NetNews Usenet Archive 1992 #30/NN_1992_30.iso/spool/sci/econ/9438

Internet Message Format | 1992-12-16 | 2.8 KB

Xref: sparky sci.econ:9438 talk.politics.misc:64565 misc.misc:4081
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Path: sparky!uunet!spool.mu.edu!sdd.hp.com!ux1.cso.uiuc.edu!usenet.ucs.indiana.edu!silver.ucs.indiana.edu!mkohlhaa
From: [e-mail] (mike)
Subject: Re: Inflation (Was: Re: GM Plant Closures...)
Message-ID: <[e-mail]>
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Date: Wed, 16 Dec 1992 23:59:10 GMT
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In article <[e-mail]> [e-mail] (Mike Polen) writes:
>mike) writes:
>|> Oh, by the way, in my model I mentioned that I was biding up the price of
>|> labor to $6.00/hr.  I would point out that most of my co-workers would
>|> probably do the same thing, and labor prices would rise.  They would
>|> continue to rise because or "boss" has no alternative labor to ask him
>|> to work (becuase they're 0% unemployment, remember).  We would continue to
>|> bid up wages until we reached an equilibrium, which could not likely occur
>|> until unemploy existed.
>|>
>|> I would like to reiterate that inflation occured without any increase in the
>|> supply of money.
>|>
>Your assumption, based upon such a small community, assumes that your
>employer is a monopolistic supplier of a product.  In reality, your
>employer would not be able to pass on the costs, because competitors
>are still only paying $5.00/hr.  Prices are not based upon costs, but
>upon what the market is willing to (or can afford) to pay.
>
>Your employer would have to decrease his own profits or someone else's
>salary.  No inflation occurs.

You are missing my point.  In fact, competitors would NOT still be paying
their employees $5.00/hr.  They're wage rates would rise, too.  ALL wage
rates would continue to rise until there existed enough unemployment that
there would be someone willing to work for the lesser wage.

But it is important to remember that I became involved in this thread because
someone contended that high demand for employees (i.e. low, near-zero
unemployment) was a solution to a problem.  It has been my contention that
near-zero unemployment would cause serious problems in and of itself,
specifically in the form of inflation.  And this would occur regardless
of a theoretical "constant money supply".

I would point you to a recent post in this thread which eloquently uses
the New England area in the mid-eighties to show how this can happen.


--

                    -- Mike
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