Sunday, November 23, 2008

Keynesian Perspective

Economists are better at describing things in equilibrium than disequilibrium. It is the disequilibrium that is beginning to interest me more, and the passage below struck me as worth sharing.

The freeing of capital movements in the 1980s combined with the collapse of communism, releasing billions of new workers into the world economy, has recreated a global reserve army of labour. That in turn has contributed to a rise in the share of world GDP accounted for by profits and an accompanying decline in the share accounted for by wages. Such a development easily leads either to over-investment by businesses or a shortfall of aggregate demand. When wages lag, spending can keep up with output only by an expansion of consumer debt.

--Gerald Holtham in Prospect Magazine: "Workers of the World Compete".

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