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Bloggingheads 03-29-2011 02:09 AM

Full-Frontal Geeky (Karl Smith & Megan McArdle)
 

Baz 03-29-2011 04:08 AM

Karl Smith & Megan McArdle
 
Fiat money Megan, its all imaginary.

Just write off world debt and start again...too radical...God won't mind just this once.

sugarkang 03-29-2011 08:46 AM

Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)
 
Yay, discussion that matters.

conncarroll 03-29-2011 09:07 AM

Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)
 
Just to put real numbers on Social Security's very current account deficits:
Social Security paid out $37 billion more then it took in last year.
Social Security will pay out $45 billion more then it will collect this year.
Over the next ten years Social Security will add more $600 billion to the national debt.
http://www.cbo.gov/budget/factsheets/2011/5-oasdi.pdf
The Social Security crisis is real and it arrived yesterday.

Stapler Malone 03-29-2011 09:15 AM

Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)
 
It'd be cool if BH had Karl Smith on with an opposing economist named Adam Marx.

Don Zeko 03-29-2011 09:51 AM

Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)
 
Where are these numbers coming from, Conn? The chart you posted lists 2010's OASDI income as $788 Billion, with outgoing payments at $706 Billion. Also, wouldn't one want to distinguish the effects of the recession and the temporary payroll tax holiday that was part of last year's tax cut compromise from Social Security's long-run finances?

karlsmith 03-29-2011 10:29 AM

Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)
 
Conn,

Doesn't that show exactly how trivial of an issue this is. Its a little bit less than total farm subsidies and 600B over ten years is out of 160,000B in ten year GDP. So thats about .38%

You could say that social security is a bad program and I don't like it but it isn't as if makes a notable strain on the US fiscal position in the short term.

ohreally 03-29-2011 11:36 AM

Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)
 
Conn: OK, you hate SocSec. Fine. Just man up and say so. But this crap about the deficit is just too easy to debunk. SocSec operates a trust fund from which it issues bonds for the government to pay for such things as fighting all the wars you love to watch on your teevee (but not fight in person). So it's fine by you to let the government default on its bonds? That's what you're saying.

Funny how the government never hesitates to honor the bonds issued by private banks but, by your logic, should default on debt to the taxpayer. Why don't you worry instead about the government guaranteeing $8 trillion worth of bank loans? A trillion here, a trillion there, you know the rest.

DenvilleSteve 03-29-2011 11:36 AM

Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)
 
Quote:

Originally Posted by conncarroll (Post 202352)
Just to put real numbers on Social Security's very current account deficits:
Social Security paid out $37 billion more then it took in last year.
Social Security will pay out $45 billion more then it will collect this year.
Over the next ten years Social Security will add more $600 billion to the national debt.
http://www.cbo.gov/budget/factsheets/2011/5-oasdi.pdf
The Social Security crisis is real and it arrived yesterday.

we don't have to cut core social security. Maybe limit early retirement to people who do physical labor. Definitely limit SSDI to people with physical problems. There are so many programs that can be cut before old age retirement. No federal pension payouts until the recipient is 65. No student loans. Independence for Puerto Rico. Limit food stamps to rice, beans, milk, eggs and cheap chicken. Replace medicaid with government run health clinics.

DenvilleSteve 03-29-2011 11:52 AM

Karl assumes tax revenue can be increased
 
Listening to Karl, it sounded like he thinks the goverment can turn the dials at some point and bring in more revenue. As I heard Obama/Summers say this past december, raising taxes at this point would hurt the economy. So presumably, that principle applies in the future. The 2nd reason government can't raise more revenue thru taxes is that rich people are more and more able to move and keep their money off shore. When you open an investment account in another country, the income from that investment is not taxable in the US. correct? Esp if you only have debit card access to that investment account.

The government is going to fail. Karl and Megan are blocked by ideology from being aware of the tea party. We don't have the social cohesion necessary to balance the budget.

Florian 03-29-2011 02:32 PM

Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)
 
Quote:

Originally Posted by ohreally (Post 202357)
Funny how the government never hesitates to honor the bonds issued by private banks but, by your logic, should default on debt to the taxpayer. Why don't you worry instead about the government guaranteeing $8 trillion worth of bank loans? A trillion here, a trillion there, you know the rest.

That was precisely the question that I kept asking myself as I listened to this otherwise informative diavlog. Social security shortfalls are peanuts in comparison to the debts that have been racked up by the FED in its efforts to prop up the financial sector and to reinflate the stock market by bailouts and "quantitative easing," otherwise known as printing money. I am not an economist, but when leftwing French economists agree with rightwing American economists, I begin to worry.....seriously....about the state of the American and the world economy.

Don Zeko 03-29-2011 02:35 PM

Re: Karl assumes tax revenue can be increased
 
Quote:

Originally Posted by DenvilleSteve (Post 202359)
As I heard Obama/Summers say this past december, raising taxes at this point would hurt the economy. So presumably, that principle applies in the future.

The "presumably" in that sentence is being criminally overworked. The blindingly obvious reason that raising taxes this year is a bad idea is that we're still stuck in a liquidity trap: unemployment is at 9% and the Fed can't make interest rates any lower. When we're back in normal conditions, there's absolutely no reason to think that returning to Clinton-era tax rates will be an intolerable drag on the economy.

chiwhisoxx 03-29-2011 02:54 PM

Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)
 
Quote:

Originally Posted by ohreally (Post 202357)
Conn: OK, you hate SocSec. Fine. Just man up and say so. But this crap about the deficit is just too easy to debunk. SocSec operates a trust fund from which it issues bonds for the government to pay for such things as fighting all the wars you love to watch on your teevee (but not fight in person). So it's fine by you to let the government default on its bonds? That's what you're saying.

Funny how the government never hesitates to honor the bonds issued by private banks but, by your logic, should default on debt to the taxpayer. Why don't you worry instead about the government guaranteeing $8 trillion worth of bank loans? A trillion here, a trillion there, you know the rest.

Let's not use the phrase "trust fund", because then it makes people think that there's actually a trust fund social security can fall back on, which of course doesn't exist.

DenvilleSteve 03-29-2011 02:58 PM

Re: Karl assumes tax revenue can be increased
 
Quote:

Originally Posted by Don Zeko (Post 202371)
The "presumably" in that sentence is being criminally overworked. The blindingly obvious reason that raising taxes this year is a bad idea is that we're still stuck in a liquidity trap: unemployment is at 9% and the Fed can't make interest rates any lower. When we're back in normal conditions, there's absolutely no reason to think that returning to Clinton-era tax rates will be an intolerable drag on the economy.

by taxing investment income at a higher rate than investors in other countrys pay, increasing taxes in the US will discourage investment. An investor in China hires programmers in India to write a software application that is sold in the USA. The profits go to the investor and taxes are paid in the country where the enterprise is incorporated. The US based competing investor has to pay 40% or more of the profits to the feds. The overseas investor will have more to invest and will out compete the US investor in the global marketplace.

Don Zeko 03-29-2011 03:13 PM

Re: Karl assumes tax revenue can be increased
 
I wasn't saying that higher tax rates have no negative effect on economic growth. Rather, what I was attempting to say was that we are in an unusual economic situation right now in which deficits and inflation are not things we need to worry about, but that once we get back to a more normal economic outlook then increased tax rates will be less economically damaging than continued high deficits.

Tara Davis 03-29-2011 04:29 PM

Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)
 
The back-half of this blog in a nutshell: Two pro-stimulus Keynesians arguing about how much and how soon we need to brace ourselves for the inevitable collapse from the looming deficit.

That Hayek fellow just keeps looking smarter and smarter.

DenvilleSteve 03-29-2011 06:10 PM

Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)
 
Quote:

Originally Posted by Tara Davis (Post 202390)
The back-half of this blog in a nutshell: Two pro-stimulus Keynesians arguing about how much and how soon we need to brace ourselves for the inevitable collapse from the looming deficit.

That Hayek fellow just keeps looking smarter and smarter.

and the alarm and urgency of the tea party are being proved correct. Tea party activism is motivated by a great concern the country will fail if the deficit spending is not stopped. How smug and dumb do the democrats look in comparison?

bkjazfan 03-29-2011 06:11 PM

Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)
 
Are multipliers and models helping the large number of under and unemployed or is it something for econ types to talk about in their spare time? I think it's the latter.

DenvilleSteve 03-29-2011 06:13 PM

Re: Karl assumes tax revenue can be increased
 
Quote:

Originally Posted by Don Zeko (Post 202379)
I wasn't saying that higher tax rates have no negative effect on economic growth. Rather, what I was attempting to say was that we are in an unusual economic situation right now in which deficits and inflation are not things we need to worry about, but that once we get back to a more normal economic outlook then increased tax rates will be less economically damaging than continued high deficits.

ok, but I think it is a completely different ballgame now and for many years to come. Democrats have to accept that the government cannot raise the revenue needed to balance the budget at current spending levels.

BornAgainDemocrat 03-29-2011 06:23 PM

Inflation and unemployment
 
It's been said that economics never has and never will produce an iota of knowledge that is both true and non-obvious to laymen. The laws of supply and demand for instance: the idea that a fall in price will generally increase the demand for something. In the case of labor that means a fall in real hourly wages will cause employers to demand more labor, thereby increasing the total volume of employment. [Notice: volume of employment is measured in man hours not jobs, jobs being an ill-defined term.] Inflation makes it easier to reduce real hourly wages (and thus increase the total volume of employment) because it does not require employers to actually do anything. They go down automatically as prices go up.

See, what was so hard about that?

ohreally 03-29-2011 07:27 PM

Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)
 
Quote:

Originally Posted by chiwhisoxx (Post 202376)
Let's not use the phrase "trust fund", because then it makes people think that there's actually a trust fund social security can fall back on, which of course doesn't exist.

The government uses the phrase "Trust Fund." I always go by what the government tells me.

The government should not default. That's all I am saying. Conn says it should. Methinks that's because Conn hates America.

nw111 03-29-2011 07:30 PM

Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)
 
Quote:

Originally Posted by Florian (Post 202370)
That was precisely the question that I kept asking myself as I listened to this otherwise informative diavlog. Social security shortfalls are peanuts in comparison to the debts that have been racked up by the FED in its efforts to prop up the financial sector and to reinflate the stock market by bailouts and "quantitative easing," otherwise known as printing money. I am not an economist, but when leftwing French economists agree with rightwing American economists, I begin to worry.....seriously....about the state of the American and the world economy.


I am confused by your statement. How does the Federal Reserve rack up debts? To my knowledge it has no mechanism for borrowing (unless I am totally ignorant of governments financial structure, which is a distinct possibility). It is THE lender (obviously, since it prints the money). Did you mean debts racked up to the Fed [from the Treasury]? If so, that makes more sense, my only quibble would be that many of those debts were not just for financial bailouts but for more general spending.

badhatharry 03-29-2011 08:29 PM

Re: Inflation and unemployment
 
Quote:

Originally Posted by BornAgainDemocrat (Post 202403)
It's been said that economics never has and never will produce an iota of knowledge that is both true and non-obvious to laymen. The laws of supply and demand for instance: the idea that a fall in price will generally increase the demand for something. In the case of labor that means a fall in real hourly wages will cause employers to demand more labor, thereby increasing the total volume of employment. [Notice: volume of employment is measured in man hours not jobs, jobs being an ill-defined term.] Inflation makes it easier to reduce real hourly wages (and thus increase the total volume of employment) because it does not require employers to actually do anything. They go down automatically as prices go up.

See, what was so hard about that?

You had me until here:Inflation makes it easier to reduce real hourly wages (and thus increase the total volume of employment) because it does not require employers to actually do anything. They go down automatically as prices go up.

So are you saying that because prices are going up the buying power of wages is reduced? If so, why does that have an effect on the total volume of employment? In your scenario it seems the total volume of employment would stay the same. What am I not seeing?

badhatharry 03-29-2011 08:32 PM

Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)
 
Quote:

Originally Posted by Tara Davis (Post 202390)
That Hayek fellow just keeps looking smarter and smarter.

At this point it's time for a little song.

badhatharry 03-29-2011 08:34 PM

Re: Karl assumes tax revenue can be increased
 
Quote:

Originally Posted by Don Zeko (Post 202371)
The "presumably" in that sentence is being criminally overworked. The blindingly obvious reason that raising taxes this year is a bad idea is that we're still stuck in a liquidity trap: unemployment is at 9% and the Fed can't make interest rates any lower. When we're back in normal conditions, there's absolutely no reason to think that returning to Clinton-era tax rates will be an intolerable drag on the economy.

The whole point of keeping taxes low is not to make the rich happy but to reduce the size of the government.

badhatharry 03-29-2011 08:38 PM

Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)
 
Quote:

Originally Posted by karlsmith (Post 202355)
Conn,

Doesn't that show exactly how trivial of an issue this is. Its a little bit less than total farm subsidies and 600B over ten years is out of 160,000B in ten year GDP. So thats about .38%

You could say that social security is a bad program and I don't like it but it isn't as if makes a notable strain on the US fiscal position in the short term.

Why does 600 billion all of a sudden become an insignificant amount? Doesn't it all add up?

brucds 03-29-2011 08:49 PM

Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)
 
Rather than listen to bullshit from clowns like Conn Carroll or even McArdle, how about someone who actually has some track record and expertise:

http://titanicsailsatdawn.blogspot.c...cit-hawks.html

Noxious fumes from the Heritage Foundation re: the "Social Security Crisis" will make you some combination of stupid or crazy...if you believe it, you're stupid and if you're not stupid but spend time contemplating these hacks who've been pushing dogmas that have driven up deficits for thirty years and are pretty much the sole responsible parties in this nasty business, it'll drive you crazy. No time for this crap...

brucds 03-29-2011 08:53 PM

Re: Karl assumes tax revenue can be increased
 
"The whole point of keeping taxes low is not to make the rich happy but to reduce the size of the government."

It's called "Starve the Beast" and it's responsible for the skyrocketing national debt since St. Ronald started pushing it. If fraudulent "conservatives" can't pass a political agenda that actually reduces the size of government, but have to go in the back door with a stealth program to destroy the country's fiscal integrity, they are as much "pro-American" as Gus Hall or some idiot Islamist shoe-bomber. Bad, dishonest people who've driven us into a ditch over decades with a big lie - not to mention snatching your Grandma's purse to finance their tax cutting BS. Don't ask me - ask a couple of actual fiscal conservatives (those who aren't pathological shills for the economic elite or near-insane ideologues) such as Bruce Bartlett and David Stockman, both of whom worked for Reagan and realized it was some combination of wrongheadedness and deliberate con. Or perhaps "Conn."

Don Zeko 03-29-2011 09:57 PM

Re: Karl assumes tax revenue can be increased
 
Quote:

Originally Posted by brucds (Post 202422)
"The whole point of keeping taxes low is not to make the rich happy but to reduce the size of the government."

It's called "Starve the Beast" and it's responsible for the skyrocketing national debt since St. Ronald started pushing it. If fraudulent "conservatives" can't pass a political agenda that actually reduces the size of government, but have to go in the back door with a stealth program to destroy the country's fiscal integrity, they are as much "pro-American" as Gus Hall or some idiot Islamist shoe-bomber. Bad, dishonest people who've driven us into a ditch over decades with a big lie - not to mention snatching your Grandma's purse to finance their tax cutting BS. Don't ask me - ask a couple of actual fiscal conservatives (those who aren't pathological shills for the economic elite or near-insane ideologues) such as Bruce Bartlett and David Stockman, both of whom worked for Reagan and realized it was some combination of wrongheadedness and deliberate con. Or perhaps "Conn."

Exactly. Even if you agree with the contention that it's very important to dramatically reduce the size of government, Starve the Beast is an incredibly reckless way to do it, with very real risks that it will fail to achieve its stated ends while destroying the country's financial integrity. Republicans need to come clean on this point and distinguish between saying that we need to cut spending to balance the budget and saying that we need to cut spending to satisfy their pre-existing ideological interests.

Don Zeko 03-29-2011 09:58 PM

Re: Karl assumes tax revenue can be increased
 
Quote:

Originally Posted by DenvilleSteve (Post 202400)
ok, but I think it is a completely different ballgame now and for many years to come. Democrats have to accept that the government cannot raise the revenue needed to balance the budget at current spending levels.

Why not? I don't see any evidence that higher overall levels of taxation than we have today are unsustainable, given that we've run them with no problems in the recent past and that tons of other OECD countries manage to run them as well.

badhatharry 03-29-2011 10:01 PM

Re: Karl assumes tax revenue can be increased
 
Quote:

Originally Posted by brucds (Post 202422)
"The whole point of keeping taxes low is not to make the rich happy but to reduce the size of the government."

It's called "Starve the Beast" and it's responsible for the skyrocketing national debt since St. Ronald started pushing it.

You posted something similiar a week or so ago and I responded with two links. Here and here. Just two dissenters you probably won't agree with but may at least find interesting. BTW, my grandmother is long gone. It's me I'm worried about.

From HotAir:
Quote:

Big Lie #2. Reagan nearly tripled the federal budget deficit by enacting a major tax cut his first year in office and government revenue dropped off precipitously” – Another flat-out lie. Before his 25 percent across-the-board cut in individual income-tax rates went into effect, government receipts from individual income taxes trickled in at $244.1 billion. The year Reagan left office, they totaled $445.7 billion — an 82 percent jump. As for the deficits, Democrats outspent every one of the nine budgets Reagan proposed but one. Further, Democrats refused to make corresponding cuts in wasteful domestic programs to offset the defense appropriations Reagan needed to combat the Soviet Union after the Carter administration’s foreign policy disasters (e.g., Iran, Afghanistan, et. al.).
From Larry Kudlow:
Quote:

We have a bipartisan spending problem, largely driven by entitlements over the long run and ineffectual stimulus in the short term. Stockman seems to want to solve the spending problem with higher taxes. Some recent estimates suggest the need for an 80 or 90 percent tax rate to do that. But what would it do to the economy? Or global competitiveness?

BornAgainDemocrat 03-29-2011 10:02 PM

Re: Inflation and unemployment
 
Quote:

Originally Posted by badhatharry (Post 202417)
You had me until here:Inflation makes it easier to reduce real hourly wages (and thus increase the total volume of employment) because it does not require employers to actually do anything. They go down automatically as prices go up.

So are you saying that because prices are going up the buying power of wages is reduced? If so, why does that have an effect on the total volume of employment? In your scenario it seems the total volume of employment would stay the same. Please enlighten me.

The purchasing power of wages -- how much groceries, etc., an hour's pay will buy -- is the price of labor. In the 19th century it was thought that if wages were free to move up and down in a competitive market for labor then unemployment should take care of itself. But then it was found that workers didn't take kindly to announcements from management that their nominal hourly pay would have to be cut, the unemployed be damned. Often as not they would go out on strike. As a way around this problem Keynes (and others, including Friedman) allowed that expanding the money supply would have an equivalent effect, which would happen whether the workers liked it or not. By the 1960's, however, powerful labor unions got wise to this ploy and negotiated automatic cost-of-living adjustments (COLA's), which negated the effect that an inflationary monetary policy was supposed to have. This led to a period of "stag-flation" (remember the 1970's?) in which inflation and high unemployment went hand-in-hand. But now the unions are gone and inflation should be able to work its magic again, at least in so far as the problem of mass unemployment is concerned. I have no doubt that Bernanke & Co. are thinking in these terms, though of course they are too politic to come right out and say so. But if you listen carefully . . .

brucds 03-29-2011 10:06 PM

Re: Karl assumes tax revenue can be increased
 
Thank you Don Zeko for saying it without prejudice or emotional baggage. As for me, I hate these f..ks! Sometimes that comes through in my expression of evident truth and undermines the argument.

brucds 03-29-2011 10:13 PM

Re: Karl assumes tax revenue can be increased
 
Deficits were driven up as % of GDP under Reagan and the Bushes.

http://thinkprogress.org/2010/11/28/...ams-gop-taxes/

http://www.forbes.com/2010/05/06/tax...-bartlett.html

Kudlow is a shill who has zero intellectual integrity and I don't want to say what I think of Hot Air because I'll never be allowed to post here again.

Get some credible sources if you want me to spend a minute or two dealing with this in the future. I'm going back to reading Robert Reich's "Aftershock" which I would highly recommend...

badhatharry 03-29-2011 11:25 PM

Re: Inflation and unemployment
 
Quote:

Originally Posted by BornAgainDemocrat (Post 202430)
The purchasing power of wages -- how much groceries, etc., an hour's pay will buy -- is the price of labor. In the 19th century it was thought that if wages were free to move up and down in a competitive market for labor then unemployment should take care of itself. But then it was found that workers didn't take kindly to announcements from management that their nominal hourly pay would have to be cut, the unemployed be damned. Often as not they would go out on strike. As a way around this problem Keynes (and others, including Friedman) allowed that expanding the money supply would have an equivalent effect, which would happen whether the workers liked it or not. By the 1960's, however, powerful labor unions got wise to this ploy and negotiated automatic cost-of-living adjustments (COLA's), which negated the effect that an inflationary monetary policy was supposed to have. This led to a period of "stag-flation" (remember the 1970's?) in which inflation and high unemployment went hand-in-hand. But now the unions are gone and inflation should be able to work its magic again, at least in so far as the problem of mass unemployment is concerned. I have no doubt that Bernanke & Co. are thinking in these terms, though of course they are too politic to come right out and say so. But if you listen carefully . . .

Thanks. I understand the part about purchasing power being the price of labor. But I'm still unclear about what you mean by increasing total volume of employment. Do you mean that if wages can be lowered more people can be employed?

I'd like to put what you said in my own words and see if I'm close.
Because of labor unions, wages were kept high despite fluctuations in the economy. If markets were allowed to work, in times of low demand, workers' pay would be cut or people would be laid off. But because wages were held artificially high, prices needed to be raised, causing an inflationary spiral.

So I may be wrong to this point but if I am right why would inflation work any magic in the realm of solving mass unemployment?

Sorry for being obtuse.

TwinSwords 03-29-2011 11:28 PM

Re: Karl assumes tax revenue can be increased
 
Jane Hamsher says, Newsflash: Ronald Reagan Raised Taxes (You Idiots).

badhatharry 03-29-2011 11:28 PM

Re: Karl assumes tax revenue can be increased
 
Quote:

Originally Posted by brucds (Post 202434)
Deficits were driven up as % of GDP under Reagan and the Bushes.

http://thinkprogress.org/2010/11/28/...ams-gop-taxes/

http://www.forbes.com/2010/05/06/tax...-bartlett.html

Kudlow is a shill who has zero intellectual integrity and I don't want to say what I think of Hot Air because I'll never be allowed to post here again.

Get some credible sources if you want me to spend a minute or two dealing with this in the future. I'm going back to reading Robert Reich's "Aftershock" which I would highly recommend...

I don't think either article claimed that deficits were't driven up during the bush reagan bush years.

AemJeff 03-29-2011 11:37 PM

Re: Karl assumes tax revenue can be increased
 
Quote:

Originally Posted by badhatharry (Post 202429)
You posted something similiar a week or so ago and I responded with two links. Here and here. Just two dissenters you probably won't agree with but may at least find interesting. BTW, my grandmother is long gone. It's me I'm worried about.

From HotAir:


From Larry Kudlow:

harry, invoking Kudlow in an argument about economics is a lot like bringing a propeller beanie to gun fight.

chiwhisoxx 03-30-2011 12:20 AM

Re: Karl assumes tax revenue can be increased
 
Quote:

Originally Posted by brucds (Post 202431)
Thank you Don Zeko for saying it without prejudice or emotional baggage. As for me, I hate these f..ks! Sometimes that comes through in my expression of evident truth and undermines the argument.

Your post didn't come across as emotional at all!

Don Zeko 03-30-2011 12:36 AM

Re: Inflation and unemployment
 
Quote:

Originally Posted by badhatharry (Post 202442)
Thanks. I understand the part about purchasing power being the price of labor. But I'm still unclear about what you mean by increasing total volume of employment. Do you mean that if wages can be lowered more people can be employed?

I'd like to put what you said in my own words and see if I'm close.
Because of labor unions, wages were kept high despite fluctuations in the economy. If markets were allowed to work, in times of low demand, workers' pay would be cut or people would be laid off. But because wages were held artificially high, prices needed to be raised, causing an inflationary spiral.

So I may be wrong to this point but if I am right why would inflation work any magic in the realm of solving mass unemployment?

Sorry for being obtuse.

It allows you to create negative real interest rates.


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