Edward Lambert on Effective Demand, Labor Share, Capacity Utilization, and Growth

May 9th, 2013

He’s only been blogging since March. His credentials? “Independent Researcher on the equation for Effective Demand.”

That may explain why, aside from a lonely Steve Randy Waldman link, I’ve seen no mention of his work out there. Just another internet econocrank?

I’m wildly unqualified to pass judgment, but Lambert’s built what strikes me as a very interesting, cogent, and coherent model of effective demand, labor share, unemployment, and capacity utilization in growing economies. And he’s extending it fast, including into optimal monetary policy. (Mark Sadowski has been challenging him on the model in comments here.)

I won’t try to summarize his modeling or poke holes — go look at it. I’ll just give you a picture and a few post titles to whet your appetite.

Here’s his UT (“Unused Total”) Index:

The regularity of its coincidence with recessions (especially the ends of recessions), at least, seems like it should raise eyebrows.

Here are some posts to peruse:

What is Effective Demand?

What Non-inclusive Growth Looks LIke

When Labor Share does not rise in the Growth Model

Effective Demand Monetary Policy: the z coefficient

AS-ED Model: Raising Labor Share of Income

Update on AS-ED model: The future has a problem

Given Scott Sumner’s recent reversion to labor share as the appropriate target for monetary policy, I’m thinking that Market Monetarists might find Lambert’s work as interesting as effective-demand-obsessed Keynesians will. MMTers and other Post-Keynesians? His results certainly comport with their political predilections.

Cross-posted at Angry Bear.

  1. May 9th, 2013 at 11:35 | #1

    A good link to include has the equations and the basic model for monetary policy based on labor share.

    The model can be used to target labor as a monetary policy. A labor share rate below a certain amount makes monetary policy ineffective. We are in that state now. You raise the labor share rate, you will resuscitate monetary policy.
    The perfect range for labor share (business sector, 2005-100) would be 103 to 108. In that range, monetary policy would be viable in a severe slump, and not require very high Fed rates when the economy heats up, maybe 7% to 9% at the most.
    Labor share is now 94.7. But a labor share over 98 would resuscitate monetary policy right now.

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