PARADIGMATIC PERSPECTIVES ON INCOME DISTRIBUTION AND FINANCIAL CRISES

Year 2016, Volume: 38 Issue: 1, 295 - 317, 01.06.2016

Sinem Sefil

https://doi.org/10.14780/iibd.89127

Abstract

The role of the income distribution and inequality among individuals and factors of production on the occurrence of financial crises has long been a controversial issue in economics literature and the stance of the economists on this debate is mainly rooted in their different views on the distributional mechanism in the economic system. By conducting an extensive literature review, this paper attempts to illustrate the views of the different schools of economic though on role of income distribution and inequality as a cause of the financial crises with a special focus on the subprime crisis in 2008.

References

• ACEMOGLU, Daron. Thoughts on inequality and the financial crisis. In AEA meeting, Denver (Vol. 7). 2011
• AKERLOF, George. Behavioral macroeconomics and macroeconomic behaviour. American Economic Review. 2002. 92(3). 411-433.
• AKERLOF, George. The market for lemons: quality uncertainty and the market mechanism. Quarterly Journal of Economics. 2011. 84: 488–500.
• ANTONIO, Alves Jr., et al. Currency crises, speculative attacks and financial instability in a global world: a Post Keynesian approach with reference to Brazilian currency crisis (No. 2001-2007). Universidade Federal do Rio Grande do Sul, Curso de Pós-Graduação em Economia. 2001.
• ARESTIS, Philip. Post-Keynesian economics: towards coherence. Cambridge Journal of Economics. 1996. 20(1): 111-135.
• ATKINSON, Anthony. et al. Top Incomes in the Long Run of History. Journal of Economic Literature. 2011. 49 (1): 3-71.
• ATKINSON, Anthony., Salvatore Morelli. Economic crises and Inequality. UNDP-HDRO Occasional Papers, (2011/6). 2011.
• BARAN, Paul. et al. Monopoly capital: An essay on the American economic and social order. Vol. 73. NYU Press. 1966.
• BARRON, Patrick. Why Monetary Expansion must stop. Mises Daily. 2011. available at https://mises.org/ library/why-monetary-expansion-must-stop
• BARONIAN, Laurent, Marx and Living Labour. Routledge. 2013.
• BASU, Santonu. Incomplete information and asymmetric information. Zagreb International Review of Economics and Business. 2001. 4(2):23-48.
• BELL, Peter and Cleaver, Harry. Marx’s theory of crisis as a theory of class struggle. The Commoner. 2002. 5:1-61.
• BELLOFIORE, Riccardo. From Marx to Minsky: The Universal Equivalent, Finance to Production and the Deepening of the Real Subsumption of Labour under Capital in Money Manager Capitalism. In Ganssmann, H. eds. “New approaches to monetary theory. Interdisciplinary perspectives”. Routledge: Abingdon & New York, 2011. pp. 191-211.
• BEZEMER, Dirk. Causes of Financial Instability: Don’t Forget Finance. Levy Economics Institute of Bard College Working Paper No. 665. 2011. Available at SSRN: http://ssrn.com/abstract=1808020 or http://dx.doi.org/10.2139/ssrn.1808020
• BOETTKE, Peter J and Coyne, Christopher J. The debt–inflation cycle and the global financial crisis. Global Policy. 2011. 2.2: 184-189.
• BORDO, Michael and Meissner, Christopher M. Does inequality lead to a financial crisis?. Journal of International Money and Finance. 2012. 31(8): 2147-2161.
• BRENNER, Robert and SEONG-JIN Jeong. Overproduction not Financial Collapse is the Heart of the Crisis: The US, East Asia, and the World. 2009. The Asia- Pacific Journal (February 7).
• BRUMMER, Alex. The crunch: How greed and incompetence sparked the credit crisis. 2009. Random House.
• BUITER, Willem. The unfortunate uselessness of most’state of the art’academic monetary economics. VoxEU, Research-based policy analysis and commentary from leading economists. 2009.
• CAIANI, Alessandro. et al. Agent Based-Stock Flow Consistent Macroeconomics: Towards a Benchmark Model. Columbia Business School Research Paper No. 15-87. 2015. Available at SSRN: http:// ssrn.com/abstract=2664125 or http://dx.doi.org/10.2139/ssrn.2664125
• CAVERZASI, Eugenio and GODIN, Antoine. Stock-flow consistent modeling through the ages. Levy Economics Institute of Bard College Working Paper, (745). 2013.
• CLAESSENS, Stijn and KOSE, Ayhan. Financial Crises Explanations, Types, and Implications (No. 13-28). International Monetary Fund. 2013.
• CLARKE, Simon. Marx’s Theory of Crisis. Macmillan Press: Basingstoke. 1994
• DE BEER, Paul. The Impact of the Crisis on Earnings and Income Distribution in the EU. Brussels: European Trade Union Institute. 2012.
• EVANS, Trevor. Marxian and post-Keynesian theories of finance and the business cycle. Capital & Class. 2004. 28(2): 47-100.
• EVANS, Trevor. Five explanations for the international financial crisis. IPE Working Paper No. 08/2010. 2010.
• EZUHO, Elom. Income Inequality, Over-indebtedness and Financial Instability: Essay on a Keynes- Goodwin-Minsky Macrodynamic Model. In 15th Conference of the Research Network Macroeconomics and Macroeconomic Policies (FMM), Berlin 2011. pp. 28-29.
• FAGIOLO, Giorgio and Roventini, Andrea. Macroeconomic policy in dsge and agent-based models. Revue de l’OFCE. 2012 (5): 67-116.
• FAMA, Eugene F. Efficient Capital Markets: a review and empirical work. Journal of Finance. 1970. Vol. 25(2): 383-417.
• FETT, Nicholas. The Effect of Monetary Policy on Real growth Cycles. Issues in Political Economy. .2011 27-20:7.
• GARCIA, Norberto. DSGE macroeconomic models: A critique. Economie Appliquee. 2011. 64(1): 149.
• GATTI, Domenico Delli and GALLEGATI, Mauro. Financial instability, income distribution, and the stock market. Journal of Post Keynesian Economics. 1990. 12(3): 356-374.
• GODA, Thomas. 2013. The role of income inequality in crisis theories and in the subprime crisis. Post Keynesian Economics Study Group Working Paper, 1305.
• GODLEY, Wynne and MCCARTHY, George. Fiscal policy will matter. Challenge. 1998. 41(1): 38-54.
• GODLEY, Wynne. Seven Unsustainable Processes: Medium-Term Prospects and Policies for the United States and the World. Strategic Analysis, The Levy Economics Institute of Bard College. 1999.
• GODLEY, Wynne and Lavoie, Marc. Fiscal policy in a stock-flow consistent (SFC) model. Journal of Post Keynesian Economics. 2007a. 30(1): 79-100.
• GODLEY, Wynne and Lavoie, Marc. Monetary Economics - An Integrated Approach to Credit, Money, Income, Production and Wealth, 2007b, Palgrave Macmillan, Basingstoke, UK
• GOLDSTEIN, Jonathan. The cyclical profit squeeze: a Marxian microfoundation. Review of Radical Political Economics. 1985. 17(1-2): 103-128.
• HEIN, Eckhard. A (Post-) Keynesian perspective on” financialisation” (No. 1/2009). IMK Study. 2009.
• HEIN, Eckhard. Financialization, distribution, capital accumulation, and productivity growth in a post- Kaleckian model. Journal of Post Keynesian Economics. 2012. 34(3): 475-496.
• JARSULIC, Marc. Financial instability and income distribution. Journal of Economic Issues. 198822(2), 545-553.
• KAHNEMAN, Daniel and Tversky, Amos. Prospect Theory: An Analysis of Decision Under Risk, Econometrica. 1979. 47: 263-291.
• KEEN, Steve. Post Keynesian theories of crisis. American Journal of Economics and Sociology. 2015. 74(2): 298-324.
• KOLB, Robert W. Lessons from the financial crisis: Causes, consequences, and our economic future. Vol. 12. John Wiley & Sons. 2010.
• KOTZ, David M. Social structures of accumulation, the rate of profit, and economic crises, paper written for a Festschrift in honor of Thomas E. Weisskopf, University of Massachusetts. 2011.
• KINSELLA, Stephen. et al. Income Distribution in a Stock-Flow Consistent Model with Education and Technological Change. Eastern Economic Journal. 2011. 37(1): 134–149.
• KRUGMAN, Paul. A model of balance-of-payments crises. Journal of money, credit and banking. 1979. 11(3): 311-325.
• KRUGMAN, Paul. Crises: The Next Generation?. Paper Presented at Conference Honoring Assaf Razin, Tel Aviv. 2001.
• KRUGMAN, Paul. Inequality and crises: coincidence or causation?V ad $ dress at the Alphonse Weicker Foundation. 2010.
• KRUGMAN, Paul. The Profession and the Crisis. Eastern Economic Journal. 2011. (37): 307–312.
• KRUGMAN, Paul. End This Depression Now . New York: Norton. 2012.
• KUMHOF, Michael and Ranciere, Romain. Inequality, leverage and crises. IMF Working Paper No. 268. 2010.
• KUMHOF, Michael., et al. Inequality, Leverage and Crises: The Case of Endogenous Default. IMF Working Papers, forthcoming, International Monetary Fund.Guilford Press. 2013.
• LAIBMAN, David. Value, technical change, and crisis: Explorations in Marxist economic theory. ME Sharpe. 1992.
• LAVOIE, Marc. Introduction to Post-Keynesian Economics. Houndmills: Palgrave Macmillan. 2006.
• LAVOIE, Marc. Financialisation issues in a Post-Keynesian stock-flow consistent model. Intervention. European Journal of Economics and Economic Policies. 2008. 5(2):335-361.
• LAVOIE, Marc and Godley, Wynne. Kaleckian models of growth in a coherent stock flow monetary framework: a Kaldorian view. Journal of Post Keynesian Economics. 311-277 :24.2 .2001.
• LAWSON, Tony. Essays on: The Nature and State of Modern Economics. Routledge. 2015.
• LYSANDROU, Photis. Global inequality, wealth concentration and the subprime crisis: a Marxian commodity theory analysis. Development and Change. 2011. 42.1:183-208.
• MAIER, Myriam J. and Koumparoulis, Dimitrios N. Austrian Economics and the Financial Crisis of 2008. 2012. EuroEconomica. 31.3.
• MAGDOFF, Foster., et al. The New Face of Capitalism: Slow Growth, Excess Capital, and a Mountain of Debt. Monthly Review. 2002. 53(11): 1–14.
• MALINEN, Tuomas. Income inequality in the process of economic development: an empirical approach. Research Reports Kansantaloustieteen tutkimuksia, 2012. No. 125:2011
• MICHELL, Jo. Working paper no. 41: Factors generating and transmitting the crisis: Functional distribution of income. Working Paper. FESSUD, Leeds. Available from: http://eprints.uwe.ac.uk/23428 2014a.
• MICHELL, Jo. A Steindlian account of the distribution of corporate profits and leverage: A stock-flow consistent macroeconomic model with agent-based microfoundations. Post-Keynesian Study Group. Working Paper:14.12. 2014b.
• MILANOVIC, Branko. The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality. Basic Books. 2010.
• MINSKY, Hyman P. Can ‘It’ Happen Again? Essays on Instability and Finance. Armonk, New York, M. E. Sharpe. 1982.
• MINSKY, Hyman P. Stabilizing an Unstable Economy. New Haven and London, Yale University Press. 1986.
• MORGAN, Jamie and Negru, Ioana. The Austrian perspective on the global financial crisis: A critique. Economic Issues. 2012. 17.2:27.
• MORSET, Trygve Larsen. Inequality as a Cause of Systemic Banking Crises ̶ Some New Theory and Evidence. Master Thesis. Lund University. 2013.
• MOSELEY, Fred. The rate of profit and the future of capitalism. Review of Radical Political Economics. 1997. 29(4): 23-41.
• MOSELEY, Fred. Some Notes on the crunch and the crisis. International Socialism, issue 119. 2008. Retrieved at 10.02.2016 from http://www.isj.org.uk/?id=463
• MUNOZ, Jesşs. Orthodox versus Heterodox (Minskyan) Perspectives of Financial Crises: Explosion in the 1990s versus Implosion in the 2000s. Levy Economics Institute of Bard College Working Papers, (695). 2011.
• MURPHY, Robert P . ‘The Problems of Central Bank Planning. April 04, 2008a . https://mises.org/library/ problems-central-bank-planning
• MURPHY, Robert P. An Open Letter to Gary Becker regarding Depressions. November 24, 2008b. https:// mises.org/library/open-letter-gary-becker-re-depressions.
• NESVETAILOVA, Anastasia. Fragile Finance: Debt, Speculation and Crisis in the Age of Global Credit. Basingstoke: Palgrave Macmillan. 2007.
• NOWICKI, Lawrence W. New-Keynesians, Post-Keynesians and the Financial Crisis. Proceedings of the Northeast Business & Economics Association. 2013.
• OBSTFELD, Maurice and ROGOFF, Kenneth. 2009. Global imbalances and the financial crisis: products of common causes. paper prepared for the Federal Reserve Bank of San Francisco’s conference on Asia and the Global Financial Crisis.
• OBSTFELD, Maurice. The Logic of Currency Crises. NBER Working Papers 4640, National Bureau of Economic Research, Inc. 1994.
• O’DRISCOLL, Gerald P. Jr.. The FED can’t solve our economic woes’, The Wall Street Journal, 16August. 2010. http://www.wsj.com/articles/SB10001424052748704388504575418964014417740
• OECD. Focus on Top Incomes and Taxation in OECD Countries: Was the crisis a game changer? 2015. OECD Report: available at http://www.oecd.org/els/soc/OECD2014-FocusOnTopIncomes.pdf
• O’HARA, Phillip A.The global securitized subprime market crisis. Review of Political Economics. 2009. 41(3): 318-334.
• ONARAN, Özlem. Global crisis and the policy reaction in Western and Eastern European Union: can policy save capitalism from itself? 2010a. Retrieved at 26.02.2012 fromhttp://internationalviewpoint.org/ spip.php?article1797
• ONARAN, Özlem. The Crisis of Capitalism in Europe, West and East. Monthly Review. 2010b. 62(5): 18-33.
• ONARAN, Özlem. From wage suppression to sovereign debt crisis in Western Europe: who pays for the costs of the crisis? International Journal of Public Policy. 2011. 7(1/2/3): 51 – 69.
• ONARAN, Özlem - Galanis Giorgos. Is aggregate demand wage-led or proft-led? National and global effects. ILO Conditions of Work and Employment Series No. 31. 2012.
• ORHANGAZI, Özgür. Financialisation and capital accumulation in the non-financial corporate sector: A theoretical and empirical investigation on the US economy: 1973–2003. Cambridge Journal of Economics. 2008. 32(6): 863-886.
• PALLEY, Thomas I. Financialization: What it is and Why it Matters. PERI Working Paper No. 153. 2007.
• PIKETTY, Thomas. On the long-run evolution of inheritance: France 1820–2050. The Quarterly Journal of Economics. 2011. 126 (3): 1071–1131.
• RAJAN, Raghuram G. Fault Lines. How Hidden Fractures Still Threaten the World Economy. Princeton: Princeton University Press. 2010.
• REICH, Robert B. Aftershock: The next economy and America’s future. Vintage. 2010.
• REINHART, Carmen M,. and Rogoff, Kenneth S. Is the 2007 US sub-prime financial crisis so different? An international historical comparison. No. w13761. National Bureau of Economic Research, 2008.
• ROBERTS, Michael. The causes of the Great Recession: mainstream and heterodox interpretations and the cherry pickers. paper at the 10th conference of the Association of Heterodox Economist.2010.
• ROHAC, Dalibor. Does inequality matter?. Adam Smith Institute Briefing Paper, 17. 2011.
• SHAIKH, Anwar. An introduction to the history of crisis theories. In “US Capitalism in Crisis. Union for Radical Political Economics: New York. 1978.
• SHAIKH, Anwar. The first great depression of the 21st century. Socialist Register. 2011. 47: 44-63.
• SHEFRIN Hersh and Statman, Meir. Behavioural Capital Asset Pricing Model. Journal of Financial and Quantitative Analysis. 1994. 29:323-349.
• SHILLER, Robert J. Conversation, Information and Herd Behaviour, American Economic Review 1995. 85:181-185.
• SHLEIFER, Andrei. Inefficient Markets: An Introduction to Behavioural Finance. Oxford, U: Press, Oxford. 2000.
• STIGLITZ, Joseph and Rothschild, Michael. Equilibrium in competitive insurance markets. Quarterly Journal of Economics. 1976. 90:629–649.
• STIGLITZ, Joseph. The Current Economic Crisis and Lessons for Economic Theory. Presidential Address to the Eastern Economic Association. The Eastern Economic Journal. 2009a. 35 (3): 281-296.
• STIGLITZ, Joseph. The global crisis, social protection and jobs. International Labour Review. 2009b. 148(1–2): 1-13.
• STIGLITZ, Joseph. Freefall: America, free markets, and the sinking of the world economy. WW Norton & Company. 2010.
• STIGLITZ, Joseph. Macroeconomic fluctuations, inequality, and human development. Journal of Human Development and Capabilities. 2012a 13(1):31-58.
• STIGLITZ, Joseph. The price of inequality. Penguin Books: London. 2012b.
• STOCKHAMMER, Engelbert. Financialisation and the slowdown of accumulation. Cambridge Journal of Economics. 2004. 28(5): 719–741.
• STOCKHAMMER, Engelbert. Some stylized facts on the finance-dominated accumulation regime. Competition & Change. 2008. 12(2): 184-202.
• STOCKHAMMER, Engelbert. Rising inequality as a cause of the present crisis. Cambridge Journal of Economics. 2015.39.3:935-958.
• TABB, William K.. Marxism, crisis theory and the crisis of the early 21st century. Science and Society. 2010. 74(3): 305-323.
• TIGANAS, Claudiu-Gabriel and Peptine Claudiu. The Austrian School Of Economics And Market Instability. CES Working Papers 5: 129-137. 2013.
• TULARAM, Gurudeo Anand and Subramanian, Bhuvaneswari. Modeling of financial crises: a critical analysis of models leading to the global financial crisis. Global Journal of Business Research. 2013. 7(3):101-124.
• VAN TREECK, Till. The macroeconomics of ‘financialisation’ and the deeper origins of the crisis. IMK Working Paper No. 9. 2009.
• VAN TREECK, Till and STUM, Simon. Income inequality as a cause of the Great Recession? : A survey of current debates. ILO Working Papers 470934, International Labour Organization. 2012.
• VERCELLI, Alessandro. “Minsky Moments, Russell Chickens and Grey Swans: The Methodological Puzzles of Financial Instability Analysis.” Minsky, Crisis and Development. Palgrave Macmillan UK.15-31. 2010.
• WHELAN, Karl. Global imbalances and the financial crisis. University College Dublin. School of Economics, 2010-04. 2010.