« Paul Krugman on Keynes' Effective Demand | Main | Productivity really is Demand Constrained »



Feed You can follow this conversation by subscribing to the comment feed for this post.

Dalio's rules for growth are good , but I'd add one more. He says :

1)Debt doesn't rise faster than incomes , i.e. , over the long haul , consolidated debt/gdp is stable. Since , IMO , debt loads are too high currently , ideally our debt/gdp should gradually decline to a less-burdensome level.

2)Income doesn't grow faster than productivity , i.e. economic growth should be non-inflationary.

3)Productivity should grow at a decent rate , i.e. innovation is a good thing and we should encourage it. If there are negative externalities to innovation , like job losses , we should correct them - for example by reducing work hours or through gov't jobs programs - rather than stifle such innovation.

The extra rule I'd add is this one :

4)Long-term , incomes should grow with productivity across the income distribution , i.e. minimum wages and median wages should rise at roughly the same rate as productivity , not just wages/incomes at the top. You still have incentives , as people can still move up and down the income distribution , and some will still get very rich , but you will maintain the purchasing power of consumers without relying on debt if this rule is followed.

Any economic program for growth should adhere to these rules. Since the crisis , we've failed to do so , with the possible exception of the debt/gdp rule. During the postwar "Golden Decades" we did a much better job.

Agreed... income should rise with productivity. The problem is productivity is demand constrained and won't rise under this condition. Effective demand has to start rising first.

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.


Post a comment

Comments are moderated, and will not appear until the author has approved them.

UT Index (measure of slack):

The UT Index

Recession Alert (developed at recessionalert.com):

recession alert

Effective Demand Limit $16.250 trillion projected:

Effective demand Y and PY recent

Tracking GDI with Effective Demand Limit:


Effective Demand Fed rate rule (uses CPI less food & energy):

ED Fed rate

Output Gap (big difference):

Output gap

Speed of consuming slack: yoy monthly:

Speed of consuming slack

Speed of consuming slack: quarterly:

Speed of consuming slack quarterly

Real consumption per Employee:

real consumption per employee 2

Will real wages ever rise faster than productivity?:

Productivity & Real Wages

Real Wage Index:

real wage index



Productivity against Effective Demand limit:

Prod & ED limit

Bottom of Initial Claims?:

Initial claims

Are we seeing the Fisher Effect?:

Fisher effect?

Measures of Inflation:

Measures of Inflation

M2 velocity still falling:

Measures of Inflation

Double checking labor share with unit labor costs & inflation:

Data as of 3rdQ-2014
Effective Demand = $16.288 trillion
Real GDP = $16.150 trillion
UT index = 0.6%
Effective labor share = 74.8%
TFUR = 74.2%
ED Fed rate = 3.2%

Projected Effective Demand limit upon real GDP is $16.250 trillion.

Projected data for 4thQ-2014

Real GDP = $16.250 trillion
Effective labor share = 75.0%
Capacity utilization = 79.0%
Unemployment = 5.9%
TFUR = 74.4%

There is no recession for 3rdQ-2014. None expected in 4thQ-2014.

(UT index close to 0.0% shows that real GDP is hitting the effective demand limit. Utilization rates of capital and labor slow down. If UT index begins to rise, the economy is contracting.)
My Photo
Edward Lambert: Independent Researcher on Effective Demand.
Some links for economic analysis
Fed Views - San Francisco Fed, around 10th of each month.
Well's Fargo monthly - around 10th of each month
Well's Fargo weekly
Well's Fargo Interest rate report
Well's Fargo Economic indicators
T. Rowe Price weekly market wrap-up
Blog powered by Typepad
Member since 03/2013