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A New Theory of Demand-Restricted Growth: The Basic Idea

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  • Thomas Gries

Abstract

In mainstream theory, growth is explained fully by elements of the supply side. In this article, we depart from neoclassical mechanisms and suggest a hybrid approach that allows for growth restrictions induced by demand-side elements. We obtain such demand-restricted growth by suggesting an unconventional equilibrium concept in a stochastic environment. We define macroeconomic equilibrium as stationary no-expectation-error equilibrium. This equilibrium concept relates to the Nash idea of individual stationary behavior as long as expectations prove to be realized. No rigidities are introduced. Even if potential growth is generated by technical change and capital accumulation, the growth path is restricted by effective earnings and can be stable below the neoclassical path of potential growth. However, the growth process mutates to the neoclassical process if effective earnings and potential earnings equalize. Therefore, our hybrid model could help to bridge a gap between Keynesian and neoclassical ideas of economic growth. JEL Classifications : E12, E13, O40, E60

Suggested Citation

  • Thomas Gries, 2020. "A New Theory of Demand-Restricted Growth: The Basic Idea," The American Economist, Sage Publications, vol. 65(1), pages 11-27, March.
    • Handle: RePEc:sae:amerec:v:65:y:2020:i:1:p:11-27
    DOI: 10.1177/0569434519846477
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    Cited by:

    1. Gries, Thomas & Naudé, Wim, 2020. "Artificial Intelligence, Income Distribution and Economic Growth," GLO Discussion Paper Series 632, Global Labor Organization (GLO).
    2. Gries, Thomas & Naudé, Wim, 2021. "The Race of Man and Machine: Implications of Technology When Abilities and Demand Constraints Matter," IZA Discussion Papers 14341, Institute of Labor Economics (IZA).
    3. Gries, Thomas, 2019. "Income polarization and stagnation in a stochastic model of growth: When the demand side matters," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203576, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    Demand-restricted growth; no-expectation-error equilibrium; neoclassical growth theory;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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