Back in the good old days (you know, the 1970's), inflation was a real problem. The solution to solve that problem depended on your economic dogma. The Monetarists argued that inflation occurred when you had too many dollars chasing too few goods. The goods available for purchase would soak up whatever dollars are available for those goods. The Keynesians argued that inflation occurred when the demand for a good was greater than the supply of those goods. The demanders bid up the sales price of the goods.
The non-dogmatic economists noticed the relationship between wage growth and productivity growth. When wages grew faster than the productivity (output per man-hour), inflation occurred. So, to cure inflation, simply slow down wage growth or improve productivity. There are two ways to improve productivity, i.e., employees can work harder, or management can buy machines/computers to make workers more productive.
Monetarists have been screaming for years that the rapid increase in money supply will ignite inflation. Keynesians have been disagreeing, arguing that demand is far too weak to cause any increase in prices. Non-dogmatic economists have said it is a purely academic discussion, since there is no inflation today, despite popular misconceptions. However, things may be changing.
Over the past twelve months, wages have grown slightly over 1%, while productivity has increased only 0.6%. Given increased awareness of the rising income inequality, few will argue wages are rising too rapidly. This discrepancy between wage and productivity growths suggests business is a drag on the economy, and this could ignite inflation.
This is not to suggest business is somehow evil for not increasing business investment faster. It is to suggest that business is fearful of increasing their cash outlay in the face of uncertainty.
The non-dogmatic economists noticed the relationship between wage growth and productivity growth. When wages grew faster than the productivity (output per man-hour), inflation occurred. So, to cure inflation, simply slow down wage growth or improve productivity. There are two ways to improve productivity, i.e., employees can work harder, or management can buy machines/computers to make workers more productive.
Monetarists have been screaming for years that the rapid increase in money supply will ignite inflation. Keynesians have been disagreeing, arguing that demand is far too weak to cause any increase in prices. Non-dogmatic economists have said it is a purely academic discussion, since there is no inflation today, despite popular misconceptions. However, things may be changing.
Over the past twelve months, wages have grown slightly over 1%, while productivity has increased only 0.6%. Given increased awareness of the rising income inequality, few will argue wages are rising too rapidly. This discrepancy between wage and productivity growths suggests business is a drag on the economy, and this could ignite inflation.
This is not to suggest business is somehow evil for not increasing business investment faster. It is to suggest that business is fearful of increasing their cash outlay in the face of uncertainty.
