Saturday, November 28, 2009
Friday, November 27, 2009
Rate Hikes and Falling 3 Month Yields
After a sharp rate hike, yields fall as the economy goes into a recession.
Sunday, November 22, 2009
Thursday, November 19, 2009
More on the dangers of demand maintenance
The class struggle is who gets how much of output, or how much of per-capita output the median wage can buy.
If the ratio of per-capita output/median wage increases, then you have benefitted high earners and rentiers. If the ratio decreases, you have benefited "the average" worker. Just as employers cut labor hours to protect their financial holdings, so workers do not spend to increase their financial holdings. One wants to push the price of labor down, and the other wants to push the price of output down.
If the government steps in and purchases unwanted labor at a low support price, but purchases unwanted output at the market price, then it is systematically benefiting one side over the other. And it does not matter whether government is purchasing the output directly or via a benefit payment to labor. Unless 100% of government funded purchases result in wage boosts, you are still allowing capital to sell inventory to workers at prices higher than their wages allow, and end up anchoring median wages at a lower level in relation to output. As you continue this policy, the result is that the average wage can purchase less and less output, and the cost of living for the average worker increases, even though the price level need not. A slave society can have full employment and output.
If the ratio of per-capita output/median wage increases, then you have benefitted high earners and rentiers. If the ratio decreases, you have benefited "the average" worker. Just as employers cut labor hours to protect their financial holdings, so workers do not spend to increase their financial holdings. One wants to push the price of labor down, and the other wants to push the price of output down.
If the government steps in and purchases unwanted labor at a low support price, but purchases unwanted output at the market price, then it is systematically benefiting one side over the other. And it does not matter whether government is purchasing the output directly or via a benefit payment to labor. Unless 100% of government funded purchases result in wage boosts, you are still allowing capital to sell inventory to workers at prices higher than their wages allow, and end up anchoring median wages at a lower level in relation to output. As you continue this policy, the result is that the average wage can purchase less and less output, and the cost of living for the average worker increases, even though the price level need not. A slave society can have full employment and output.
Monday, November 16, 2009
Dangers of Demand Management Policies
To the degree that recessions are attempts by the public to save, then this is done for a reason. Typically that they are not being paid enough in wages to purchase output. If the government steps in and buys output on their behalf, or boosts wages via tax-breaks for workers, then this allows demand to become disconnected from wages.
So if there is going to be a demand-maintenance policy, then government needs at the same time to have wage maintenance policies, in the form of highly progressive tax-rates, excess profit rates, etc.
Recessions are natures way of setting fire to profits and asset prices because they are not supported by the wages of employees. If we are to prevent these fires, then we need to also institute controlled burns via tax policies.
So if there is going to be a demand-maintenance policy, then government needs at the same time to have wage maintenance policies, in the form of highly progressive tax-rates, excess profit rates, etc.
Recessions are natures way of setting fire to profits and asset prices because they are not supported by the wages of employees. If we are to prevent these fires, then we need to also institute controlled burns via tax policies.
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