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Economic contradictions coming home to roost? Does the U.S. economy face a long-term aggregate demand generation problem?

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  • THOMAS I. PALLEY

Abstract

Many argue that the current recession is the product of a temporary stock market wobble. This paper argues that the U.S. economy confronts deeper-seated problems concerning the aggregate demand generation process. For two decades, these problems have been obscured by a range of demand compensation mechanisms--rising consumer debt, a stock market boom, and rising profit rates. Now, these mechanisms are exhausted. Fiscal policy adjustments and dollar depreciation are the only stable exits from this impasse, but they must be accompanied by measures rectifying the income distribution imbalances at the root of the problem. Absent this, deficient demand will reassert itself.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 25 (2002)
Issue (Month): 1 (January)
Pages: 9-32

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Handle: RePEc:mes:postke:v:25:y:2002:i:1:p:9-32

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348

Related research

Keywords: aggregate demand; debt; income distribution; saving rates; stock market;

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Cited by:
  1. Thomas I. Palley, 2013. "Gattopardo economics: the crisis and the mainstream response of change that keeps things the same," European Journal of Economics and Economic Policies: Intervention, Edward Elgar, vol. 10(2), pages 193-206.
  2. Mark Setterfield, 2013. "Using Interest Rates as the Instrument of Monetary Policy: Beware Real effects, Positive Feedbacks, and Discontinuities," Working Papers 1320, Trinity College, Department of Economics.
  3. Giuseppe Fontana & Bill Gerrard, 2006. "The future of Post Keynesian economics," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 59(236), pages 49-80.
  4. Mark Setterfield, 2014. "Economic Growth and Development," Working Papers 1404, Trinity College, Department of Economics.
  5. Greg Hannsgen, 2004. "The Transmission Mechanism of Monetary Policy: A Critical Review," Economics Working Paper Archive wp_412, Levy Economics Institute.
  6. Yun Kim & Mark Setterfield & Yuan Mei, 2013. "A Theory of Aggregate Consumption," Working Papers 1301, Trinity College, Department of Economics.
  7. Nathan Perry & Nathaniel Cline, 2013. "Wages, Exchange Rates, and the Great Inflation Moderation: A Post-Keynesian View," Economics Working Paper Archive wp_759, Levy Economics Institute.
  8. Mark Setterfield & Yun Kim, 2013. "Debt Servicing, Aggregate Consumption, and Growth," Working Papers 1316, Trinity College, Department of Economics.
  9. Till van Treeck, 2012. "Did inequality cause the U.S. financial crisis?," IMK Working Paper 91-2012, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  10. Mark Setterfield, 2012. "Real Sector Imbalances and the Great Recession," Working Papers 1201, Trinity College, Department of Economics.
  11. Thomas Goda, 2013. "The role of income inequality in crisis theories and in the subprime crisis," Working Papers PKWP1305, Post Keynesian Economics Study Group (PKSG).
  12. Mark Setterfield, 2010. "Endogenous Growth: A Kaldorian Approach," Working Papers 1001, Trinity College, Department of Economics.
  13. Yun Kim & Mark Setterfield & Yuan Mei, 2012. "Aggregate Consumption and Debt Accumulation: An Empirical Examination of US Household Behavior," Working Papers 1204, Trinity College, Department of Economics.

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