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How Milton Friedmans NAIRU Has Increased INequality, damages innovation

JP Hochbaum

DP Veteran
Feb 7, 2012
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"Alan Greenspan spoke appreciatively of “traumatized workers,” who out of fear of job loss accepted deteriorating working conditions, longer hours, stagnant pay (in real terms) and sharply rising inequalities, because all this supposedly helped to keep down inflation and raise firms’ profits and investments, thus promoting growth with low unemployment (the Great Moderation).

In actual fact, the wage squeeze depressed aggregate demand and lowered inflation, and thus prompted monetary policy to react by maintaining low interest rates. And cheap credit in turn allowed private household and corporate debt to increase beyond sustainable levels. The flip side of this has been an increase in profits, unprecedented income concentration at the top, and superabundant liquidity in financial markets, all of which transformed financial markets into unstable institutions that were unable to self-correct."

How Milton Friedman

I've been saying for some time now that the Nobel for Econ has been a farce, started by a Swiss bank who favors policies that favor banks. There is ample reason that they favored one of the worst economists of all time.

"This happens for three reasons. First, higher wages raise demand and this increases profits as well as investments. And new investments, embodying the latest, most productive technologies, in turn raise productivity. Second, growth raises productivity directly, because it makes possible a further deepening of the division of labor and greater learning-by-doing by firms. Third, higher wages induce firms to step up the pace of labor-saving technological progress. The bottom line is that higher wages raise demand, promote technological progress, and increase labor productivity, thereby offsetting at least part (and perhaps all) of the negative impact of higher wages on profits."
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