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Monday, August 25, 2008

The "Low Unemployment Causes Inflation" Fallacy

NAIRU stands for Non-Accelarating Inflation Rate of Unemployment. This is the "theoretical ideal" inflation rate. It is low enough that there aren't too many idle workers. It is high enough that workers don't have much bargaining power with their employers.

According to phony (Keynesian) economics, low unemployment means that workers can demand higher salaries, causing inflation. This is false. Inflation is *ENTIRELY* caused by more money being printed. Blaming workers, who don't have the power to print money, is pointless. Low unemployment is *CORRELATED* with inflation, but not *CAUSED* by inflation. During a boom phase, there is a lot of extra money in the hands of the wealthy. They use this money to hire workers, expanding their businesses. The Federal Reserve then jacks up inflation, causing a crash. Low unemployment is not the *CAUSE* of a future recession. Low unemployment is *CORRELATED* with a coming recession, because low unemployment happens during economic booms.

The blame for price inflation is always deflected from the true cause. The Federal Reserve and a corrupt monetary system are *NEVER* blamed. Usually, the greed of some other group is blamed. Greedy workers are demanding higher wages. Greedy executives are demanding higher profits. Greedy speculators are borrowing and pushing up prices. The true cause, a corrupt monetary system, is *NEVER* blamed for inflation.

1 comment:

Anonymous said...

One cannot create an inflation by demanding a higher wage. This is because it is a zero-sum game, as someone will have to cut their spending or wage to make your higher wage possible. All it does is it reallocates resources more precisely, according to merit.

Prices for goods won't change because there is no change in quantity of goods produced, nor there will be a change in total money units available to purchase those goods.

It is only the last name of the person who now makes more money and purchases more goods that has changed. It used to be Jones, and now it is Morris. Jones now buys less.

Inflation, being defined as an increase in money supply, cannot originate from one worker getting higher wage and another lower. Unless, you have a socialist government that had set minimum wage laws, which prevent Jones wage being lowered. Now, it is either the prices must get higher, or FED must give in to "inflationary pressures" and print some more money to add to Morris's wage.

So, as you can see, a lot of things that idiot have described (Keynes), were merely consequences of his wrong theories, and not descriptions of how world operated without Keynes wasting the oxygen.

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