New Directions in Modern Economics series
Edited by Riccardo Bellofiore and Giovanna Vertova
Chapter 6: Debt, class and asset inflation
The mainstream view of household consumption and saving is based on the idea of a ‘representative’ household endowed with more or less perfect foresight, according to whether the theory is New Classical or New Keynesian. The traditional Keynesian view had household saving and consumption determined by income, with Post-Keynesian innovations in the form of differentiated propensities to consume on the part of workers or capitalists and, following Minsky, increasing indebtedness of firms (Minsky 1978). The analysis below in Section 4, based on the theories of Kalecki and Steindl, bears some relationship to the financial accelerator theory of Bernanke and Gertler, in using a similar ‘net worth’ factor in the analysis. However, it should be pointed out that Bernanke and Gertler do not provide any rationale for changes in net worth other than the observed fluctuation in net worth over the business cycle (Bernanke and Gertler 1989). In the twenty-first century, in particular following the financial crisis that broke out in 2007, more radical economists have tried to link financial instability with inequality of incomes. A number of studies (e.g. those of Dumenil and Levy 2011, Brenner 2006) have argued that the crisis is the outcome of rising household indebtedness at a time of stagnating or falling wage income, combined with a rising share of profits being paid to financial intermediaries.
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