Household debt, knowledge capital accumulation and macrodynamic performance

Moti­va­ted to some extent by the empi­ri­cal sig­ni­fi­can­ce of stu­dent loans in the U.S., this paper incor­po­ra­tes kno­wled­ge capi­tal for­ma­ti­on by wor­king hou­seholds finan­ced through debt to a demand-led dyna­mic model of phy­si­cal and kno­wled­ge capi­tal uti­li­za­ti­on and out­put growth. Ave­ra­ge labor pro­duc­ti­vity vari­es posi­ti­vely with the ave­ra­ge kno­wled­ge capi­tal across the labor for­ce. A rise in labor pro­duc­ti­vity resul­ting from kno­wled­ge capi­tal accu­mu­la­ti­on is fully pas­sed on to the real wage, so that the wage sha­re remains cons­tant. In the uni­que long- run equi­li­brium, whi­ch is sta­ble, an exo­ge­nous rise in the wage sha­re rai­ses the rates of phy­si­cal capi­tal uti­li­za­ti­on and out­put growth but has an ambi­guous effect on the rate of employ­ment (whi­ch also mea­su­res the rate of kno­wled­ge capi­tal uti­li­za­ti­on). The long-run equi­li­brium also fea­tu­res the fol­lowing inter­re­la­ted results: the out­put growth rate is gre­a­ter than the exo­ge­nous inte­rest rate; the debt ratio (wor­king hou­seholds’ debt as a ratio of either the phy­si­cal or the kno­wled­ge capi­tal, or the out­put) is inde­pen­dent from the inte­rest rate; and the allo­ca­ti­on of a higher (lower) pro­por­ti­on of wage inco­me to debt repay­ment (con­sump­ti­on) rai­ses ins­te­ad of lowers the debt ratio, whi­ch we dub the para­dox of debt repayment.

Keywords: Hou­sehold debt; kno­wled­ge capi­tal; capa­city uti­li­za­ti­on; employ­ment rate; out­put growth.

J.E.L. Clas­si­fi­ca­ti­on Codes: E12, E22, E24.

Bibliography

Dutt, A. K. (2006): “Maturity, stagnation and consumer debt: A Steindlian approach”,Metroeconomica, 57(3), pp. 339-364.

Dutt, A. K. (2010): “Keynesian growth theory in the 21st century”, in P. Arestis and M. Sawyer (Eds.): Twenty-first Century Keynesian Economics, Macmillan Palgrave, London, pp. 39-80.

Federal Research Bank of New York (FRBNY) (2021): “Quarterly Report on Household Debt and Credit – 2020: Q4”, Released in February 2021.

Kaldor, N. (1956): “Alternative theories of distribution”, Review of Economic Studies, 23(2), pp. 83-100.

Kalecki, M. (1971): Selected essays on the dynamics of the capitalist economy, Cambridge University Press, Cambridge.

Kapeller, J. and Schütz, B. (2015): “Conspicuous consumption, inequality and debt: The nature of consumption-driven profit-led regimes”, Metroeconomica, 66(1), pp. 51-70.

Lavoie, M. (2014): Post-Keynesian economics: New foundations, Edward Elgar, Cheltenham.

Lima, G. T., Carvalho, L. and Serra, G. P. (2021): “Human capital, income distribution and economic growth in a Neo-Kaleckian model”, Review of Keynesian Economics, in press.

Locher, L. and Monge-Naranjo, A. (2016): Student loans and repayment: theory, evidence and policy, in: E. A. Hanushek, S. Machin and L. Woessman (Eds.): Handbook of the Economics of Education, vol. 5, North-Holland, Amsterdam, pp. 397-478.

Lucas, R. E. (1988): “On the mechanics of economic development,” Journal of Monetary Economics, 22(1), pp. 3-42.

Mankiw, G., Romer, D. and Weil, D. (1992): “A contribution to the empirics of economic growth”, The Quarterly Journal of Economics, 107(2), pp. 407-437.

Mueller, H. and Yannelis, C. (2019): “The rise in students loans defaults”, Journal of Financial Economics, 131(1), pp. 1-19.

Pasinetti, L. (1962): “The rate of profit and income distribution in relation to the rate of economic growth”, Review of Economic Studies, 29, pp. 267-79.

Robinson, J. (1962): Essays in the theory of economic growth, Macmillan, London.

Steindl, J. (1952): Maturity and stagnation in American capitalism, Monthly Review Press, New York.

Uzawa, H. (1965): “Optimal technical change in an aggregative model of economic growth”, International Economic Review, 6(1), pp. 18-31.