Inequality Feeds Profits: A Re-Examination of US Economic Performance 1960–2019 in the Light of Kalecki's Equation

This study uses Kalecki's profit equation to examine the changing composition of expenditures that drove profit realisation in the US economy over the last few decades (1961-2019). A clear result is that profits in the Consumer Age (1979-2008) were driven less by investment and 'external markets', - i.e. net ex- ports and government deficits - than by a general collapse in savings. Thereafter, public deficits have aided profits. Still, the support of capitalists' consumption, although reduced, has remained. The study argues that the decline in the rela- tive bargaining power of production workers in the labour market, together with financial innovations, is the root cause of the Consumer Age. Empirical support is sought for the hypothesis that income inequality resulting from wage stagnation has increased upper- and middle-class consumption, and household indebtedness, and thus, profits. These events suggest a debate about how the distribution-spending link, fairly stable in Kaleckian/Keynesian models, can be profoundly altered be- cause of institutional and cultural change, and more generally, a debate about how long an economy driven by consumerism and inequality can last.