Tuesday, 13 January 2009

Too busy to blog properly

so here's a couple more random chunks of Minsky broadly on the impact of government deficits during recessions:
If the wage bill in consumption and investment decreases because investment decreases, then in today's economy transfer payments increase and the tax take from wages drops, thus raising the deficit. If the increase in the deficit offsets the fall in the wage bill in investment goods production, then the unit markup on labour costs for the smaller consumption output will rise even as employment falls. As a result, profits and prices may both rise even as employment declines; this happened in 1975 and 1981-82.
[T]he effect of government depends on its size relative to the size of the economy. If government is small, the deficit that can be attained may not have an appreciable effect in stabilizing profits or prices. Contrariwise, a government that is large enough to stabilize profits will put upward pressure on prices even as employment fall: inflation is one result of the mechanism by which we have successfully avoided deep depressions since World War II.

1 comment:

Mark Still News said...

I have often wondered why so much emphasis is put on wage inflation and controls-But when it comes to housing they always let it inflate astronomically and overheat the economy.

I don't think wage inflation is a problem-The problem is rents and mortgages, they are 76% too high! Why did NLP not sustain the housing market?

House prices need to come down by 76%, but so far have only achieved a reduction of around 20% in this so called crash.

Unless house prices are tackled then we are always going to get in this mess!