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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)
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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