Finance in a Classical and Harrodian Cyclical Growth Model

Jamee K. Moudud and Ajit Zacharias
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Jamee K. Moudud: The Jerome Levy Economics Institute
Ajit Zacharias: The Jerome Levy Economics Institute

Macroeconomics from EconWPA

Abstract: This paper addresses two broad questions. The first one relates to the economic rationale for the existence of the welfare state. To address this question, we review the marginalist arguments and then counterpose a historical and institutional analysis of the rise of the U.S. welfare state. The second question concerns the macroeconomic impacts of welfare spending. We examine the standard neoclassical macroeconomic arguments for and against welfare cutbacks and then propose an alternative growth framework, rooted in the classical and Harrodian traditions, to evaluate social policy. We argue that the alternative framework provides both demand-side and supply-side mechanisms whereby social spending can be supported without harmful long-run macroeconomic effects. Our analysis suggests that, in general, because growth and crises are endogenous, there may be no tension between social policy and economic performance. Specifically, the recent cutbacks in the U.S. are hard to justify on purely economic grounds.

JEL-codes: E (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
Date: 2000-10-12
Note: Type of Document - Adobe Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 58; figures: included
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0004037

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