muses of the moment

January 29, 2013

Relative prices and wages

Filed under: Economic Crisis, Odds 'n ends — totallygroovygirlfriday @ 3:58 am

So, grooygirl went to the Mises Institute Circle in Houston last weekend. Click here.

Mises Institute promotes the understanding and education of the theory of Austrian Economics. It was a good conference. The most encouraging thing was the large number of young people there. They certainly understand that the current economic system is not working.

Tom Woods, one of the speakers, talked about the problems of QE to infinity and government fiscal stimulus plans. The worst problem being that the spending is never targeted toward promoting spending that will develop real economic activity. It is geared toward either pet government programs or no direction at all, thus another bubble is created intentionally or unintentionally.

Current bubble targeting the auto industry and the T-bond market.

Groovygirl gained a better understanding of the concept of relative prices and relative demand and its effect on the real economy. It is a deeper concept, but under the same umbrella as what gg has stated before about the every increasing gap between wages and prices. And how that widening gap slows and stops the real economy despite government spending and QE and distorted stats.

This also distorts relative wages and underemployment. Willy-nilly government spending sends money into bubbles, causing middle and low-income job wages to collapse. Government uncertainty, such as the ever-moving timeline of the debt ceiling causing uncertainty for business. I think we have all seen this in the last 2 years.

Until these issues are addresses, business and expansion will stall.

Here is another illustration of how Gov/Fed spending approach does not work in achieving full employment from Of Two Minds. As you can see, the Fed’s low rates since 2002, has not created more jobs in respect to population.


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