IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpma/9905004.html
   My bibliography  Save this paper

Demand Constraints and Economic Growth

Author

Listed:
  • Marc-Andre Pigeon

    (The Jerome Levy Economics Institute)

  • L. Randall Wray

    (The Jerome Levy Economics Institute)

Abstract

In recent years, the U.S. has seemed to achieve the best of all possible worlds: robust economic growth, very low unemployment, and low inflation. Many would attribute this performance to fewer supply side constraints, as the U.S. has moved away from stifling regulations and other impediments to trade. Indeed, our lower unemployment rates—especially when compared with the very high unemployment rates suffered in European countries—would appear to be due to freer labor markets and to a less generous social safety net that saps private initiative. However, in this paper we show that while it is true that the U.S. has enjoyed a higher, and growing, employment rate than that of all of our major competitors, per capita GDP growth since 1970 actually lags behind that of all other major countries. The reason, of course, is our dismal rate of productivity growth. Indeed, we show that when one decomposes per capita GDP growth into its component parts—growth of employment rates and growth of output per employee—the U.S. experience is quite different from that of the other countries. In some sense, countries "choose" high employment paths or low employment paths, but regardless of that choice, economic growth does not appear to be much affected. We argue that this is because countries have not faced significant supply constraints; rather, per capita GDP growth has been largely demand constrained. This is why policies that would remove supply constraints do not really lead to more rapid economic growth. The policy conclusion is that Keynesian "demand side" policies are preferable to "supply side" policies if one is to increase growth rates.

Suggested Citation

  • Marc-Andre Pigeon & L. Randall Wray, 1999. "Demand Constraints and Economic Growth," Macroeconomics 9905004, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpma:9905004
    Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 18; figures: included
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/9905/9905004.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Marc-Andre Pigeon & L. Randall Wray, "undated". "Did the Clinton Rising Tide Raise All Boats? Job Opportunity for the Less Skilled," Economics Public Policy Brief Archive ppb_45, Levy Economics Institute.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mario Cimoli & Nelson Correa, 2010. "ICT, Learning and Growth: An Evolutionary Perspective," Chapters, in: Mario Cimoli & André A. Hofman & Nanno Mulder (ed.), Innovation and Economic Development, chapter 7, Edward Elgar Publishing.
    2. L. Randall Wray, 2006. "Flexible Exchange Rates, Fed Behavior, and Demand Constrained Growth in the USA," International Review of Applied Economics, Taylor & Francis Journals, vol. 20(3), pages 375-389.
    3. Dimitri B. Papadimitriou & L. Randall Wray, 1999. "Can Social Security Be Saved?," Economics Working Paper Archive wp_270, Levy Economics Institute.
    4. Dimitri B. Papadimitriou & L. Randall Wray, "undated". "Does Social Security Need Saving? Providing for Retirees throughout the Twenty-first Century," Economics Public Policy Brief Archive ppb_55, Levy Economics Institute.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. L. Randall Wray, "undated". "Why Does The Fed Want Slower Growth?," Economics Policy Note Archive 00-7, Levy Economics Institute.
    2. Xin Xu & Robert Kaestner, 2010. "The Business Cycle and Health Behaviors," NBER Working Papers 15737, National Bureau of Economic Research, Inc.
    3. Xu, Xin, 2013. "The business cycle and health behaviors," Social Science & Medicine, Elsevier, vol. 77(C), pages 126-136.

    More about this item

    JEL classification:

    • E - Macroeconomics and Monetary Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:9905004. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: EconWPA (email available below). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.