Robert Skidelsky: “We have a problem of deficient aggregate demand… full stop.”
INET has a great interview with Robert Skidelsky. It is well worth watching. Here is the link…
He talks about political power in determining which economic theories get applied. He talks about fiscal policy.
He mentions that trying to re-work supply side reforms while the markets are weakening in demand can be unproductive. Many other good points in the interview.
From my own perspective… The reason that effective demand will keep real GDP from reaching potential output is because labor share of income has fallen. Thus a consequence is deficient aggregate demand, in the sense that demand has the effective potential to only take us part way to potential supply output.
In other words, workers need to have a greater share of the income so that they can buy more stuff and thus increase demand which will stimulation more production and raise the GDP. Have I got it right? If so, is this an argument for increasing the minimum wage?
Jerry, You have it right. The percentage of income going to labor is the prime factor in determining effective demand, according to the research I do. Then effective demand determines the percentage of utilization of labor and capital in the economy.
A solution would be to raise the minimum wage, as long as the labor share of income increased as a result.