NEW GROWTH THEORY, EFFECTIVE DEMAND, AND POST-KEYNESIAN DYNAMICS

Preliminary draft. Comments welcome. This paper provides a critical appraisal of new growth theory from the perfective of post-Keynesian approach to macroeconomic dynamics. It argues that new growth theory appears new from the point of view of introducing endogenous growth only if one ignores many non-neoclassical contributions to old growth theory. New growth theory also suffers from other problems, including the fact that it does not incorporate effective demand issues and unemployment in the analysis, which play an important role in post-Keynesian growth models that draw on earlier non-neoclassical growth theory. By examining the role of technological change in the post-Keynesian growth model, it argues that the contribution of new growth theory is not very novel, and that the analysis of technological change can be improved by going beyond it, although by drawing from it as well. It also argues that new growth theory, by overemphasizing technology, has ignored many important issues which are relevant for the growth process, which can be usefully examined within post-Keynesian growth theory. This is illustrated with the example of the problem of consumer debt.