Yet despite little official slack in the labor market, wages remain basically stagnant in this business cycle upturn. This has to be explained. Gains have tended not to be from the bottom up but rather from the top of financial analysts down. With deunionization, globalization of production and immigration, slack now seems a permanent condition of the labor market no matter how long or strong a boom: the rate of accumulation can now never be strong enough to eliminate slack even if that rate is sped up by looser monetary policy.
Perhaps Greenspan's recent rate hikes have been motivated to restore slack and wage discipline. But there seems little to recommend such a Kaleckian read of monetary policy. If there is a threat of inflation presently, it's not from wage demands. Indeed the Forbes magazine types, not post Keynesian economists and Tom Tomorrow, have actually been some of Greenspan's most visible critics. They are clearly not frightened in the least by loose monetary policy.
Greenspan's role seems now not one of disciplining labor through restrictive monetary policy but choking borrowing against in assets to kill inflation that could incite a run on dollar denominated assets, which could then undermine the global position of the dollar and the world economic system which is presently based on its reserve role.
Greenspan has feared for some time inflation not from wage demands but from the wealth effects of asset price rises to which loose money has contributed. Greenspan seems to want to check borrowing against portfolios which he thinks threatens a demand led inflation that may undermine confidence in the dollar. That would then render the US insolvent, leading to a retraction of US military forces around the world and to a closing of the US market. US allies don't want this either, yet in order for them to continue to hold on to dollar assets, Greenspan must do his job of killing inflation whether it is led by wages or wealth effects. And if there is a threat presently, it is clearly from the latter.
Yours, Rakesh