I have been reading the ebook on Secular Stagnation. It is interesting that two sections in the book have the titles…
- Three Issues: Potential Growth, Effective Demand and Sclerosis
- Further on Effective Demand
Great! We see the term Effective Demand being used. Yet, Effective demand is never defined in the book. Moreover, the term is only used ONCE in the whole book.
“These policies are usually clustered under the heading of “structural reform” or supply-side policies, but they also help if the “lack of effective demand” version of secular stagnation turns out to be correct.” (page 17)
The term is used in quotes as if they are not sure what effective demand is. There is a vacuum around the prominent term Effective Demand in that high-profile important book.
Effective demand is not just insufficient aggregate demand. It is a limit upon production that will keep the economy from returning to full employment. If it turns out that the economy is unable to return to full employment due to demand, the culprit would be “Effective” demand.
I have a way to determine that effective demand limit, but the economists in the recommended ebook on secular stagnation do not yet. They are even unable to use the term in a sentence. So why do they even use the term in section titles? Well, the understanding of effective demand is working its way into the field of economics due to the strange things being seen.
It is good to see the term effective demand being used, but it will be even better when economists learn what it is and how to calculate it.