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Sticky Wages and Minimum Wage

Lordknukle
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7/2/2012 7:16:23 PM
Posted: 4 years ago
Sticky wages are simply when there is a force(s) that is preventing wages from returning to equilibrium. As a result, surpluses or shortages can occur. Largely, sticky wages and remedying against them is a Keynesian theory. However, the minimum wage essentially causes a sticky wages because it does not allow the wage to return to equilibrium (price floor), and instead causes a surplus of the quantity supplied of labor. From my experiences, Keynesians often support the minimum wage. Therefore, how can they try to remedy against sticky wages, but encourage minimum wages, as anything other than a contradiction?
"Easy is the descent to Avernus, for the door to the Underworld lies upon both day and night. But to retrace your steps and return to the breezes above- that's the task, that's the toil."
Lordknukle
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7/2/2012 10:16:56 PM
Posted: 4 years ago
At 7/2/2012 10:12:38 PM, Cody_Franklin wrote:
Because Keynesians recommend you drop real wages through inflation in a depression, at which point nominal wages only matter insofar as they keep workers content. Constant nominal wages trick them into thinking there's nothing going on, even though real wages are plummeting.

Inflation (or at least a substantial amount of it) happens through a boom, not a depression.
"Easy is the descent to Avernus, for the door to the Underworld lies upon both day and night. But to retrace your steps and return to the breezes above- that's the task, that's the toil."
Lordknukle
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7/2/2012 10:18:11 PM
Posted: 4 years ago
At 7/2/2012 10:13:54 PM, Cody_Franklin wrote:
On the other hand, if the mobilization of idle resources is the goal, they should drop real wages (or cut workdays) until everyone can be employed. It would be ultra-stupid, but they could totes do that.

inb4 reply: I'm not a Keynesian.

The counter balance would be that there wouldn't be enough aggregate demand to shift the economy out of the recession if wages are reduced across the board.
"Easy is the descent to Avernus, for the door to the Underworld lies upon both day and night. But to retrace your steps and return to the breezes above- that's the task, that's the toil."
Cermank
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7/2/2012 10:19:08 PM
Posted: 4 years ago
It's funny. I was just reading this podcast about Keynesian policies and minimum wages. http://econlog.econlib.org...#

You'd find it interesting, I think.

Basically, Keynes, and Keynesians initially were quite critical of the minimum wage. And it was logical since the Keynesian framework was proposed during the great depression, when the Classical theory failed. Minimum wage at that time would have been disastrous.

The new 'Keynesians' aren't really walking along the line proposed by Keynes.
Lordknukle
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7/2/2012 10:29:13 PM
Posted: 4 years ago
At 7/2/2012 10:19:08 PM, Cermank wrote:
It's funny. I was just reading this podcast about Keynesian policies and minimum wages. http://econlog.econlib.org...#

You'd find it interesting, I think.

Basically, Keynes, and Keynesians initially were quite critical of the minimum wage. And it was logical since the Keynesian framework was proposed during the great depression, when the Classical theory failed. Minimum wage at that time would have been disastrous.

The new 'Keynesians' aren't really walking along the line proposed by Keynes.

It didn't fail.

The Depression just lasted for so long not because of one unfortunate event, but because of multiple perfectly timed disasters to create the greatest economic havoc ever (Fed printing too much money, stock market crash, New Deal policies, Dust Bowl, 7 000/21 000 banks failing).

In fact, the New Deal is an almost picture perfect representation of the kind of policies that Keynes proposed; increased government spending all across the board. In reality, it had very little effect....It could be argued that it had little effects cause the taxes counteracted it but the general principle stands.
"Easy is the descent to Avernus, for the door to the Underworld lies upon both day and night. But to retrace your steps and return to the breezes above- that's the task, that's the toil."
Cermank
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7/2/2012 10:33:33 PM
Posted: 4 years ago
At 7/2/2012 10:29:13 PM, Lordknukle wrote:
At 7/2/2012 10:19:08 PM, Cermank wrote:
It's funny. I was just reading this podcast about Keynesian policies and minimum wages. http://econlog.econlib.org...#

You'd find it interesting, I think.

Basically, Keynes, and Keynesians initially were quite critical of the minimum wage. And it was logical since the Keynesian framework was proposed during the great depression, when the Classical theory failed. Minimum wage at that time would have been disastrous.

The new 'Keynesians' aren't really walking along the line proposed by Keynes.

It didn't fail.

It failed in explaining the causes of the depression. This is why the Keynesian theory was so popular.

The Depression just lasted for so long not because of one unfortunate event, but because of multiple perfectly timed disasters to create the greatest economic havoc ever (Fed printing too much money, stock market crash, New Deal policies, Dust Bowl, 7 000/21 000 banks failing).

In fact, the New Deal is an almost picture perfect representation of the kind of policies that Keynes proposed; increased government spending all across the board. In reality, it had very little effect....It could be argued that it had little effects cause the taxes counteracted it but the general principle stands.

The general principle being?
darkkermit
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7/2/2012 10:39:03 PM
Posted: 4 years ago
At 7/2/2012 10:16:56 PM, Lordknukle wrote:
At 7/2/2012 10:12:38 PM, Cody_Franklin wrote:
Because Keynesians recommend you drop real wages through inflation in a depression, at which point nominal wages only matter insofar as they keep workers content. Constant nominal wages trick them into thinking there's nothing going on, even though real wages are plummeting.

Inflation (or at least a substantial amount of it) happens through a boom, not a depression.

tell that to Weimar Germany, US stagflation of the 70s, and Zimbabwe.
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Lordknukle
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7/2/2012 10:42:42 PM
Posted: 4 years ago
At 7/2/2012 10:33:33 PM, Cermank wrote:
At 7/2/2012 10:29:13 PM, Lordknukle wrote:
At 7/2/2012 10:19:08 PM, Cermank wrote:
It's funny. I was just reading this podcast about Keynesian policies and minimum wages. http://econlog.econlib.org...#

You'd find it interesting, I think.

Basically, Keynes, and Keynesians initially were quite critical of the minimum wage. And it was logical since the Keynesian framework was proposed during the great depression, when the Classical theory failed. Minimum wage at that time would have been disastrous.

The new 'Keynesians' aren't really walking along the line proposed by Keynes.

It didn't fail.

It failed in explaining the causes of the depression. This is why the Keynesian theory was so popular.

Perhaps. I haven't done much research on what neo-classical economists thought of the Great Depression at that time.

Keynesian theory is so popular because it can be easily warped into one's own self-interest when it comes to the government, at which point it fails to become Keynesian.

The Depression just lasted for so long not because of one unfortunate event, but because of multiple perfectly timed disasters to create the greatest economic havoc ever (Fed printing too much money, stock market crash, New Deal policies, Dust Bowl, 7 000/21 000 banks failing).

In fact, the New Deal is an almost picture perfect representation of the kind of policies that Keynes proposed; increased government spending all across the board. In reality, it had very little effect....It could be argued that it had little effects cause the taxes counteracted it but the general principle stands.

The general principle being?

His stimulus didn't work.
"Easy is the descent to Avernus, for the door to the Underworld lies upon both day and night. But to retrace your steps and return to the breezes above- that's the task, that's the toil."
Lordknukle
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7/2/2012 10:44:08 PM
Posted: 4 years ago
At 7/2/2012 10:39:03 PM, darkkermit wrote:
At 7/2/2012 10:16:56 PM, Lordknukle wrote:
At 7/2/2012 10:12:38 PM, Cody_Franklin wrote:
Because Keynesians recommend you drop real wages through inflation in a depression, at which point nominal wages only matter insofar as they keep workers content. Constant nominal wages trick them into thinking there's nothing going on, even though real wages are plummeting.

Inflation (or at least a substantial amount of it) happens through a boom, not a depression.

tell that to Weimar Germany, US stagflation of the 70s, and Zimbabwe.

If all other variables are kept constant, increased inflation only happens when aggregate demand is greater than aggregate supply.

I assume that in those countries it was not a matter of aggregate demand but instead of a very expansionary monetary policy or intense supply shocks of critical resources.
"Easy is the descent to Avernus, for the door to the Underworld lies upon both day and night. But to retrace your steps and return to the breezes above- that's the task, that's the toil."
Cermank
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7/2/2012 10:52:26 PM
Posted: 4 years ago
At 7/2/2012 10:42:42 PM, Lordknukle wrote:
At 7/2/2012 10:33:33 PM, Cermank wrote:
At 7/2/2012 10:29:13 PM, Lordknukle wrote:
At 7/2/2012 10:19:08 PM, Cermank wrote:
It's funny. I was just reading this podcast about Keynesian policies and minimum wages. http://econlog.econlib.org...#

You'd find it interesting, I think.

Basically, Keynes, and Keynesians initially were quite critical of the minimum wage. And it was logical since the Keynesian framework was proposed during the great depression, when the Classical theory failed. Minimum wage at that time would have been disastrous.

The new 'Keynesians' aren't really walking along the line proposed by Keynes.

It didn't fail.

It failed in explaining the causes of the depression. This is why the Keynesian theory was so popular.

Perhaps. I haven't done much research on what neo-classical economists thought of the Great Depression at that time.

Classical economists had total faith in the self correcting mechanism of the market. Plus, they believed that the government intervention is always harmful for the market. However the great depression did not correct itself, and actually worsened as time went on. Then Keynes dropped in and explained that the great depression prevailed because neither the producers, nor the consumers had enough incentives to spend- to increase the production. Said the government should interfere and try to increase the demand. Voila. The light shines.

Keynesian theory is so popular because it can be easily warped into one's own self-interest when it comes to the government, at which point it fails to become Keynesian.

The Depression just lasted for so long not because of one unfortunate event, but because of multiple perfectly timed disasters to create the greatest economic havoc ever (Fed printing too much money, stock market crash, New Deal policies, Dust Bowl, 7 000/21 000 banks failing).

In fact, the New Deal is an almost picture perfect representation of the kind of policies that Keynes proposed; increased government spending all across the board. In reality, it had very little effect....It could be argued that it had little effects cause the taxes counteracted it but the general principle stands.

The general principle being?

His stimulus didn't work.

Well, from what I've read- it did work. Can you provide a link so I can look into this accusation?
darkkermit
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7/2/2012 10:59:04 PM
Posted: 4 years ago
At 7/2/2012 10:44:08 PM, Lordknukle wrote:
At 7/2/2012 10:39:03 PM, darkkermit wrote:
At 7/2/2012 10:16:56 PM, Lordknukle wrote:
At 7/2/2012 10:12:38 PM, Cody_Franklin wrote:
Because Keynesians recommend you drop real wages through inflation in a depression, at which point nominal wages only matter insofar as they keep workers content. Constant nominal wages trick them into thinking there's nothing going on, even though real wages are plummeting.

Inflation (or at least a substantial amount of it) happens through a boom, not a depression.

tell that to Weimar Germany, US stagflation of the 70s, and Zimbabwe.

If all other variables are kept constant, increased inflation only happens when aggregate demand is greater than aggregate supply.

I assume that in those countries it was not a matter of aggregate demand but instead of a very expansionary monetary policy or intense supply shocks of critical resources.

Ever hear of something called "cost push inflation". That's when inflation occurs due to the aggregate supply curve shifting to the left.
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Cody_Franklin
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7/2/2012 11:03:29 PM
Posted: 4 years ago
At 7/2/2012 10:16:56 PM, Lordknukle wrote:
At 7/2/2012 10:12:38 PM, Cody_Franklin wrote:
Because Keynesians recommend you drop real wages through inflation in a depression, at which point nominal wages only matter insofar as they keep workers content. Constant nominal wages trick them into thinking there's nothing going on, even though real wages are plummeting.

Inflation (or at least a substantial amount of it) happens through a boom, not a depression.

Not if government-related institutions have the power to inflate the currency. :P
Cody_Franklin
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7/2/2012 11:06:15 PM
Posted: 4 years ago
At 7/2/2012 10:18:11 PM, Lordknukle wrote:
At 7/2/2012 10:13:54 PM, Cody_Franklin wrote:
On the other hand, if the mobilization of idle resources is the goal, they should drop real wages (or cut workdays) until everyone can be employed. It would be ultra-stupid, but they could totes do that.

inb4 reply: I'm not a Keynesian.

The counter balance would be that there wouldn't be enough aggregate demand to shift the economy out of the recession if wages are reduced across the board.

Not really.

1. Potentially, more people spending with lower wages might have a net positive.

2. Lower interest rates--it discourages saving because the returns are dumb, but it also encourages investment in Treasuries/derivatives (since yields and spreads only really grow if there's a confidence problem or lack of investment).

3. Stimulus programs. Supplant consumer spending with public works and infrastructure and stuff. You not only put people to work, but you're boosting GDP and pumping money back into private enterprise by hiring them to do stuff.
Cody_Franklin
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7/2/2012 11:10:11 PM
Posted: 4 years ago
At 7/2/2012 10:19:08 PM, Cermank wrote:
Basically, Keynes, and Keynesians initially were quite critical of the minimum wage. And it was logical since the Keynesian framework was proposed during the great depression, when the Classical theory failed. Minimum wage at that time would have been disastrous.

Well, classical theory didn't wholesale "fail". The state was being a derp and convincing/coercing all the business magnates to keep wages constant to avoid the income shock that occurs during depressions. So, instead of lowering wages to keep up with costs, they just started firing people because they couldn't afford payroll. :P

When Mellon suggested they just let sh*t go bad in the early 20s, that depression only really lasted a few months. After another decade-long credit expansion, and the stimulus spending/wage rigidity after the crash, ish got cray pretty quick-like.
darkkermit
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7/2/2012 11:14:16 PM
Posted: 4 years ago
At 7/2/2012 11:06:15 PM, Cody_Franklin wrote:
At 7/2/2012 10:18:11 PM, Lordknukle wrote:
At 7/2/2012 10:13:54 PM, Cody_Franklin wrote:
On the other hand, if the mobilization of idle resources is the goal, they should drop real wages (or cut workdays) until everyone can be employed. It would be ultra-stupid, but they could totes do that.

inb4 reply: I'm not a Keynesian.

The counter balance would be that there wouldn't be enough aggregate demand to shift the economy out of the recession if wages are reduced across the board.

Not really.

1. Potentially, more people spending with lower wages might have a net positive.

2. Lower interest rates--it discourages saving because the returns are dumb, but it also encourages investment in Treasuries/derivatives (since yields and spreads only really grow if there's a confidence problem or lack of investment).

3. Stimulus programs. Supplant consumer spending with public works and infrastructure and stuff. You not only put people to work, but you're boosting GDP and pumping money back into private enterprise by hiring them to do stuff.

Under what mechanism would you use to reduce real wages in the first place? There's many mechanisms for doing it. Reducing real wages is the mechanism to increase aggregate demand.
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darkkermit
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7/2/2012 11:17:09 PM
Posted: 4 years ago
At 7/2/2012 11:10:11 PM, Cody_Franklin wrote:
At 7/2/2012 10:19:08 PM, Cermank wrote:
Basically, Keynes, and Keynesians initially were quite critical of the minimum wage. And it was logical since the Keynesian framework was proposed during the great depression, when the Classical theory failed. Minimum wage at that time would have been disastrous.

Well, classical theory didn't wholesale "fail". The state was being a derp and convincing/coercing all the business magnates to keep wages constant to avoid the income shock that occurs during depressions. So, instead of lowering wages to keep up with costs, they just started firing people because they couldn't afford payroll. :P

When Mellon suggested they just let sh*t go bad in the early 20s, that depression only really lasted a few months. After another decade-long credit expansion, and the stimulus spending/wage rigidity after the crash, ish got cray pretty quick-like.

Critique of the libertarian narrative of depression of 1920s:
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http://www.debate.org...
Cody_Franklin
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7/2/2012 11:25:22 PM
Posted: 4 years ago
At 7/2/2012 11:14:16 PM, darkkermit wrote:
At 7/2/2012 11:06:15 PM, Cody_Franklin wrote:
At 7/2/2012 10:18:11 PM, Lordknukle wrote:
At 7/2/2012 10:13:54 PM, Cody_Franklin wrote:
On the other hand, if the mobilization of idle resources is the goal, they should drop real wages (or cut workdays) until everyone can be employed. It would be ultra-stupid, but they could totes do that.

inb4 reply: I'm not a Keynesian.

The counter balance would be that there wouldn't be enough aggregate demand to shift the economy out of the recession if wages are reduced across the board.

Not really.

1. Potentially, more people spending with lower wages might have a net positive.

2. Lower interest rates--it discourages saving because the returns are dumb, but it also encourages investment in Treasuries/derivatives (since yields and spreads only really grow if there's a confidence problem or lack of investment).

3. Stimulus programs. Supplant consumer spending with public works and infrastructure and stuff. You not only put people to work, but you're boosting GDP and pumping money back into private enterprise by hiring them to do stuff.

Under what mechanism would you use to reduce real wages in the first place? There's many mechanisms for doing it.

I dunno. If you're the Fed, you just click a few numbers, change your balance sheets, and give it to banks through asset purchases or something. There a few ways.

Reducing real wages is the mechanism to increase aggregate demand.

Hence number one. More people, lower wages, maybe you get more buying of things.
Cody_Franklin
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7/2/2012 11:28:37 PM
Posted: 4 years ago
At 7/2/2012 11:17:09 PM, darkkermit wrote:
At 7/2/2012 11:10:11 PM, Cody_Franklin wrote:
At 7/2/2012 10:19:08 PM, Cermank wrote:
Basically, Keynes, and Keynesians initially were quite critical of the minimum wage. And it was logical since the Keynesian framework was proposed during the great depression, when the Classical theory failed. Minimum wage at that time would have been disastrous.

Well, classical theory didn't wholesale "fail". The state was being a derp and convincing/coercing all the business magnates to keep wages constant to avoid the income shock that occurs during depressions. So, instead of lowering wages to keep up with costs, they just started firing people because they couldn't afford payroll. :P

When Mellon suggested they just let sh*t go bad in the early 20s, that depression only really lasted a few months. After another decade-long credit expansion, and the stimulus spending/wage rigidity after the crash, ish got cray pretty quick-like.

Critique of the libertarian narrative of depression of 1920s:


Can I get a text format? This dude sounds like an @sshole, and I feel like it will make me biased.
darkkermit
Posts: 11,204
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7/2/2012 11:36:11 PM
Posted: 4 years ago
At 7/2/2012 11:25:22 PM, Cody_Franklin wrote:
At 7/2/2012 11:14:16 PM, darkkermit wrote:
At 7/2/2012 11:06:15 PM, Cody_Franklin wrote:
At 7/2/2012 10:18:11 PM, Lordknukle wrote:
At 7/2/2012 10:13:54 PM, Cody_Franklin wrote:
On the other hand, if the mobilization of idle resources is the goal, they should drop real wages (or cut workdays) until everyone can be employed. It would be ultra-stupid, but they could totes do that.

inb4 reply: I'm not a Keynesian.

The counter balance would be that there wouldn't be enough aggregate demand to shift the economy out of the recession if wages are reduced across the board.

Not really.

1. Potentially, more people spending with lower wages might have a net positive.

2. Lower interest rates--it discourages saving because the returns are dumb, but it also encourages investment in Treasuries/derivatives (since yields and spreads only really grow if there's a confidence problem or lack of investment).

3. Stimulus programs. Supplant consumer spending with public works and infrastructure and stuff. You not only put people to work, but you're boosting GDP and pumping money back into private enterprise by hiring them to do stuff.

Under what mechanism would you use to reduce real wages in the first place? There's many mechanisms for doing it.

I dunno. If you're the Fed, you just click a few numbers, change your balance sheets, and give it to banks through asset purchases or something. There a few ways.

Reducing real wages is the mechanism to increase aggregate demand.

Hence number one. More people, lower wages, maybe you get more buying of things.

well the only way i can think of for reducing real wages is to either have thousands of wage controls or cause inflation to occur. The former a really difficult task.

I suppose you can also increase employment through targeting the long-run supply curve. Like, forcing farmers to use shovels, creating many farming jobs. However that's incredibly silly.
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darkkermit
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7/2/2012 11:37:49 PM
Posted: 4 years ago
At 7/2/2012 11:28:37 PM, Cody_Franklin wrote:
At 7/2/2012 11:17:09 PM, darkkermit wrote:
At 7/2/2012 11:10:11 PM, Cody_Franklin wrote:
At 7/2/2012 10:19:08 PM, Cermank wrote:
Basically, Keynes, and Keynesians initially were quite critical of the minimum wage. And it was logical since the Keynesian framework was proposed during the great depression, when the Classical theory failed. Minimum wage at that time would have been disastrous.

Well, classical theory didn't wholesale "fail". The state was being a derp and convincing/coercing all the business magnates to keep wages constant to avoid the income shock that occurs during depressions. So, instead of lowering wages to keep up with costs, they just started firing people because they couldn't afford payroll. :P

When Mellon suggested they just let sh*t go bad in the early 20s, that depression only really lasted a few months. After another decade-long credit expansion, and the stimulus spending/wage rigidity after the crash, ish got cray pretty quick-like.

Critique of the libertarian narrative of depression of 1920s:


Can I get a text format? This dude sounds like an @sshole, and I feel like it will make me biased.

turn it on mute and just look at the slides.
Open borders debate:
http://www.debate.org...
Cody_Franklin
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7/2/2012 11:38:24 PM
Posted: 4 years ago
At 7/2/2012 11:36:11 PM, darkkermit wrote:
At 7/2/2012 11:25:22 PM, Cody_Franklin wrote:
At 7/2/2012 11:14:16 PM, darkkermit wrote:
Under what mechanism would you use to reduce real wages in the first place? There's many mechanisms for doing it.

I dunno. If you're the Fed, you just click a few numbers, change your balance sheets, and give it to banks through asset purchases or something. There a few ways.

Reducing real wages is the mechanism to increase aggregate demand.

Hence number one. More people, lower wages, maybe you get more buying of things.

well the only way i can think of for reducing real wages is to either have thousands of wage controls or cause inflation to occur. The former a really difficult task.

Well, I'm pretty sure I said inflation on Page 1, so...

I suppose you can also increase employment through targeting the long-run supply curve. Like, forcing farmers to use shovels, creating many farming jobs. However that's incredibly silly.

Yeah, it is.
Lordknukle
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7/2/2012 11:57:06 PM
Posted: 4 years ago
At 7/2/2012 10:59:04 PM, darkkermit wrote:
At 7/2/2012 10:44:08 PM, Lordknukle wrote:
At 7/2/2012 10:39:03 PM, darkkermit wrote:
At 7/2/2012 10:16:56 PM, Lordknukle wrote:
At 7/2/2012 10:12:38 PM, Cody_Franklin wrote:
Because Keynesians recommend you drop real wages through inflation in a depression, at which point nominal wages only matter insofar as they keep workers content. Constant nominal wages trick them into thinking there's nothing going on, even though real wages are plummeting.

Inflation (or at least a substantial amount of it) happens through a boom, not a depression.

tell that to Weimar Germany, US stagflation of the 70s, and Zimbabwe.

If all other variables are kept constant, increased inflation only happens when aggregate demand is greater than aggregate supply.

I assume that in those countries it was not a matter of aggregate demand but instead of a very expansionary monetary policy or intense supply shocks of critical resources.

Ever hear of something called "cost push inflation". That's when inflation occurs due to the aggregate supply curve shifting to the left.

Not really, but from a quick overview of the concept I remember Friedman rebutting it in his book.

Basically, he said that inflation is when all of the prices of goods go up. The OPEC cartel might have boosted the price of a few select major goods, but it did not boost all of the prices of the goods in the economy.
"Easy is the descent to Avernus, for the door to the Underworld lies upon both day and night. But to retrace your steps and return to the breezes above- that's the task, that's the toil."
darkkermit
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7/3/2012 12:04:40 AM
Posted: 4 years ago
At 7/2/2012 11:57:06 PM, Lordknukle wrote:
At 7/2/2012 10:59:04 PM, darkkermit wrote:
At 7/2/2012 10:44:08 PM, Lordknukle wrote:
At 7/2/2012 10:39:03 PM, darkkermit wrote:
At 7/2/2012 10:16:56 PM, Lordknukle wrote:
At 7/2/2012 10:12:38 PM, Cody_Franklin wrote:
Because Keynesians recommend you drop real wages through inflation in a depression, at which point nominal wages only matter insofar as they keep workers content. Constant nominal wages trick them into thinking there's nothing going on, even though real wages are plummeting.

Inflation (or at least a substantial amount of it) happens through a boom, not a depression.

tell that to Weimar Germany, US stagflation of the 70s, and Zimbabwe.

If all other variables are kept constant, increased inflation only happens when aggregate demand is greater than aggregate supply.

I assume that in those countries it was not a matter of aggregate demand but instead of a very expansionary monetary policy or intense supply shocks of critical resources.

Ever hear of something called "cost push inflation". That's when inflation occurs due to the aggregate supply curve shifting to the left.

Not really, but from a quick overview of the concept I remember Friedman rebutting it in his book.

Basically, he said that inflation is when all of the prices of goods go up. The OPEC cartel might have boosted the price of a few select major goods, but it did not boost all of the prices of the goods in the economy.

Don't think a description of inflation is exactly a refute of inflation. Although, I know the general idea of Friedman in which he states that "inflation everywhere is everywhere a monetary phenomena".
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Lordknukle
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7/3/2012 12:08:07 AM
Posted: 4 years ago
At 7/3/2012 12:04:40 AM, darkkermit wrote:
At 7/2/2012 11:57:06 PM, Lordknukle wrote:
At 7/2/2012 10:59:04 PM, darkkermit wrote:
At 7/2/2012 10:44:08 PM, Lordknukle wrote:
At 7/2/2012 10:39:03 PM, darkkermit wrote:
At 7/2/2012 10:16:56 PM, Lordknukle wrote:
At 7/2/2012 10:12:38 PM, Cody_Franklin wrote:
Because Keynesians recommend you drop real wages through inflation in a depression, at which point nominal wages only matter insofar as they keep workers content. Constant nominal wages trick them into thinking there's nothing going on, even though real wages are plummeting.

Inflation (or at least a substantial amount of it) happens through a boom, not a depression.

tell that to Weimar Germany, US stagflation of the 70s, and Zimbabwe.

If all other variables are kept constant, increased inflation only happens when aggregate demand is greater than aggregate supply.

I assume that in those countries it was not a matter of aggregate demand but instead of a very expansionary monetary policy or intense supply shocks of critical resources.

Ever hear of something called "cost push inflation". That's when inflation occurs due to the aggregate supply curve shifting to the left.

Not really, but from a quick overview of the concept I remember Friedman rebutting it in his book.

Basically, he said that inflation is when all of the prices of goods go up. The OPEC cartel might have boosted the price of a few select major goods, but it did not boost all of the prices of the goods in the economy.

Don't think a description of inflation is exactly a refute of inflation. Although, I know the general idea of Friedman in which he states that "inflation everywhere is everywhere a monetary phenomena".

Not all prices were raised, hence it was not inflation.
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darkkermit
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7/3/2012 12:08:53 AM
Posted: 4 years ago
although the correaltion is between quantity of money per unit of output vs. cpi, so changes in supply do matter, since it effects output.
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darkkermit
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7/3/2012 12:11:31 AM
Posted: 4 years ago
Cost push inflation just means there is a decrease in aggregate supply, and since money/(unit of good/service) is the standard, the less goods there are the greater inflation is.
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Lordknukle
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7/3/2012 12:11:52 AM
Posted: 4 years ago
I never really finished that chapter. Do you know if Friedman stated that inflation was only a result of more money in the economy, or that it was influenced by other factors (aggregate demand)?
"Easy is the descent to Avernus, for the door to the Underworld lies upon both day and night. But to retrace your steps and return to the breezes above- that's the task, that's the toil."
darkkermit
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7/3/2012 12:19:47 AM
Posted: 4 years ago
At 7/3/2012 12:11:52 AM, Lordknukle wrote:
I never really finished that chapter. Do you know if Friedman stated that inflation was only a result of more money in the economy, or that it was influenced by other factors (aggregate demand)?

Don't know what your referring to.

The basic monetary equation is the following:

M*v = P*Q

M = money, v = velocity of money, P = prices, Q = quantity of goods and services.

This equation is due by definition. Inflation and deflation are due to changes in P.

The equation above has been around for awhile. The amount of output matters for determining whether inflation and/or deflation occurs.

Are you reading "The monetary history of the US" by Milton Friedman or "Free to choose"?
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