Preprint Article Version 1 This version is not peer-reviewed

Downshifting in the Fast Lane: A Post-Keynesian Model of a Consumer-Led Transition

Version 1 : Received: 6 December 2017 / Approved: 12 December 2017 / Online: 12 December 2017 (08:34:41 CET)

A peer-reviewed article of this Preprint also exists.

Kemp-Benedict, E.; Ghosh, E. Downshifting in the Fast Lane: A Post-Keynesian Model of a Consumer-Led Transition. Economies 2018, 6, 3. Kemp-Benedict, E.; Ghosh, E. Downshifting in the Fast Lane: A Post-Keynesian Model of a Consumer-Led Transition. Economies 2018, 6, 3.

Journal reference: Economies 2018, 6, 3
DOI: 10.3390/economies6010003

Abstract

If the world’s countries seriously tackle the climate targets agreed in Paris, their citizens are likely to experience substantial changes in production, consumption and employment. We present a long-run post-Keynesian model for studying the potential implications of a major transition on macroeconomic stability and employment. It is a demand-led model in which firms have considerable but not absolute freedom to administer prices, while household consumption exhibits inertia. Firms continually seek input-saving technological improvements that, in the aggregate, tie technological progress to firms' cost structure. Together with firm pricing strategies and wage setting, the productivities of different inputs determine the functional income distribution. Saving and investment, and production and purchase of consumption goods, are undertaken by different economic actors, driven by income and capacity utilization, with the possibility that productive capacity exceeds, or falls short of, effective demand. The model produces business cycles and long waves driven by technological change. We present results for a “downshifting” scenario in which households voluntarily withdraw labor and discuss the implications of downshifting for stability, growth, and employment. We contrast the downshifting scenario with ones in which households reduce consumption without withdrawing from the labor pool.

Subject Areas

demand-led growth; downshifting; Kaleckian-Harrodian; post-Keynesian; ecological economics

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