Supermultipliers, ‘endogenous autonomous demand’ and functional finance

Abstract

Recent supermultiplier models view autonomous demand as the driver of long‐run growth and as the key stabilizer of Harrodian instability. Attempts to endogenize autonomous demand effectively undermine the existence of a supermultiplier, however, and models with ‘endogenous autonomous demand’ show strong similarities with an earlier literature on feedback effects from the labor markets to aggregate demand. Government consumption could in principle be a source of exogenous autonomous demand in the long run. But an active fiscal policy guided by principles of functional finance can produce more powerful stabilization, avoid overheating and excessive utilization rates, and secure faster adjustments of the growth rate toward its target level.

“The total movement of this disorder is its order”: Investment and utilization dynamics in long‐run disequilibrium

“…And since then, Hein and Woodgate (2021) have extended the earlier Kaleckian-Harrodian framework to incorporate debt dynamics, but their results suggest that this realistic extension of their model has the effect of further restricting the set of parameters in which stability obtains. Recent elaborations of the Sraffian supermultiplier approach constitute another class of models that generate similar results, but as Skott et al (2021) show, these models are subject to essentially the same criticisms as their Kaleckian-Harrodian counterparts. Therefore, we are left with important questions about the role of NCC demand in long-run economic dynamics.…”

“…Recent elaborations of the Sraffian supermultiplier approach constitute another class of models that generate similar results, but as Skott et al. (2021) show, these models are subject to essentially the same criticisms as their Kaleckian‐Harrodian counterparts. Therefore, we are left with important questions about the role of NCC demand in long‐run economic dynamics.…”

“…Thus, fluctuations in the growth rate of NCC demand will constantly be knocking the economy out of its steady‐state path; since these fluctuations may be large, and the Kaleckian‐Harrodian steady‐state path is not globally stable, this means that the steady‐state may not have much relevance to the long‐run dynamics. Finally, the conditions for local stability may require that investment exhibits implausibly slow reactions to changes in aggregate demand (Skott et al., 2021, p. 20).…”

An Analytical Economic Dynamic Model Considering Unemployment and Incorporating SIR’s Approach

“…Answering the critiques, Lavoie (2015) introduced the autonomous demand component to the model and proved the necessary and sufficient conditions to guarantee the needed result. His model has been targeted by the Harrod followers, especially Peter Skott (see Skott (2019) and Skott, Santos, and da Costa Oreiro (2022)), but the debate is not over. Thereby, their works have opened opportunities for an alternative framework that shows up in the debate, which is known as the Sraffian Supermultiplier Model (hereafter SSM).…”