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Monday, August 03, 2009

How stimulus really works

The whole idea of Keynesian stimulus,[French economist Jacques Rueff] explained, was to cause inflation…which would reduce the real price of labor. In a modern democracy, politics prevents wages from falling. But in a correction, if wages don’t fall people don’t get jobs. Keynes’ didn’t mention it, but the only reason his stimulus works is because it pulls the wool over the eyes of the working classes – reducing their wages by inflation so employers can afford to hire them again. Ergo, no inflation…no recovery in the job market. No recovery in the job market…no recovery in the economy.

But inflation will cost the Chinese plenty. And they’ve let it be known they won’t sit still for it.
>-- from "Showdown With the Bond Vigilantes" by Bill Bonner

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