U.S. Growth, the Housing Market and the Distribution of Income

Keynesian models of household behavior suggest that a shift in the distribution of income toward profits—or toward rentiers—should imply an increase in the propensity to save out of income for the population as a whole. However, the available empirical evidence for the United States shows that, starting in 1985, the propensity to save out of income for the household sector has decreased steadily. Starting in 1981, the share of income accruing to the richest 5 percent of the population increased steadily, with wide fluctuations related to capital gains on equities and, more recently, in the housing market. The aim of this paper is to lay down a growth model, grounded in the Post Keynesian stock-flow-consistent approach of Godley and Lavoie, to analyze the links between consumption and saving behavior of two classes of households—financial markets and the housing market. The model will be used from a theoretical perspective to analyze the dynamics of markets along a steady growth path.