TY - JOUR
T1 - Financial Instability and Income Inequality: Why the Minsky–Piketty Connection Matters for Macroeconomics
AU - Gusella, Filippo
AU - Variato, Anna Maria
PY - 2022
Y1 - 2022
N2 - This article addresses the relationship between financial instability
and wealth inequality in a twofold perspective. First, it is an
attempt to explain why the two phenomena, despite being
nowadays equally relevant as empirical concerns, do not attract
equal attention from researchers and are usually studied
separately or conceived as independent levers affecting cycles or
growth. We suggest the adoption of implicit methodological
paradigms, instead of ‘historical momentum’ as the likely reason.
Secondly, we present a theoretical framework grounded on the
work of Piero Ferri (Aggregate Demand, Inequality and Instability
— New Directions in Modern Economics. Edward Elgar Publishing,
Cheltenham, UK, 2016) with a medium-run dynamic demand-led
model set for a monetary economy of production, where
corporate debt is introduced into the financial account of firms.
Minsky and Piketty come instrumentally to support the two
perspectives: on one side they become our opposite
representatives of heterodox and orthodox method; on the other
side, as the model specification makes the work of Thomas
Piketty (Capital in the Twenty-First Century. Cambridge University
Press, Cambridge, MA, 2014, and Capital in the Twenty-First
Century, Technical Appendix. Cambridge University Press,
Cambridge, MA, 2014) directly comparable with the financial
instability hypothesis, our exercise sheds light on the dynamic
role of retention rates and capital share during the cycle phases,
qualifying the conditions under which financial instability may
lead to inequality. Connecting the implications of the two
argumentative lines, the call emerges for a significant rethinking
in macroeconomics studies.
AB - This article addresses the relationship between financial instability
and wealth inequality in a twofold perspective. First, it is an
attempt to explain why the two phenomena, despite being
nowadays equally relevant as empirical concerns, do not attract
equal attention from researchers and are usually studied
separately or conceived as independent levers affecting cycles or
growth. We suggest the adoption of implicit methodological
paradigms, instead of ‘historical momentum’ as the likely reason.
Secondly, we present a theoretical framework grounded on the
work of Piero Ferri (Aggregate Demand, Inequality and Instability
— New Directions in Modern Economics. Edward Elgar Publishing,
Cheltenham, UK, 2016) with a medium-run dynamic demand-led
model set for a monetary economy of production, where
corporate debt is introduced into the financial account of firms.
Minsky and Piketty come instrumentally to support the two
perspectives: on one side they become our opposite
representatives of heterodox and orthodox method; on the other
side, as the model specification makes the work of Thomas
Piketty (Capital in the Twenty-First Century. Cambridge University
Press, Cambridge, MA, 2014, and Capital in the Twenty-First
Century, Technical Appendix. Cambridge University Press,
Cambridge, MA, 2014) directly comparable with the financial
instability hypothesis, our exercise sheds light on the dynamic
role of retention rates and capital share during the cycle phases,
qualifying the conditions under which financial instability may
lead to inequality. Connecting the implications of the two
argumentative lines, the call emerges for a significant rethinking
in macroeconomics studies.
KW - Economic inequality
KW - financial instability hypothesis
KW - endogenous cycles
KW - Economic inequality
KW - financial instability hypothesis
KW - endogenous cycles
UR - http://hdl.handle.net/10807/293236
U2 - 10.1080/09538259.2022.2117982
DO - 10.1080/09538259.2022.2117982
M3 - Article
SN - 0953-8259
SP - 1
EP - 34
JO - Review of Political Economy
JF - Review of Political Economy
ER -