Demand regimes, financialisation and hysteresis.

Demand regimes, financialisation and hysteresis. New Keynesian and post-Keynesian macroeconomic underpinnings of the Varieties of Capitalism

The recent integration of post-Keynesian insights into Comparative Political Economy is an exciting development. Post-Keynesian theory differs from neoclassical and Marxist theories in its analysis of the role of income distribution and of finance. It allows for wage-led demand regimes and it regards finance to be endogenously created and a source of instability. The paper contributes to the debate on the integration of demand regimes in the Varieties of Capitalism analyses. It contrasts post-Keynesian theory to the New Keynesian three equation model. It highlights that post-Keynesian theory gives prominence to the role of income distribution and allows for wage-led demand regimes; financial variables play a key role, which gives rise to endogenous instability and financial cycles (Minskyan debt cycles); economic growth is regarded as a path dependent process (with unemployment hysteresis due to wage norms) and is not anchored in a supply side equilibrium. However, PKE has so far mostly provided a normative analysis of government interventions. The ability to generate income and wealth rather than competitiveness is regarded as key criteria for a viable variety of capitalism.

Prof. Engelbert Stockhammer is professor of International Political Economy at King’s College London. His research areas include financialisation, distribution and growth and economic policy in Europe. Engelbert is chair of the Post Keynesian Economics Society He is ranked among the top 5% of economists worldwide by REPEC and has published more than 60 articles in peer-refereed journals including the Cambridge Journal of Economics, Oxford Review of Economic Policy, International Review of Applied Economics, Journal of Post Keynesian Economics, British Journal of Industrial Relations, Environment and Planning A, and New Political Economy. Recent books include Wage-Led Growth. An Equitable Strategy for Economic Recovery.