Over-Investment and the Economic Crisis of 2008

Research output: Contribution to journalArticle

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Abstract

"This article criticizes the view that the financial sector crisis of 2008 was the primary
cause of the real sector crisis. It argues that the real sector economic crisis in the US can be
understood as a crisis of over-investment. The over-investment crisis tendency is explained and
a method of empirically identifying an over-investment crisis is proposed. The article analyzes the
decline in the rate of profit in the US prior to the crisis, from 2004 to 2007, and the movements
of the determinants of the rate of profit during that period, to show which underlying factors
led to the profit rate decline. The article also examines the components of aggregate demand
for the period 2001–10. The results of the analysis suggest that this crisis should be considered
as a case of asset-bubble induced over-investment, which both depressed the rate of profit and
eventually caused a sharp fall in aggregate demand."
Original languageEnglish
Pages (from-to)5-25
Number of pages21
JournalWorld Review of Political Economy
Volume2
Issue number1
Publication statusPublished - 2011

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Economic crisis
Overinvestment
Rate of profit
Real sector
Financial sector
Asset bubbles
Aggregate demand
Profit rate

Keywords

  • economic crisis
  • over-investment
  • profit rate
  • aggregate demand
  • Marxist crisis theory

Cite this

Over-Investment and the Economic Crisis of 2008. / Kotz, David.

In: World Review of Political Economy, Vol. 2, No. 1, 2011, p. 5-25.

Research output: Contribution to journalArticle

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AB - "This article criticizes the view that the financial sector crisis of 2008 was the primarycause of the real sector crisis. It argues that the real sector economic crisis in the US can beunderstood as a crisis of over-investment. The over-investment crisis tendency is explained anda method of empirically identifying an over-investment crisis is proposed. The article analyzes thedecline in the rate of profit in the US prior to the crisis, from 2004 to 2007, and the movementsof the determinants of the rate of profit during that period, to show which underlying factorsled to the profit rate decline. The article also examines the components of aggregate demandfor the period 2001–10. The results of the analysis suggest that this crisis should be consideredas a case of asset-bubble induced over-investment, which both depressed the rate of profit andeventually caused a sharp fall in aggregate demand."

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