Ken-Ichi Akao
Waseda University
Stefano Bartolini
DEPS, USiena
Abstract
Over the past half century in the US, substantial economic growth coexisted with increasing inequality, and the erosion of social capital and well-being. Currently, no comprehensive explanations is available for such paradoxical mix of brilliant economic performance and social crises. We present a simple endogenous growth model showing that economic growth, the decline of social capital and well-being, and rising well-being inequality can be interconnected, mutually reinforcing phenomena. This type of growth can be described as defensive because it arises from the expenditures of households aimed at defending themselves against growth-related negative externalities, thus fostering economic growth. Defensive growth leads to a loss of well-being in the long run because, beyond a certain level of output, private prosperity is no longer able to compensate for social poverty. Along a defensive growth path, the decline of social capital disproportionately weighs on the well-being of low-income households, because of their relatively lower capacity to nance defensive spending. This prediction is consistent with the evidence showing that over the past 50 years the loser of the “pursuit of happiness” stated in the American Constitution is the working class.
Keywords
Defensive growth, social capital, relative consumption
Jel Codes
O41, I31, D31, Z13
