A supermultiplier Stock-Flow Consistent model: the “return” of the paradoxes of thrift and costs in the long run?

Abstract

Supermultiplier models have been recently brought to the post-Keynesian debate. Yet these models still rely on quite simple economic assumptions, being mostly flow models which omit the financial determinants of autonomous expenditures. Since the output growth rate converges in the long run to the exogenously given growth rate of "non-capacity creating" autonomous expenditure and the utilization rate moves towards the normal utilization rate, the paradoxes of thrift and costs remain valid only as level effects (average growth rates). This paper investigates whether the core conclusions of supermultiplier models hold in a more complex economic framework, described by means of a supermultiplier SFC model, in which private business investment is assumed to be completely induced by income while the autonomous expenditure component-in this case consumption out of wealth-becomes endogenous. The results of the numerical simulation experiments suggest that the paradox of thrift can remain valid in terms of growth effects and that a lower profit share can also be associated to a higher accumulation rate, though with a lower profit rate.

A supermultiplier model of the natural rate of growth

“…However, as shown in Allain (2015), Freitas and Serrano (2015), Lavoie (2016) and many others, knife‐edge instability can be tamed by the stabilizing properties of the supermultiplier effect. Therefore, the actual rate of capacity utilization can converge toward its normal level in the long run, while the long‐run rate of economic growth is given by the rate of growth of the autonomous component as follows: public spending (Allain, 2015), consumption financed by credit (Freitas & Serrano, 2015; Serrano & Freitas, 2017), capitalist consumption (Lavoie, 2016; Nah & Lavoie, 2019a, 2019b), consumption out of wealth (Brochier & Macedo e Silva, 2019), exports (Nah & Lavoie, 2017), etc.…”

R&D-based economic growth in a supermultiplier model

“…The recent literature on the SSM has been focusing on implementing new elements to this basic model, such as income distribution, stock-flow consistency, technological dynamics, and also in proposing distinct alternatives to think about the "non-capacity creating" autonomous component of demand. Work on the latter, i.e., the sources of the exogenous rate of autonomous demand that determines the growth rate of the economy, includes workers' autonomous consumption, financed out of credit (Freitas and Serrano, 2015), as part of the wealth of the workers (Brochier & Silva, 2019), capitalists' consumption (Lavoie, 2016), subsistence consumption including an unemployment benefits system (Allain, 2019), government expenditures (Allain, 2015), exports (Nah & Lavoie, 2017) and R&D investments (Caminati & Sordi, 2019). All these model expansions consider the autonomous expenditure as an exogenous variable, with the exception of Caminati & Sordi (2019), who endogenize it.…”

“…Thus, in our approach, the burden for stabilization (of employment) falls on the rate of output growth. This means that we will endogenize the rate of growth of autonomous (consumption) demand (following the approach of Brochier & Silva, 2019) and introduce a mechanism (consumption smoothing by workers) that makes this rate adjust to the natural rate of growth.…”

“…Nah and Lavoie (2019) and Cassetti (2017) include a conflict-theory approach of inflation into the SSM, in which workers and firms negotiate over their shares in GDP, and this affects output prices and wages. Those models, however, consider fixed productivity, which is a problem tackled by Brochier & Silva (2019), who propose including income and wealth distribution using a stock-flow consistent (SFC) framework with endogenous labour productivity. Other efforts to add Stock-Flow consistency (SFC) to the SSM model are in Mandarino et al (2020) and Brochier (2020).…”

Stability issues in Kaleckian models driven by autonomous demand growth—Harrodian instability and debt dynamics

“…Pariboni (2016) has introduced household debt into a supermultiplier growth model-driven by autonomous consumption, but has not carefully studied the dynamic interaction of Harrodian instability and debt dynamics. Brochier andMacedo e Silva (2019) andVieira Mandarino et al (2020) have included financial wealth/liabilities into a supermultiplier stock-flow consistent model driven by autonomous consumption growth, but have only numerically simulated the respective dynamics. Hein (2018) has discussed autonomous government expenditure growth financed by credit in a Kaleckian distribution and growth model, and has studied the dynamics of government deficits and government debt.…”