-Keynesian (Godley and
Lavoie)Short-run and long-run (steady state) Demand-led: investment Workers and capitalists
Barba and Pivetti (2009) Duesenberry-Veblen Long-run -
Consumption function close to
Duesenberry's (relative income
concerns)
Palley (2009) Cambridge-Kalecki Short-run and long-run (steady state) Demand-led: investment Creditors and debtors
Hein (2011) KaleckiShort-run and long-run (similar to
Dutts (2006))Demand-led: investment Workers and rentiers
Onaran et al. (2011) Kalecki-Steindl Short-run and long-run Demand-led: investment Homogenous consumption
Kim (2012) Kalecki-DuesenberryShort-run and medium-run (steady
state)Demand-led: investment
Workers and capitalists (emulation
effect)
Ryoo and Kim (2013)Duesenberry-Veblen-Kaldor-
Minsky
Short-run and long-run (average long-
run utilization rates converge to
natural rates)
Demand-led: investmentWorkers and capitalists (emulation
effect)
Kim et al. (2013)Duesenberry-Cynamon and
FazzariShort-run No growth (firms do not invest)
Workers and capitalists (emulation
effect)
Kapeller and Schutz
(2014)Veblen-Minsky Short-run -
Two groups of workers (emulation
effect) and capitalists
Source: elaborated by the authors.
Berlin, 30 October 01 November 2014
Essential contributions
Larger role attributed to the autonomous component of consumption
Household debt accumulation and debt service payment dynamics taken into account
Some limitations
Household debt and consumption analyzed in an investment demand-led growth model
Simplifying hypothesis which if lifted could lead to different results
18th FMM Conference Inequality and the Future of Capitalism
3 Long-run growth: the Sraffiansupermultiplier model
18th FMM Conference Inequality and the Future of Capitalism
2 Post-Keynesian literature: household debt and its effect on growth
Berlin, 30 October 01 November 2014
Autonomous expenditures are usually assumed to grow in line with capital stock or the level of income
But US recent experience suggests consumption can grow autonomously from current income
What if the capital stock grows in line with autonomous expenditures? What if autonomous consumption takes on the leading role of economic growth in the long-run?
18th FMM Conference Inequality and the Future of Capitalism
3 Long-run growth: the Sraffian supermultiplier model
Berlin, 30 October 01 November 2014
Demand may come from other final items and still can deliver stable models which converge to a steady state, provided that a different simplifying assumption is adopted: that investment is strictly induced
The Sraffian supermultiplier model: the non-capacity generating expenditures become the dynamic driver of growth
Supermultiplier model explores the idea that there is a fundamental distinction between capacity-creating private investment and other autonomous expenditure items
18th FMM Conference Inequality and the Future of Capitalism
3 Long-run growth: the Sraffian supermultiplier model
Berlin, 30 October 01 November 2014
Other items are not restrained by the constraint of profitability benchmarks
So far, in the supermultiplier models, just one of the autonomous expenditure items is singled out as the growth engine
In Serranos supermultiplier model, long-term growth depends on the rate of growth of an autonomous component of demand exogenously given in this case, autonomous consumption
18th FMM Conference Inequality and the Future of Capitalism
3 Long-run growth: the Sraffian supermultiplier model
Berlin, 30 October 01 November 2014
Two main conditions need to be fullfiled for the system to be demand-led in Serrano:
+ < 1
> 0
The second condition implies that the average propensity to save will be an endogenous variable, even if the marginal propensity to save and the profit share are constant
18th FMM Conference Inequality and the Future of Capitalism
3 Long-run growth: the Sraffian supermultiplier model
Berlin, 30 October 01 November 2014
The average propensity to save depends on the marginal propensity to save and on a proportion between autonomous expenditures and induced investment: =
Changes in autonomous expenditures growth rate have permanent effects on growth rates of output and capacity
While changes in the determinants of the propensities to consume or save have only permanent level effects on output and capacity
18th FMM Conference Inequality and the Future of Capitalism
3 Long-run growth: the Sraffian supermultiplier model
Berlin, 30 October 01 November 2014
Serrano and Freitas (2014): two long period scenarios Steady state with incomplete adjustment: medium run Steady state with complete adjustment: long run (fully adjusted
positions)
Main criticism to Sraffians is related to the assumption of fully adjusted positions, however, in the case of the Serrano and Freitas (2014) it is not required for keeping most of the models conclusions
18th FMM Conference Inequality and the Future of Capitalism
3 Long-run growth: the Sraffian supermultiplier model
Berlin, 30 October 01 November 2014
Regarding the financial factors, Serrano and Freitas (2014) recognize that:
() research efforts should focus on the determinants anddynamics (particularly financial) of the trend of growth ofdifferent unproductive autonomous components of demand(Serrano and Freitas, 2014: 21).
18th FMM Conference Inequality and the Future of Capitalism
3 Long-run growth: the Sraffian supermultiplier model
Berlin, 30 October 01 November 2014
There could be a complementarity between the Supermultiplierapproach and some Post-Keynesian (and neo-Kaleckian) approaches
Keynesian demand-led models do not necessarily need to be private investment-led ones
The possibility of a steady state has a cost, it implies the model can explore only one growth engine at a time
18th FMM Conference Inequality and the Future of Capitalism
4 Concluding remarks
Berlin, 30 October 01 November 2014
This is not necessarily bad: it would be an enriching endeavor to build each of these models, taking into account the peculiarities of each expenditure variable
The Stock-flow consistent approach seems to be an appropriate framework to develop this research
18th FMM Conference Inequality and the Future of Capitalism
4 Concluding remarks
Berlin, 30 October 01 November 2014