Must-Read: With a more equal distribution of income, there would be a lot more demand for manufactured goods — both consumer and residential investment goods.
And here, as elsewhere, I think that there is confusion between what we used to think of as the short-term aggregate demand problem and the long-term technological change-driven structural adaptation problem:
Miles Kimball: Bruce Greenwald: The Death of Manufacturing: “This is a fascinating discussion by Bruce Greenwald…
…of the difficulties of shifting people from working in sectors like agriculture and manufacturing where employment is declining because productivity is going up faster than demand, the efforts of some countries to export this problem to other countries, and the effect of these forces on interest rates, and therefore, implicitly, their interaction with the zero lower bound…. It still doesn’t work to have more manufacturing output that people want to buy any more than it makes sense to have more food grown than people can possibly eat. So at the end of the day… either people will start consuming a lot more because of the low interest rates, or more likely there would end up being extra investment in something else. A good possibility is education…. Standard human capital theory suggests that a low enough long-run real interest rate can have a big effect on the amount of education chosen.
Originally published at www.bradford-delong.com.