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

Rishabh Kumar

No 1526, Working Papers from New School for Social Research, Department of Economics

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.

Keywords: Wealth distribution; Economic Growth; Paradox of thrift (search for similar items in EconPapers)
JEL-codes: D3 E21 O4 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2015-11
New Economics Papers: this item is included in nep-mac and nep-pbe
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