Macroeconomic Policy in an Environmentally-Constrained Economy: A Dialectical Materialist Application of the Harrod Growth Model

Abstract

After the 2007 financial crisis, most macroeconomists advocated policies to restore economic growth, disregarding the constraints imposed by nature. Because standard macroeconomic models ignore environmental constraints, we propose reviving Harrod’s dynamic model as a useful abstraction of the dialectic of an evolving macroeconomy. Harrod’s model describes how environmental constraints can push the economy into recession, and it explains why traditional macroeconomic policies are unable to put a resource-constrained economy back on a full employment growth path. By clarifying the dialectic conflicts between desired economic growth and natural growth, Harrod’s model also reveals what types of policies can achieve full employment in a resource-constrained economy. JEL Classification: O44, E61, O41, P51