Is There a Declining Trend in Capacity Utilization in the US Economy? A Technical Note

Abstract

Recent contributions have mentioned the possibility of a declining trend in capacity utilization in the US since the 1970s. However, no consensus has emerged on the empirical evidence. The aim of this paper is to identify if such a declining trend in capacity utilization exists in the US economy: New empirical evidence is shown confirming that this is the case, at least since 1989.

On the adjustment of capacity utilisation to aggregate demand: Revisiting an old Sraffian critique to the Neo-Kaleckian model

“…6 For a theoretical and empirical critique of Nikiforos' approach see Girardi and Pariboni (2019), Gahn and González (2020) and Gahn (2020). For stationarity in capacity utilisation in other countries see Gahn and González (2019) and Gallo (2019).…”

“…group. If we take into account that for the US's case, the 'Full Utilization Rate' and the 'National Emergency Rate' are, according to the available data from 1989 to 2017, greatly correlated (Gahn, 2020); we think that this is enough justification to include the 'b' group. Moreover, the group 'c' also can be included, just because they ask explicitly about the behaviour of the effective capacity in relation to the 'normal' or 'desired' capacity utilisation.…”

Critical globalisation: Productive capacity and capital productivity in the United States, 1945–2020

“…Our paper contributes to the debate on the declining trend in capacity utilisation in the United States economy (Bansak et al 2007;Pierce and Wisniewski 2018;Gahn 2020). Gahn (2023) tries to find an explanation for the declining trend in the degree of effective productive capacity utilisation (proxied by the output-capital ratio, which we call capital productivity) and concludes that: 'There is a declining trend in effective capacity utilisation in the US and there is still no precise answer to this phenomenon'.…”

Aggregate demand externalities, income distribution, and wealth inequality

“…Part of the socalled "utilization controversy" concerns the validity of the official Federal Reserve Board (FRB) measure of capacity utilization, due to the possibility of measurement error in the value reported by the FRB. Using two alternative measures of capacity utilization derived from the Census Bureau's Quarterly Survey of Plant Capacity Utilization-the "Full Utilization Rate" and the "National Emergency Utilization Rate", used in this paper- Gahn (2020) provides evidence that there is indeed a long-term downward trend in capacity utilization. An interesting aspect of the non-mainstream literature on secular stagnation is the dichotomy, both methodological and regarding policy implications, between classical-Marxian approaches on the one hand, and post-Keynesian and Kaleckian approaches on the ohter.…”