Friday, August 10, 2018

Economics

One of the biggest falsehoods that the economics profession foists upon us is how supply meets demand or Say's Law which Keynes went after. You can have long periods of insufficient aggregate demand or high unemployment.

The government sets the amount of demand via interest rates and the cost of credit. If it's too high, people won't borrow and invest and demand won't be enough.

But if the government does this for too long you'll get deflation. The question is why don't we get deflation sooner.

Instead of deflation advanced economies seem to get stuck in a Japanese rut where they can't make inflation, especially when they don't try very hard.

If the government provides enough stimulus or adjusts rates so there's enough aggregate demand, then labor markets will tighten and workers will see wage increases.

Today though we have oligopolies and monopsony and a taboo about raising wages despite low unemployment.

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