So what Schumpeter must be read? Which book or article? I find myself in agreement with almost everything you say, but I'm not sure why you say, e.g., <<you are wrong to claim that labor cost doesn't cause inflation.>> What I actually said was that it doesn't cause inflation by itself, as is so often either asserted or implied. There has to other factors, including money sloshing around that isn't being put to productive use (almost always easy to find), and the right psychology along with capacity constraints, and I said that that the latter two conditions weren't there. You point out yourself that capacity constraints at this point are essentially nonexistent, as companies can move almost all production off-shore somewhere. That weighs not only on the psychology of labor, but the psychology of management, who are loathe to raise prices since they know that a flood of capacity could come on-line for many things if margins get too juicy.
But you are right about one thing: I still instinctively blanche at the cycle, I too want to defeat it, even though intellectually I know it that this is a ridiculous wish, it's the Smokey the Bear syndrome. If you don't allow the smaller, more frequent brush fires, you'll get the really huge devastating fires that takes everything. |
