The above
analysis is intriguing, but I think a couple of points should be made:
- In the neo-classical economic model at the macro level the trade off is usually described as unemployment v. inflation, rather then economic growth v. inflation. It is important to see that the FED is primarily concerned with sustainable economic growth. Thus the goal isn’t to keep the gap between economic growth and inflation as wide as possible, but rather to keep both unemployment and inflation as low as possible. The key is if you aren’t working you are defiantly not going to get rich.
- The point about wages being a primary cause for inflation should also be expanded upon. The reason inflation is tied to wages isn’t because if ordinary people have more money, they're going to pay more for things and inflation is going to begin. If anything a rise in consumer confidence being described would have a compounded positive effect on the growth of the economy: as people increased spending, paying for the companies manufacturing the goods they are buying to grow, giving raises to those companies employees, who then go out and spend, etc. The reason that wages can lead to inflation, is that economically they are described as being sticky. This means that in the good times people can look forward to a Christmas bonus and a raise, but in an economic downturn, when was the last time you ever heard of someone getting a corresponding pay cut? Therefore, when the down cycle hits the economy the amount of money being paid to people isn’t reduced, but it is devalued= inflation.
- A final point, the process that themusic is describing is economically termed the time value of money, and is the very reason that we have interest rates.
Uncle Greenspan is not trying to keep the worker down… he is trying to grow the whole pie. The fact, that if you have a bigger piece of it now will lead to you getting a larger relative gain then someone who has a smaller piece, is neither here nor there.
Socialist Wolf Between here and there is a revolution, and what would the workers do if your ideas didn't work? I guess they would probably starve.