>One advantage of inflation is that it allows for cuts in the real wage
>without changing the nominal wage. (Keynes was among the first to point
>this out, prompting Ernest Mandel to say something like "shrewd bourgeois
>that he was...") With inflation nearing zero, this becomes impossible - so
>employers would have to cut wages outright. To Greenspan, cutting the real
>wage will increase employment (simple supply/demand stuff) - but if it
>becomes impossible or difficult to cut the real wage, then unemployment
>will rise. There are a few problems with this: 1) higher wages don't
>necessarily result in lower employment, e.g. the empirical evidence on
>minimum wage increases, and 2) lower wages don't necessarily boost
>employment, if the net result is to decrease mass buying power. But it's
>always fun to catch a Fed chair talking about the need to cut wages.
>Doug
Ahh! So he's talking about the _obviousness_ of wage-cutting to Joe Average, especially when inflation is too low to "hide" it. The higher unemployment, the part that threw me, is his "warning": don't let wages get high or else we'll have higher unemployment. And you were showing us this as an example of what he (and I suppose the Fed in general) is all about. Mm-mm, good.
Carrol, thanks for the bit from Marx. Serendipitous that I've just started on WITBD; there's Marx attacking Economism long before Lenin.
Todd
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