DISTRIBUTIVE AND DEMAND CYCLES IN THE US ECONOMY—A STRUCTURALIST GOODWIN MODEL

Abstract

ABSTRACT There are regular counterclockwise cycles involving capacity utilization u (horizontal axis) and the labor share ψ (vertical axis) in the US economy since 1929. As in Goodwin’s cyclical growth model, ψ can be interpreted as a Lotka–Volterra predator variable and u as prey. In a phase diagram, dynamics around the u̇ =0 schedule respond to effective demand that econometric estimation (1948–2002) shows to be profit‐led. Distributive dynamics around the =0 curve demonstrate a long‐term profit squeeze. Across cycles, the real wage and labor productivity grow at 0.57 per cent per quarter, holding the labor share broadly stable. Modeling the cycle in the ( u , ψ) plane provides a parsimonious description of demand and distributive dynamics, consistent with the macroeconomics embedded in the work of Kalecki, Steindl, Goodwin and many subsequent authors.