Anticipations of the Crisis: On the Similarities between Post Keynesian Economics and Regulation Theory

Abstract

The purpose of this paper is to explore the similarities between Post Keynesian Economics (PKE) and Regulation Theory (RT). It is argued that, despite important differences between these traditions, the analytical contents of PKE and RT display broad similarities with respect to their treatments of the income-generating process, the crisis-prone nature of capitalism, and the institutional contingency of capitalist growth and development. This thesis is then exemplified and substantiated with reference to the 2007-2009 financial crisis and "Great Recession". Specifically, it is shown that important strands of both PKE and RT characterize and were successful in anticipating the crisis as the result of the exhaustion of a financialized growth process.

Does CSR Contribute to Sustainable Development? What a Régulation Approach Can Tell Us

“…In most developed countries, dividends rise with the drop in the investment rate (Husson 2010). But CSR mechanisms do not address this crucial point, which continues to impose a limit on the reproduction of the financialized growth regime and increases its fragility (Setterfield 2011).…”

The transition towards finance-dominated capitalism: French Regulation School, Social Structures of Accumulation and post-Keynesian approaches compared

“…Therefore, they now seem to accept the post-Keynesian argument that, in particular, redistribution at the expense of (lower) wages during the financialization period has caused a major problem for aggregate demand, which only temporarily could be overcome by increasing household debt, which then triggered the crisis. Therefore, there seems to be a common understanding now among the members of these schools regarding the importance of wage stagnation driving household debt, at least in some countries, and regarding the fragility of this process, underpinned by financial deregulation and innovations, as Setterfield (2011) has also pointed out. However, post-Keynesian contributions have clearly spelled out the macroeconomic conditions and constraints and have also highlighted that there are different types of development under financialization, with the 'debt-led consumption boom' type and the 'export-led mercantilist' type at the extremes, which immediately links the issues of inequality and of global current account imbalances as causes for the worldwide Great Recession.…”

The Role of Income Inequality in Crisis Theories and in the Subprime Crisis

“…To be more precise, in contrast to Marxists they think that crises can be avoided if the macro-economy is well managed, financial markets are sufficiently regulated, and the 'golden rule' is followed that real wage growth is in line with labour productivity growth, i.e. that the wage share should be roughly constant 21 (Shaikh, 1978;Clarke, 1994;Davidson, 2003-4;Setterfield, 2010Setterfield, , 2011Palley, 2010a;Hein and Stockhammer, 2011).…”