Optimal growth theory: Challenging problems and suggested answers

We argue that optimal economic growth is confronting serious applicability problems, having nothing to offer in these days of high public deficits accompanied by high unemployment rates. In particular, the theory is not capable of indicating optimal savings rates; those are systematically in ranges that can be considered as unacceptable, or are accompanied by unrealistically high real growth rates. Faulty is the systematic use of arbitrary utility functions, which turn out to be contradictory to competitive equilibrium. We then show how relying on the hypothesis of competitive equilibrium yields reasonable, perfectly acceptable numbers for the optimal savings rate.