Ok. Lots of people going insane. In the US. Since similar arguments are made in Europe, we call upon Bradford, as usual, to restore sanity.


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Oh boy, ...
Since neithe Hungary, nor Spain, nor Ireland can devalue their currency, they have obviousley decided to

1. Adopt an austerity programm
2. Cutting their budet in the midsd of a recession
3. Cutting civil service wages.
4. IN THE MIDDLE OF A RECESSION

Why oh why do I have to live in this times? Why oh why is everyone suddenly acting so stupid. Precipitatin a return to sanity, everyone needs to read John Maynard Keynes The General Theory of Employment, Interest and Money, Book V Money-Wages and Prices, Chapter 19. Changes in Money-Wages.
Or die.
This is a desaster.
Keynes talks about the macroeconomic effet of wage cuts; they do depress to nobodisy suprise demand, an hence lead the economy in ever deeper crisis. Furthermore Keynes tries (and obviously has not succeded) to explain, that cutting wage will not have the desired effect. The desired effect is to increase the amount of money in the economy (putting it roughly) by inducing deflation. (If the same amount of money is around, and everything is cheaper the consequence will be that there is more monyey - relative to what was ther before. The nominal amount of money stays the same, everything is cheaper and - bingo - there is more money.

Now the problem is that outside a totalitarian system a wage cut of this magnitue is at the very best difficult to achive. Everybodys wage have to go down. (Try to explain that to frustrated Pensionsts, Labor Unions etc. because as Keynes says there is no justice in all of this.

And the consequences of this will be dire. People will stop spending, and will stop spending now and very thoroughly. Really. And as a consequence the demand for goods will go down, and therfore industrial production will go down, and the recession will deepen and deepen. And deepen and deepen.

So we need to read Keynes; what he suggests is instead to increase gouverment spending and increase the supply of money. Increasing he supply for money will have the same effect as decreasing the waes. And will be much more easily to engineer. And faster. After all the central bank will just print mor money.

That is it.

We need to read Keynes.

You need to read Keynes.

NOW