The Finance-led Growth Regime in the United States

Recent theoretical and empirical analyses have further developed Kaldor’s concept of ‘cumulative causation’. They formalise two-way routes between labour productivity growth and demand growth: the ‘demand regime’ and ‘productivity regime’. In this paper, to analyse the growth regime in the United States since the 1990s, we formulate the demand regime by explicitly taking into account capital accumulation. Using a cumulative causation model with two sectors that produce consumer goods and investment goods respectively, we examine the structure of the finance-led growth regime and the causes of the structural crisis in the United States. According to our analysis, huge foreign capital inflows, financial innovation, strong-dollar policies, and the like have substantially increased the sensitivity of asset prices in the real economy, and they did not bring about a virtuous cycle therein. In the 2000s, the demand regime of investment goods shifted leftwards, compared to its position of in the 1990s. The slowdown in real economic growth caused a sharp fall in asset prices when they were strongly sensitive to the real economy. Thus, the structural crisis emerged.