April 19, 2015

Stylized facts and vacuous interpretations

Comment on ‘The IMF on Investment since 2008’


Obviously, your post lacks an underlying coherent theory. To make a long argument (2015) short, the correct Employment Law for the investment economy is given on Wikimedia AXEC46.

The equation says that employment L increases with:
• investment expenditures I,
• an increasing expenditure ratio ρE (≡C/Y),
• an increasing factor cost ratio ρF (≡W/PR),
under the condition of product market-clearing if price P and productivity R in the consumption and investment good industry as well as distributed profit Yd remain unaltered in the period under consideration; it decreases in the opposite case. The testable equation explains unemployment.

The income distribution affects the expenditure ratio rhoE. The dependency of the average expenditure ratio from wage income and distributed profit and their different expenditure ratios ais given with eq. (30) in (2014).

The Employment Law above accounts coherently for both the effects of investment expenditures and distributional changes (and a bit more).

It is important to note that distribution theory crucially depends on profit theory. It is very probable that your profit theory is false (again see 2014) and therefore your interpretation of the IMF data is pointless.

Egmont Kakarot-Handtke

Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Employment. SSRN Working Paper Series, 2576867: 1–11. URL