Rentier Consumption and Neoliberal Capitalism

Abstract

:This article puts forward a theoretical model and some empirical evidence arguing that a central contradiction of neoliberal capitalism arises from changes in financial structure and corporate governance that have simultaneously effected a massive redistribution of income from workers toward corporate profits and the incomes of C-level executives while diverting corporate managers from the forms of real investment spending that could potentially relieve the shortages of aggregate demand that are inevitably generated when real wage growth becomes uncoupled from productivity growth. As a result, the neoliberal model of capitalism relies on the consumption spending of a capitalist class responding rentier-style to wealth effects from a rising and historically high corporate valuation or q-ratio. This model of capitalism has proved to be unworkable at the zero lower bound on interest rates, which explains the emergence of secular stagnation.