ABSTRACT
Ed McKenna prefers to explain the increase in debt-financed consumption in terms of institutional changes affecting the supply of consumer credit, rather than in terms of an increase in conspicuous consumption by the less well-to-do. McKenna asks about the empirical relevance of the condition which implies that debt-financed increases in consumption can have a long—run contractionary effect. McKenna asks whether the Kaleckian model is suitable for analyzing long-run growth—whether it is indeed meaningful to allow the capacity utilization rate to be endogenous in the long run. McKenna notes that some models allowing for saving by workers imply that the results of increasing indebtedness may well be different. One is entitled to conclude that when investment is not a strong engine of growth, consumption-led borrowing-financed expansions are unlikely to lead to sustained expansions. There is the issue whether the incorporation of saving by workers—perhaps in the form of retirement accounts—will change the conclusions of the model.
