Marginal worker = next worker hired that reduces maximum profit.
Your definition is good and appropriate but I mean marginal cost worker, the worker that has extra (outside) market power to hold out for higher compensation. For example, BART workers have a union run a strike bluff that results in higher compensation than had the union not bluffed. It worked because Tom Torlakson is a collective bargaining Democrat and the SF Bay Area believes it is wealthy as it moves along the road to serfdom.
1. RPs.
Short term debt instruments which allow the FED to fine tune interest rates which are self destroying and therefore presumably have little monetary effect on economy (to be distinguished from interest rate effect on economy).
2. RPs ... 2 the potential and actual money creation you have in mind?
No. Much earlier in this thread I give details about that aspect of the accursed mechanism.
The existence of this new money raises prices.
No. The existence of the RPs prevents the private market from ever knowing what the proper rate of interest should be. The market becomes slave to the ignorance of the FED. FED can't control what the economy does with forms of money they create. The result was that during the late '90s interest rate targeting allowed an unnecessarily strong growth in M2. The natural regulator, the market, had been compromised by FED interference and so couldn't restrain the drunks with its natural sobriety. This led to various other excesses which the FED had to reign in by setting rates in line with where the market had been moving them(the difference between the market rates, corporate short rate or T-bill rate, and FED's fixed fed funds rate) in spite of FED interference. There's a limit to how far the stupidity of the players will allow the FED to ruin them. The problem was that neither the players nor the FED knew that rates at 6% would act like rates at 12% during the "good old days". The money growth created the illusion that there is a prosperity that can accommodate demands for compensation in excess of the worth of compensation's output. People didn't mind paying higher prices because the stock market was making them wealthier faster than the rising prices were making them poorer(the wealth effect).
Fed interference at the margin in cost of money by setting rates (big, sudden change or no change),stops RP market from getting, by small increments (by discovery), to where interest = marginal cost = marginal revenue. Similarly with other interest sensitive markets.
The qualification, (big, sudden change or no change) makes this essentially correct sentence false.
How RPs create problems is extremely subtle. Probably the only one who would understand is Adam Smith, and he's dead. It could be summarized by saying, the greatest knowledge lies in the noise of the random walk. Equivalently, price must be allowed to bust everyone if it so chooses, if everyone expects to be treated fairly and prosperously. You'll never get the weak intellects of this era to comprehend that.
This may be generalized: It's the interference with the discovery process of economic participants, (the market), which is the dangerous practice. Absent discovery, which is empirical and has feedback, participants have to fall back on superstitious/magical thinking - taking cues from "wealth effect, envy," or gnomic statements from AG or talking heads at Morgan Stanley, etc.
Yes.
Are my changes correct?
Yes. |
