Berman James Watts, October 1997
If wage and employment increases are automatically inflationary why was this not the case from the mid 1930's to 1940? What happened to the "natural rate of unemployment" now invoked to explain racial disparities in unemployment? (See Barron's Economic Beat Column of September 15). Massive government sponsored increases in employment and wages reversed the fall of the GNP (Gross National Product - the value of all goods and services produced by the nation). Not only was GNP growth made positive but the workforce was transformed from discouraged jobless and working poor to a cohesive high morale force sufficient to function as manpower for an "Arsenal of Democracy " that swamped Hitler's Germany amd Japan.
What if unemployment had been allowed to linger as increased money supply was channeled not through workers and consumers but via political favorites, cronies and corporations? Would the salaries of CEO's soar as virtual corporations with overseas work forces or cheap imported labor produced less and less of actual use even as stock value and top tier salaries inflated enormously? Imagine a United States not productive or cooperative enough to resist the ultra Right Wing Hordes of the Nazis and the Fascists. Imagine crucial military production scattered across the earth and accessible only by vulnerable sea lanes . Imagine internal dissent abetted by massive imports of cheap foreign labor of questionable loyalty that had displaced citizen labor.
How are the conditions for "wage push" inflation met in an economy where Unions were broken by the "leadereship" example Reagan made of the Air traffic Controllers? Unions can no longer even maintain a job base , let alone enforce wage increases and massive featherbedding. Have not job cuts been in the heavily Unionized and formerly highest blue collar paid industries such as Telecommunications and Automobile Production? Management can afford Corporate Bankruptcy , cushioned by a portfolio resulting from salary and reward as much as 500 times the pay of the lowest paid worker. How do hordes of low cost foreign labor "maintain" the theory of wage push inflation? Even if , as recently propagandized, a recent increase in job creation involved jobs of higher than the average pay levels, it should be noted that such increase must be relatively tiny. If appreciable, such increase would have *raised* the average in a matter that could not have evaded notice.
Inflation is an increase in money supply unmatched by an increase in production. It can occur as increased money to the non-productive or even the counter productive. Consider the recent spectacle of ATT's chairman explaining why his disastrous tenure should be rewarded by multiplying an already bloated salary. Reward can be for membership in a club characterized by access to inside knowledge of esoteric "ticket pouching" and"button pushing." Understanding or true knowledge is subordinated as too time consuming to pursue in light of mandatory social and leisure activities. But if the members of the club do the choosing....
Inflation is peculiar to nonproductive result rewarded by increased money supply. Stock prices can be inflated as can other instruments. Earnings increases fueled by employee cuts cannot be indefinitely prolonged. Savings and Loan funds were, as other funds can be, cunningly apportioned to nonproductive, counter productive or even fraudulent projects by the same administrations' party that created the Great Crash. The same or a lower level of production involving fewer workers or reduced labor costs may cynically be presented as "increased earnings due to greater efficiency." An appearance of production has displaced the reality in the quest for the allocation of resources. Gresham's rule applies also to productivity.
These very excesses make the system more vulnerable to an economic crisis that simple tinkering with money supply cannot resolve. If too much of the economy has been rendered irrelevant by; a demoralized citizen work force; an alleged meritocracy of economically privileged putative management; foreign and not necessarily always available production facilities and; massive investment in frivolous services (ie. "pet restaurants, 900 number sex services, strip clubs,lingerie "modeling" shops, tourist traps, massive -entertainment and drugs, lotteries and a host of others) in preference to infrastructure, real* defense and effective , efficient education, such excess will require correction if a viable economy is to be restored. Must deflationary forces be actively engaged in destroying production for years before *appropriate* corrective measures are employed? The pervasive example that intelligently directed hard work and ability are subordinate to cronism, favoritism and prejudice must be corrected.In a Universe of infinite extent but at present limited access, a transcendent rational goal for society should be self evident.
Where the people have been duped by "leadership" to apportion resources and opportunity on the basis of fraudulent claims of optimal productive result , long term prosperity and even national survival are at risk. By exploitive scapegoating of minorities such leadership can ride the prejudice of the majority to the point of national suicide. Recall the ultimate outcomes for both Nazi Germany and the Confederacy. Neither could, competetively or by siezure in war, raise production to a level ccapable of supporting their irrational visions of transcendent racial-cultural superiority.
*As compared to a defense industry that functions as a source of additional income for retired Officers who passed on the contracts for projects of their subsequent employers. A total ban on such employment would be superior to present law which permits employment at a "lower" level for those who worked on the approval or acceptance of such system while in the military.
bjw