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Wealth accumulation and aggregate demand stagnation in a two class economy with applications to the United States

Author

Listed:
  • Rishabh Kumar

    (Department of Economics, New School for Social Research)

Abstract
I develop a structuralist model of long run growth and distribution with capitalists and workers. Wealth distribution offers a resolution to profit-led vs wage-led regimes. At a stable steady state, wealth must be shared by each class and the consumption of workers becomes a key determinant of capacity utilization. The paradox of thrift be- comes a paradox of wealth. Capitalists' tendency to over-accumulate has negative consequences for their own steady state wealth, through the mechanisms of demand driven economic growth. As an applica- tion, it is predicted that observed levels of wealth inequality can cost the US economy approximately $500 billion of annual output in cur- rent terms. The model offers support for public policies looking to equalize the distribution of wealth and income whilst also improving macroeconomic stability and performance.

Suggested Citation

  • 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.
    • Handle: RePEc:new:wpaper:1526
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Wealth distribution; Economic Growth; Paradox of thrift;
    All these keywords.

    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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