Post
Topic
Board Economics
Re: Is deflation truly that bad for an economy?
by
twiifm
on 14/04/2015, 18:44:30 UTC
You make too many assumptions about static earnings.  If revenues increase then theres money to increase both dividends and wages.  There's no inverse relationship between wages and dividends.  I dont know why you think there is.  

We're not talking about the same thing.  The production is the same, the sales price is the same, the costs of supplies is the same.

The argument was: a producer should INCREASE the wages (for the same labour) in order to get MORE CONSUMPTION.  Now that's crazy, because if, all else equal, the producer increases wages, he has to take it from the profit he makes, and hence reduce dividends by exactly the same amount.  So what his labourers will consume more with their increased wages for the same amount of labour, the share holders will consume less with their reduced dividends.

(yes, yes, their demands will be DIFFERENT IN NATURE, but we said that already).

Suppose you make tablets.  You make 500 of them, each costs $150.-  Suppose your labourers buy 100 of them, and your share holders also buy 100 of them.  300 are sold to the rest of the economy.  Now, if you increase the wages of your labourers, maybe they will buy 150 of them now.  But you had to diminish the dividends to your shareholders, which only buy 50 of them.

You've shifted simply the consumption from your share holders to your labourers by increasing their wages (and by decreasing by the same amount the dividends).


Quote
There is no point in entertaining examples w no basis in reality.  Robots doing work for free making stuff for rich people?   Roll Eyes

It is called a gedanken experiment, to test the logic.  


You don't understand my argument.  I'm making the Old Keynesian argument.  That economy is driven by aggregate demand.  One way to boost aggregate demand is to boost wages.  Again I'm talking about macro not micro.

The people who build tables don't need to buy tables.  But if their wages increase they'll increase consumption , thereby increasing GDP.  Which benefit the table factory.  There's many policy that can have the same effect of boosting wages besides giving them a raise.  For example, lowering their taxes and compensate by raising tax on capital.