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Exploring the Profit-Investment Puzzle: A Post-Keynesian Analysis of Market Concentration and Stagnation

Author

Listed:
  • Zachary Knauss

    (Department of Economics, New School For Social Research, USA)

Abstract
The profit-investment puzzle, characterized by the disconnect between rising corporate profits and stagnant capital investment, has become a focal point in recent economic research. This paper argues that the traditional pro-competitive policy framework, which attributes this phenomenon primarily to anti-trust failures, is insufficient for a comprehensive understanding. Instead, it posits that the post-Keynesian tradition, particularly the work of Josef Steindl, provides a more robust theoretical foundation for analyzing the relationship between market concentration and investment behavior. Steindl's insights into oligopoly dynamics and their impact on capacity utilization and investment decisions are applied to recent trends in U.S. industries. The paper includes both theoretical exploration and empirical analysis, employing econometric tests on data from 1972 to 2017. The results support Steindl's hypothesis of a pro-cyclical relationship between deviations in normal and actual capacity utilization rates and industry-wide investment rates, suggesting that increased market concentration leads to persistent underutilization of capacity and stagnation. This comprehensive analysis challenges the prevailing view that simply enhancing anti-trust enforcement can resolve the profit-investment gap, emphasizing instead the need for nuanced policies that address both market structures and broader economic dynamics.

Suggested Citation

  • Zachary Knauss, 2024. "Exploring the Profit-Investment Puzzle: A Post-Keynesian Analysis of Market Concentration and Stagnation," Working Papers 2409, New School for Social Research, Department of Economics.
    • Handle: RePEc:new:wpaper:2409
    as

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    File URL: http://www.economicpolicyresearch.org/econ/2024/NSSR_WP_092024.pdf
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    References listed on IDEAS

    as
    1. Cédric Durand & Maxime Gueuder, 2018. "The Profit–Investment Nexus in an Era of Financialisation, Globalisation and Monopolisation: A Profit-Centred Perspective," Review of Political Economy, Taylor & Francis Journals, vol. 30(2), pages 126-153, April.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Secular stagnation; capacity utilization; market concentration; oligopoly;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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