Investment, Austerity and the Business Cycle

Paper Session

Friday, Jan. 6, 2017 3:15 PM – 5:15 PM

Swissotel Chicago, Montreux 2
Hosted By: Association for Evolutionary Economics
  • Chair: Charles J. Whalen, Congressional Budget Office

Post-Keynesian Institutionalism and the ‘Common Man’: Philip Klein, Business Cycles, and the Public Sector

Charles J. Whalen
Congressional Budget Office


John R. Commons, whose career was motivated by “whatever helped the common man,” saw the business cycle as the most important of all labor problems. More recently, Philip Klein devoted his career to analyzing business cycles for much the same reason (Beyond Dissent, p. 301). Klein’s work focused on the development of cycle indicators, explicitly building on the pioneering efforts of Mitchell and the nascent NBER, and was supplemented by essays critical of mainstream macroeconomics and others on the role of the public sector.
Klein’s research led to an eclectic theory of cycles that remains useful as a way to synthesize a broad literature, even though the less comprehensive analyses of Sherman and Minsky have proven more useful in shedding light on recent cyclical developments. His essays on mainstream theory were timely when published, and contain enduring discussions of the malleability of the “natural” rate of unemployment and the value of a behavioral approach to expectations.
Klein’s attention to the public sector centered on introducing four concepts to explain how policy is made and plays a role in economic life—higher efficiency, collective ought, the value floor, and emergent values; he also addressed fiscal policy, emphasizing its role in moderating business cycles. In the end, his discussions of the public sector provide only part of a foundation for making and assessing economic policy from a post-Keynesian institutionalist perspective, but they also challenge us to think about the most fundamental issues in economics (and this paper proposes an initial step forward).

Business Cycles, Debt and Profits in the Neoliberal Era in the United States a la Kalecki

Erdogan Bakir
Bucknell University
Al Campbell
University of Utah


The U.S. economy has undergone significant transformation since Kalecki put forward his framework for the profits and their determinants. The pace of the transformation clearly sped up after the 1980s, and more specifically in the 1990s and 2000s once the neoliberal policies were fully implemented and financialization as an aspect of neoliberalism permeated every aspect of the economy. The neoliberal system introduced debt-financed consumption in order to fill the gap in consumption due to stagnant wages. It also changed the corporate governance in a way that corporations prioritized the interest of shareholders over the long-term health of the company, which resulted in depressed capital accumulation in the private sector. In addition, the U.S. trade deficit has worsened during the same neoliberal period. <br /><br />
This paper uses the Kaleckian framework to investigate the role each determinant of profits has in the generation and stabilization of the profits in the neoliberal period, and the other post-WWII periods before it. We look at the trajectories of the profits and their determinants over the business cycles and within different stages of each cycle. This will help us see how neoliberalism and its financialization aspect have changed the way the private sector generated their profits a la Kalecki. The paper also uses the Marxian framework for the profit rate. In our earlier works, using a Weisskopfian Marxist framework for the profit rate, we showed that in all post-WWII cycles a decline in the profit rate in the late expansion phase of the business cycle is an early indicator for the subsequent economic downturn. This paper compares the Kaleckian framework to this Weisskopfian framework in order to add more to our understanding of what causes this initial decline in the profit rate in the late expansion.

Reflections on the New Deal: The Vested Interests and Limitations to Reform

John F. Henry
Levy Economics Institute of Bard College


I subject the programs of Roosevelt’s “New Deal” to critical analysis, with particular attention to what is termed “liberal democracy.” I shall further argue that this analysis speaks to the current period, and demonstrate the limitations to reform given the power of “vested interests” as articulated by Thorstein Veblen.
While institutionalists in general are favorably disposed toward the New Deal, a critical perspective, drawn largely from the work of Veblen, casts doubt on the progressive nature of the various programs instituted during the Roosevelt administrations. The main constraint that limited the framing and operation of these programs was that of maintaining what is termed “liberal democracy.” Treading what appeared to be a fine line between the fascist solutions to the Great Depression, in particular that of Italian “corporatism,” and the planning program of the Soviet Union, the New Deal was shaped by the institutional forces then dominant in the U.S., including the segregationist system of the South. In the end, vested interests dictated what transpired, but what did transpire required a modification of the understanding of liberal democracy.
The argument developed surrounding the New Deal will then be applied to the current state of affairs imposed by the new capitalist order. While the main issue is no longer the contest between fascism and socialism, the institutions developed by and in the interests of the vested interests continue to constrain any movement toward a more progressive organization that promotes the provisioning process. In particular, the power of finance capital is now much stronger than in the 1930’s.

Governments’ Role in Aligning Functional Income Distribution with Full Employment

Antoon Spithoven
Utrecht University


Demand is an incentive for investment. Investment is required for creating employment. If demand lags behind supply, unemployment rises. Persistent unemployment indicates a dysfunctional price mechanism. Under the circumstances of persistent unemployment, lower social benefits and cutting government expenditure result in lower demand and discourage investment. Monetary policies might result in lower interest rates but be impotent to boost consumption and investment. Namely, savings may stay high because of speculative and precautionary motives and, due to a lack of demand, firms may abstain from investment. They may park profits in banks or use them to buy back stocks. Therefore, only governments are able to combat persistent unemployment. The federal government might take the role of countervailing power and stimulate demand, for example, by mandating higher minimum wages or by equalizing savings ex-ante by investing in the production of public goods and services. This solution of the allocation problem requires a revival of a meaningful democracy. A meaningful democracy depends on citizens and governments who are aware that they are not helpless victims of mysterious economic laws or of the vested interests’ influence over social climate and economic zeal. This is quite a challenge to educators.

“Give Me your Watch and I Will Tell You the Time”: Crisis and Austerity in the E.U. and Greece from a Bourdieusian Perspective

Asimina Christoforou
Athens University of Economics and Business


The article investigates austerity policies and the deterioration of socio-economic conditions, particularly in the context of the European Union (EU) and the Greek crisis, by appealing to the work of the French sociologist Pierre Bourdieu (1930-2002). Bourdieu offers an alternative understanding of economic behavior that highlights the interaction among individuals, institutions and social structures. Though he has immense influence in the social sciences, he has largely been ignored by economists.<br /><br />
The article begins with a brief description of Bourdieu’s framework, summarized in the triptych habitus-field-capital. Bourdieu argues that economic behavior depends on certain conceptions of social value imposed by the dominant classes over the dominated. He explains that power relations and social inequalities are reproduced because they go unrecognised and unquestioned by means of a process he terms ‘symbolic violence’ or ‘misrecognition’. <br /><br />
Then this framework is applied to re-assess austerity and socio-economic conditions in Greece and the EU. In the 1990s, Bourdieu often castigated the shift in EU policy priorities toward financial domination, flexible labor markets and restraints on public spending, leading to social segregation. Yet he argues that social groups and classes with various worldviews will struggle for symbolic power – the power to remake the ‘visions and divisions’ of the social world. <br /><br />
The article concludes with ways to combat these problems. It appeals to Bourdieu’s conception of the ‘collective intellectual’: the social scientist that collaborates with other scholars and social groups and creates European and global partnerships to question the social world, uncover the truth and reclaim social welfare.
JEL Classifications
  • E3 - Prices, Business Fluctuations, and Cycles
  • E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook