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Thrift, stagnation and wealth distribution in a two class economy with applications to the United States

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  • Rishabh Kumar

    () (Department of Economics, New School for Social Research)

Abstract

A two class (rentiers and workers) model of growth and distri- bution is applied to the study of long run stagnation in aggregate demand. The theoretical framework shows the same forces which lead to concentration of wealth and income amongst the class of rentiers, also constrain the aggregate economy's output capital ratio in the long run. We conjecture that this model addresses the secular stagnation argument that has gained prominence recently. For the period 1979- 2010, we nd the US economy represents the kind of stylized economy which would be prone to falling output capital ratios due to increased savings rate di erentials in its income and wealth ranking. A rst approximation suggests the long decline in the rate of saving in the US maybe a consequence of a distributional paradox of thrift.

Suggested Citation

  • Rishabh Kumar, 2015. "Thrift, stagnation and wealth distribution in a two class economy with applications to the United States," Working Papers 1506, New School for Social Research, Department of Economics, revised Jul 2015.
  • Handle: RePEc:new:wpaper:1506
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    File URL: http://www.economicpolicyresearch.org/econ/2015/NSSR_WP_062015.pdf
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    References listed on IDEAS

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    1. Edward N. Wolff, 2012. "The Asset Price Meltdown and the Wealth of the Middle Class," NBER Working Papers 18559, National Bureau of Economic Research, Inc.
    2. Lance Taylor & Armon Rezai & Rishabh Kumar & Nelson Barbosa & Laura Carvalho, 2017. "Wage increases, transfers, and the socially determined income distribution in the USA," Review of Keynesian Economics, Edward Elgar Publishing, vol. 5(2), pages 259-275, April.
    3. Saez, Emmanuel & Zucman, Gabriel, 2014. "Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data," CEPR Discussion Papers 10227, C.E.P.R. Discussion Papers.
    4. Thomas Piketty & Gabriel Zucman, 2014. "Capital is Back: Wealth-Income Ratios in Rich Countries 1700–2010," The Quarterly Journal of Economics, Oxford University Press, vol. 129(3), pages 1255-1310.
    5. Darity, William A, Jr, 1981. "The Simple Analytics of Neo-Ricardian Growth and Distribution," American Economic Review, American Economic Association, vol. 71(5), pages 978-993, December.
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    Cited by:

    1. Rishabh Kumar, 2015. "Wealth accumulation and aggregate demand stagnation in a two class economy with applications to the United States," Working Papers 1526, New School for Social Research, Department of Economics.

    More about this item

    Keywords

    Distribution; Economic Growth; Stagnation; Paradox of Thrift;

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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