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

07/25/2013

Comments

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.

Marko,
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.

Working...
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.

Working...

Post a comment

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

Link to UT Index Graph:

The UT Index
Data as of 1Q-2014
Effective Demand = $16.013 trillion
Real GDP = $15.824 trillion
UT index = 0.9%
Effective labor share = 74.3%
TFUR = 73.4%
ED Fed rate = 3.2% (would be Fed rate in normal business cycle. Potential GDP is lower than most say.)

Projected Effective Demand limit upon real GDP is $16.100 trillion.

Projected data for 2Q-2014

Capacity utilization = 78.7%
Unemployment = 6.3%

There is no recession for 1stQ-2014. None expected through 3rdQ-2014.

(UT index close to 0.0% would show that real GDP is hitting the effective demand limit. Utilization rates of capital and labor would slow down at that point. And, if UT index begins to rise, the economy is contracting.)
My Photo
Edward Lambert: Independent Researcher on the equation for Effective Demand.
Blog powered by Typepad
Member since 03/2013