Essays in the Tradition of Jane D'Arista
Edited by Gerald A. Epstein, Tom Schlesinger and Matías Vernengo
Chapter 16: The last refuge of scoundrels: Keynes–Minsky perspectives on the uses and abuses of the “liquidity defense”
The unprecedented demographic changes that are set to unfold in most of the industrialized world are consequential not only because of the decline in the share of working-age population but also because of the rise of an economic class, the retirees, who are expected to behave differently. Specifically, their consumption and saving patterns can be significantly distinct from those of wage earners or capitalists. Overall, retirees tend to consume all of their income. In this chapter I argue that population aging will affect distribution and growth dynamics through its effects on aggregate demand. Second, the success of fiscal policies implemented in response to higher old-age dependency rates will depend on the distribution and demand regimes in place. After this short introduction, the present chapter begins with a section on demographic indicators and a counterfactual analysis of population aging effects on growth and distribution for a few selected countries. The third section introduces demographic changes in a Keynesian model of growth and distribution. Next, the focus is on policies that address the rise in old-age dependency rates with Japan and the US as case studies.
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