The Positive Aggregate-Demand Externalities of Producer-Consumer Households to Stabilize Aggregate Economic Fluctuations: A Comparison between Japan and the United States

Abstract

A dual economy model of the New Keynesian type discussed in Chapter 7 reveals that producer-consumer households moderate the aggregate economic fluctuations in terms of both the employment of labor and also the demand for outputs in the economy where capitalist firms offer a higher than equilibrium rate of wage to use the resulting excess supply of labor as a worker discipline device (see, for example, Shapiro and Stiglitz, 1984 and Bulow and Summers, 1986). Can their stabilizing behavior be verified in actual records of the employment of labor and the demand for outputs? This problem is the subject of this chapter, which will draw on the population survey records and the national income and product accounts of Japan and the United States. These records are selected mainly for the convenience of access at the time this project was undertaken though they admittedly fail to give as accurate as desired an account of the production activity of individual members of each economy (see, for example, Eisner, 1989).