Financialisation, income distribution and aggregate demand in the USA

Abstract

This paper investigates the effects of financialization and functional income distribution on aggregate demand in the USA by estimating the effects of the increase in rentier income (dividends and interest payments) and housing and financial wealth on consumption and investment. The redistribution of income in favor of profits suppresses consumption, whereas the increase in the rentier income and wealth has positive effects. A higher rentier income decreases investment. Without the wealth effects, the overall effect of the changes in distribution on aggregate demand would have been negative. Thus a pro-capital income distribution leads to a slightly negative effect on growth, i.e. the USA economy is moderately wage-led.

Testing the Bhaduri–Marglin model with OECD panel data

“…Thus far, the main focus has been on seven countries: Austria, France, Germany, Japan, the Netherlands, the U.K. and the U.S. (see Bowles and Boyer, 1995;Stockhammer and Onaran, 2004;Naastepad, 2006;Naastepad and Storm, 2006-7;2 Ederer and Stockhammer, 2007;Stockhammer and Ederer, 2008;Vogel, 2008, 2009;Onaran et al, 2011;Stockhammer et al, 2011). From these studies, the broad picture emerges that the "demand regime in large and medium-sized 1 "In fact, the long-run trend is but a slowly changing component of a chain of short-period situations; it has no independent entity …" (Kalecki, 1968, p. 263).…”

The Macroeconomic Implications of Consumption: State-of-Art and Prospects for the Heterodox Future Research

“…In the second approach mentioned in the beginning of the section, we can fit Bhaduri, Laski and Riese (2006) and Onaran, Stockhammer and Grafi (2011). Being mainly concerned with short and medium-run (analysis in terms of growth rates) effects, Bhaduri, Laski and Riese (2006) aim at showing how the financial wealth created in stock markets can boost economic growth through debt-financed consumption.…”

“…FW represents financial wealth and HW housing wealth. The core conclusion reached by Onaran, Stockhammer and Grafi (2011) is that a redistribution of income towards the rentier group (profit earners) has two main effects that can offset each other: first, it can depress consumption as it diminishes the income of wage earners. Second, it can increase consumption as wealth effects, in financial and housing markets, operate.…”

“…Since a large part of financial and housing wealth is merely notional (as in the US case), it should be expected that a mechanism, as proposed by Bhaduri, Laski and Riese (2006), would operate to increase credit-based consumption. Onaran, Stockhammer and Grafi (2011) try to capture this element -credit backed by collateral -by considering gross housing wealth 9 in the consumption function instead of net housing wealth.…”

The Labor Share Question in China

“…One approach (hereafter, conventional approach) is based on GDP accounting, which is widely used in both orthodox and heterodox literature (for example, Bentolila and Saint--14 paul, 2003;Karabarbounis and Neiman, 2013;Weisskopf, 1979;Onaran et al, 2011).…”