The Structural and Dynamical Instability of the Modern Economy
The Structural and Dynamical Instability of the Modern Economy
Addresses a weakness in Schumpeterian thought: innovation need not lead to higher output. An innovation has two opposing effects: it increases investment, thereby increasing labour demand; it also raises productivity, thereby reducing labour demand. A model is developed with three dynamic elements: quadratic investment outlay, dynamic Kahn–Keynes multiplication of output, and a specification for the rate of real wage increase. The model shows that if the real wage is sufficiently responsive, innovation can increase output permanently. The chapter concludes with a Rössler model designed to model short and long waves as a chaotic growth‐oscillator.
Keywords: dynamic instability, innovation, investment, labour demand, long wave theory, output, productivity, Rössler model, Schumpeter, wage
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