In 1996, if I'm not wrong, there was a conference at the New School in honor of David Gordon, who had just passed away. The late Andrew Glynn, gave a very nice talk, but he said something that left me uneasy. For him, the NAIRU (Non Accelerating Inflation Rate of Unemployment) was our concept, meaning by our radical economics' idea, not mainstream's idea. The point was that the NAIRU, in contradistinction to Milton Friedman's natural rate, does not imply full employment.
The NAIRU does suggest that output is supply determined, and that expanding demand beyond that level is inflationary, but the fundamental reason is that after that the bargaining power of workers increases and leads to wage-price spirals. This could happen way before the economy is fully utilizing its productive capacity, and would depend on social factors like the relative strength of the trade unions, for example.
While that is correct, I noted, after the conference, that this still meant that demand had no role, in this view, in expanding the capacity limit of the economy (my students are rolling their eyes, and saying there he goes with Kaldor-Verdoorn again!). Glynn's reply was a quote from a title of paper by David Gordon. My views implied too much cumulation and not enough contradictions. The notion is that if you think that the demand determines long term growth we should live in a paradise with full employment, since demand can be managed.
Of course, in developing countries that is almost never possible. You expand demand, imports increase, current account deficits balloon, and contraction follows. The external constraint at work. Well we are finally in an American example of the contradictions that impede demand expansion. Today, the NYTimes tells us in the editorial that:
"When consumers are constrained, so is hiring, because without customers, employers are hard pressed to retain workers or make new hires."Yep, the Times got effective demand right (it must be a Krugman thing)! However, no fiscal package is at hand to solve this simple technical problem. I'm not going to explain Republicans and American politics (wouldn't dare). But the political contradictions associated with expanding demand are staggering. It's a pity that only now I have a good answer for Andrew.
PS: The paper by David cited above is Gordon, D. "Kaldor's Macro System: Too Much Cumulation, Too Few Contradictions." In Nicholas Kaldor and Mainstream Economics, edited by Edward J. Nell and Willy Semmler, pp. 355-83. New York: St. Martin's Press, 1991.