This is one thing that Krugman got right, and several heterodox economists did not. In his
critique of the myth of an economic miracle in Texas, he notes that:
"at a national level lower wages would almost certainly lead to fewer jobs — because they would leave working Americans even less able to cope with the overhang of debt left behind by the housing bubble, an overhang that is at the heart of our economic problem."
Which by the way, also means that soaking the rich, because they are job creators, makes a lot of economic sense. It should be no surprise that jobless recoveries became common in the period in which real wages have stagnated!
Matias, you at least would know...when was the last significant place/period of a profit-led economy? China? Any in LA?
ReplyDeleteProfit-led in the sense of the Kaleckian model is logically inconsistent. Nobody invests because profits are high, if they have no demand for their products. Investment follows the accelerator. What is possible is growth with worsening of income distribution. For example, the so-called Brazilian Miracle in the late 1960s. Worse income distribution led to a consumption boom, since the upper and middle classes could consume more, and as a response investment boomed.
ReplyDeleteThat makes all the sense in the demand led world. Do Bhaduri and Marglin have further thoughts?
ReplyDeleteB&M are firmly in the profit led stuff,. They use a Cambridge equation model rather than a super-multiplier one. Income distribution might have ambiguous effects on growth, but the notion that investment follows profits and not demand is devoid of logical coherence.
ReplyDelete