Austerity, investment and profit

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Presentation transcript:

Austerity, investment and profit Michael Roberts Rio, June 2018

Trump’s fiscal stimulus

Sluggish growth

Advanced economies: spending rose before the GFC

Emerging economies: also

Investment is the swing factor

Business investment drops the most

Keynesian identities Let us consider these identities. We start with: National income = national expenditure. National income can then be broken down to Profit + Wages; and National expenditure can be broken down to Investment + Consumption. So Profit + Wages = Investment + Consumption. Now if we assume that wages are all spent on consumption and not saved, then Profits = Investment.

The cycle of profit

A world rate of profit

Investment follows profitability

Capex and net income

Profits call the tune

Keynes versus Marx Let us return to the Keynes-Kalecki macro identity. It can be re-designed as: Investment – (non-capitalist) Savings = Profits But the Marxist logic is that the causal connection is the opposite. Thus the equation looks like this. Profits + (non-capitalist) Savings = Investment

Deviation from the pre-crisis IMF real growth forecast and fiscal tightening

The Krugman multiplier

The Keynesian multiplier

China: Keynes or Marx?

Government spending before crises

The Marxist multiplier

Comparing the two

Brazil: Keynesian multiplier

Brazil: Marxist multiplier