Autonomous demand, Harrodian instability and the supply side

Abstract

A recent literature introduces autonomous demand as the driver of long-run economic growth and as a stabilizing force that tames Harrodian instability. The argument is unconvincing. The stabilizing e §ect is modest for plausible parameter values and, more importantly, it is questionable whether any components of aggregate demand can be viewed as autonomous in the long run. By contrast, models that include the supply side (the labor market) and/or economic policy can address Harrodian instability and produce level and growth e §ects that resemble those derived in the literature on autonomous demand. JEL numbers: E11, E12, O41

Autonomous Demand and the Harrodian Criticisms of the Kaleckian Model

“…In my view, the premise behind the analysis is shaky, both theoretically and empirically: it is unclear why the trajectory of a significant proportion of aggregate demand would be independent of past, current and expected future income. Skott () takes up this and other issues.…”

“…It corrects some errors in Lavoie's analysis, questions the stabilizing potential of autonomous demand, and points out some differences between the two variants of Lavoie's 'neo‐Kaleckian’ model. The broader issues raised by Lavoie's second and third claim are discussed in Skott ().…”

An Empirical Test on Harrod’s Open Economy Dynamics

“…Serrano et al (2019) [24] claim that Harrod's instability is an instance of what Hicks calls "static instability" and they show that the Sraffian Supermultiplier [25] model overcomes the Harrodian instability. Skott (2019) [26] contends that there is no need to introduce autonomous demand as the "driver of long-run economic growth and as a stabilizing force", but it suffice to model "the supply side (the labor market) and/or economic policy" to obtain those results.…”

Harrod's long‐range capital outlay as a stabilizer of Harrodian instability

“…Most recently, certain versions of the supermultiplier can be added to this list (Allain, ; Lavoie, , in the first instance). With its assumption that one component of aggregate demand grows autonomously at a constant rate, it is conceptually more parsimonious than the other designs, but on the other hand there are various immediate reasons that make it appear rather problematic (Franke, ; Skott, in press). On the whole, it is thus not unfair to say that so far there is no easy and generally accepted solution to the problem of Harrodian instability.…”