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Source link: http://archive.mises.org/5978/get-a-raise-wreck-the-economy/

Get a Raise, Wreck the Economy

December 5, 2006 by

From the daily email from the Wall Street Journal:

Last week, Federal Reserve Chairman Ben Bernanke said in a speech that he remained worried about inflation, that risks to prices were tilted mainly toward the upside, and tight labor markets especially have the potential to drive prices higher even as the economy gets roughed up by the deteriorating home market and a tough patch for the auto industry. It was thus a relief to the markets to hear that labor inflation is being stuffed back into a cage, and stock futures bounded higher this morning on the news.


Bill Ott, other insanity December 5, 2006 at 5:06 pm

I feel your pain at the Mises Institute. I can only guess how painful it must be to be a full time Austrian as it is hard enough being a part timer.

This is another case where the economy gets hurt because the bone-head Fed is treating symptoms and not the cause. At least the medical profession believes that this is something called malpractice. There are many reasons for this behavior by the Fed, the biggest being that the cause is the Fed itself and not the wages of workers or the prices of energy products.

wdfwr December 5, 2006 at 7:36 pm
M E Hoffer December 5, 2006 at 10:38 pm

I guessing Bernanke didn’t learn Economics at Texas A&M, nor Engineering at Princeton.

David C December 5, 2006 at 10:59 pm

“Ben Bernanke said in a speech that he remained worried about inflation…”

Oh Yeah! He’s worried about inflation all right. That is, worried that people are figuring out that he’s the cause of it. That is, worried that he won’t be able to get away with inflating more. That is worried that investors will dump all their trillions of dollars one they figure out that he has no intention of tightening. Worried about trillions and trillions of dollars worth of derivative contracts going into default if he must veer of course with interest rates. Perhaps, worried about the price of gold and silver exploding thru the roof and showing his monetary policy for the sham that it is. Yeah, I’d be worried to if I were him too.

quasibill December 6, 2006 at 8:10 am

Somehow, it doesn’t suprise me in the slightest that Bernanke is a believer in downward nominal wage rigidity.

Given that DNWR prescribes a policy of targetted “low” inflation somewhat under 4%, and Bernanke has stated that he believes in “targetting” inflation in the same area, why is anyone suprised? As I’ve said before, DNWR is code for “don’t have the sack to ask your employees to take a pay cut? Don’t worry, we’ll steal it from them for you!”

Dan Coleman December 6, 2006 at 8:52 am

Shame on those workers (excepting me, of course) for wanting more than they ‘need.’

Artisan December 7, 2006 at 4:27 am

I’m not sure this fits perfectly but, I d’like somebody telling me what is the right idea here:

Ok, so Central Bankers create inflation, which is bad. But they can only do so because of the backing they give to FRB. Do Austrians all recommend full reserve banking thus (is this idea sustainable at all w/o government?) or how should it work?

My concern is: wouldn’t FRB subsist even without the FED in a free market, just like the whole future market plays a role on the unregulated market, particularly the forex for instance, where you can massively leverage the volatility of currencies (and which works thus somehow like a bank credit with fractional liability)…

quasibill December 7, 2006 at 9:25 am


speaking for myself (there are quite a few here who disagree strongly – either way! – with me), FRB would exist in a free market, but it wouldn’t be called “banking”, it would be an “investment”.

A deposit contract, viewed in the traditional definition, requires 100% reserves, and likely would only occur for a fee (the depositor would pay for the service). Which is why I think alot of people would end up storing their money in very low risk FR investments that would have high, but not 100%, reserve requirements. It’s impossible to predict exactly how it all would play out, but the important point to note is that it would in fact be a fraud for a banker to engage in FRB pursuant to a generic deposit contract – he’d have to qualify it to allow for FRB, which, in the absence of a state bank, would be generally seen as risky once a few FRB fail (and they would, absent a state bank to bail them out).

Artisan December 8, 2006 at 3:34 am

Thanks for your opinion. I think I have to agree with you. FRB is probably here to stay, even if under a different name. One solution, taking the forex analogy further I guess, is to organize a “margin call” on your bank: once they go under a certain percentage of “backing reserve” on your FR account, you can agree with them to automatically credit your “fully backed account” again. This would make the free market driven yield curve more “liquid” w/o changing the financial world too much I figure…
Just dreaming.

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