Abstract
The explosion generated by the global financial crisis in 2008 and its transmission to the real economies have been interpreted as calling for new kinds of regulation of the banking and the financial systems that would have allowed re-establishing a virtuous relation between the real and the financial sectors of the economy. In this paper we maintain a different view, that the financial crisis and the ensuing real crisis have roots in the strong increase in income inequality that has been taking place in the Western world in the last thirty years or so. This has created an all around aggregate demand deficiency crisis that has strongly reduced prospects and opportunities for investments in productive capacities and shifted resources toward other uses, thus feeding a perverse relation between the productive and the non-productive assets of the economy. In this context the way out of the crisis is re-establishing the right distributive conditions, which cannot be obtained by a policy aimed at relieving the weight of private or public debts but calls for a redistribution through taxes on the incomes of non-productive sectors, a fine tuning that should prevent excessive taxations transforming positive into negative effects.
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Notes
This definition draws on S. Bruno (2011).
This hypothesis, descending from Weber’s notion of the “spirit of capitalism”, has been stressed in the more recent literature as the reason of the fault of both the life-time-cycle and the asset price theory in explaining, respectively, the rich saving behaviors and the asset price evidences, as the equity premium puzzle. See Menchik and David 1983, Bakshi and Chen 1996, Carroll 1998, Francis 2009.
As a result, agents behaviours are not modelled in an optimization framework.
The distinction between fixed-price and flex-price markets has been introduced by Hicks who underlines the notion that only speculative markets such as markets for staple commodties and markets for securities are flexprice markets (Hicks 1974, p.78).
We assume that the processes possibly not activated are the older ones.
We assume that the processes in the utilization phase not activated are not truncated but put aside to be possibly used in the future. Truncation would speed up a downward adjustment of productive capacity.
We further make the hypothesis that all processes in the construction phase (xs t(j) with 1 < j < z + 1) keep being carried out until they reach the utilization phase.
Since there is no heterogeneity within workers and within capitalists, we can consider the aggregate budget constraint as in a case of representative agents.
According to Eqs. 1 and 2 and the hypotheses on the parameters, we have:
\( {B}_E^s=\sum_{i= z+1}^{\infty }{x}_E^s(i){b}_i^s=\sum_{i= z+1}^{\infty }{x}_E^s(i) b{\left(1-\delta \right)}^{i- z-1}={x}_E^s\frac{b}{\delta} \)
\( {L}_E^s=\sum_{i=1}^{\infty }{x}_E^s(i){l}_i^s=\sum_{i=1}^z{x}_E^s(i) l+\sum_{i= z+1}^{\infty }{x}_E^s(i) l{\left(1-\delta \right)}^{i- z-1}={x}_E^s\left( zl+\frac{l}{\delta}\right) \).
See Bhaduri (2008).
We random select a vector of the relevant parameters in each respective significant interval: α ∈ (0;1); β ∈ (0;1); σ ∈ (0;1); τ∈ (0;1); r∈ (0;0.2); δ ∈ (0;0.3); z = (1,2,3); p/w ∈ (γ; 1.3γ).
The prices of the two goods are set equal at the initial equilibrium. Given the technological parameters that defines γ, p/w in a range (γ; 1.3γ) and thus corresponding to a profit margin spanning up to 30%.
Our objective in the paper is not to discuss how public spending is chosen. Were the public spending non productive, the public policy would be inefficient with regard to the problem dealt with.
In the simulations,we consider the same initial level of prices in the two sectors.
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Appendix
Appendix
In this section we check whether the benchmark and the complete models described in Eqs. 1–10 and 14–19 are compatible with a steady state equilibrium and prove the results in Eq. 13 and 20.
By definition, at a steady state equilibrium, demand excesses are null, all variables including the indebtedness are constant (no new debt is issued), demand expectations are realized and the value of production is constant and equals the demand in each sector. Considering Eq. 6–7 and 16–18 we have:
These two conditions are equivalent and since we have defined de = Ce/We, they are satisfied if and only if:
where Ws e is the wage fund paid in sector s.
Furthermore, the steady state implies that the number of processes of each age is the same and constant (xs(i) = xs). Considering Eq. 11 the ratio Ws/Bs is:
Using this definition in the equilibrium condition in 23 and rearranging we obtain Eq. 20 and, taking τ = 0 and de = 0, we obtain 13 as a particular case. Note that, since the firms would not produce with negative profits (psBs ≥ Ws), we must have ps/w ≥ γ and thus a sufficient condition for the ratio in the right hand side of the equilibrium condition in Eq. 20 to be positive is that rde ≤ 1, that is, it is verified whenever the interest on their debt paid by the workers are lower than their labor income.
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Amendola, M., Gaffard, JL. & Patriarca, F. Inequality and growth: the perverse relation between the productive and the non-productive assets of the economy. J Evol Econ 27, 531–554 (2017). https://doi.org/10.1007/s00191-017-0494-8
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DOI: https://doi.org/10.1007/s00191-017-0494-8