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We study a two-class model of growth and the distribution of income and wealth at the intersection of contemporary work in classical political economy and the post-Keynesian tradition. The key insight is that aggregate demand is an externality for individual firms: this generates a strategic complementarity in production that results in equilibrium underutilization of the economy's productive capacity and hysteresis in real GDP per-capita in balanced growth. This equilibrium inefficiency reverberates into both the functional distribution of income and the distribution of wealth: both the wage share and the workers' wealth share would be higher at full capacity. Consequently, fiscal allocation policy that achieves productive efficiency also attains a higher labor share and a more equitable distribution of wealth. Demand shocks also have permanent level effects. Extensions look at temporary growth and employment effects of fiscal policy with dynamic increasing returns, and employment hysteresis. These findings are useful as an organizing framework for thinking through the lackluster economic record of the so-called Neoliberal era, the sluggish recovery of most advanced economies following the Great Recession, and what to expect regarding the recovery from the Covid-19 shock.

Using data on household balance sheets from the Survey of Consumer Finances and data on macroeconomic rates of return from Jordà et al. (2019) we construct two alternate series for household rates of return by race from 1989 to 2016. Our estimates suggest a persistent racial gap in the rate of return on assets between 1 and 6 percentage points. The gap in returns remains even after conditioning on demographic factors, labor market factors, credit history, portfolio composition, household attitudes toward savings, financial literacy, and inheritance - suggestive of a role for discrimination. Oaxaca-Blinder decompositions indicate that differential rates of return may explain up to 50% of the racial wealth gap. Finally, our data on differential rates of return allow us to effectively rule out explanations for the racial wealth gap based on myopia or excessive time preference. Given observed series for consumption and rates of return, a standard lifecyle model requires non-White households to discount the future less than White households in order to match the data.

Four alarming stylized facts have characterized the recent economic history of the United States: (i) a fall in labor productivity; (ii) a fall in the labor share, (iii) an increase in the capital income ratio, and (iv) an increase in the wealth share owned by top income earners. In this paper, we offer a non-Neoclassical explanation for these facts that merges the Pasinetti (1962) approach to differential saving propensities among classes with the theory of induced technical change (ITC) by Kennedy (1964). First, we provide a simple microeconomic rationale for workers' saving propensity being lower than capitalists' based on the empirically-supported argument that consumption peer effects are more prevalent at lower brackets of the income distribution (Petach and Tavani, 2018). We then show that institutional changes that lower the labor share - a decline in unionization, an increase in monopsony power in the labor market, the so-called 'race to the bottom' fostered by a hyper-competitive global environment, or the exhaustion of path-breaking scientific discoveries as argued by Gordon (2015) - can explain the decline in labor productivity growth because of the reduced incentives to innovate to save on labor costs. Combined with ITC, differential savings delivers a direct relationship between the capitalist share of wealth and the capital-income ratio independent of the elasticity of substitution between capital and labor. Finally, we argue that these tendencies are not inevitable: tax policy can be used to implement any wealth distribution, similarly to Zamparelli (2016); while worker-crushing institutional arrangements can be reversed through counteracting policy changes. However, both policy changes appear unlikely given the current institutional and global climate.

A longstanding criticism to Keynesian and Kaleckian growth theories is the question: why would firms operating with underutilized capacity still accumulate capital stock? This paper offers an answer by analyzing the choice of capacity utilization and accumulation in a strategic setting. The argument hinges on the Keynesian notion of user cost of capital. We argue that firms have incentives to wait to see what other firms are doing before adjusting their own utilization, which we capture through a marginal user cost of own utilization decreasing in average utilization. Accordingly, interactions among firms involve strategic complementarities: it is profit-maximizing to increase own utilization with average utilization. Since the latter is a reasonable proxy for demand, (i) the analysis provides a rationale for treating desired utilization as endogenous to demand at the firm level. In general equilibrium: (ii) capital accumulation coexists with underutilization; (iii) if firms were able to coordinate on a common utilization rate, utilization would be strictly higher than in equilibrium. The implications for growth and distribution depend on how the model is closed: (iv) with a distributive closure, equilibrium growth and profitability are both strictly below their socially-coordinated counterpart; (v) with an exogenous labor supply closure, the equilibrium labor share is strictly smaller than under coordination. Hence, (vi) there are mutually beneficial bargaining opportunities for both capital and labor. Moreover, (vii) demand policies have multiplier effects. The slow recovery from the Great Recession in the US provides a prime example of the relevance of equilibrium underutilization. Finally, we use stateby-sector data from the BEA to validate our hypothesis: (viii) our estimation results provide strong and robust support for the relevance of strategic complementarities in the US.