I thought he made the case that was the wrong way to base things and that is what gave rise to extreme left/right political regimes in various nations - that instead we need to base it on wages remaining stable - not currency purchasing power? Therefore more people stay employed and social chaos is reduced.
How does one define “stable wages?” Kessler seems to think that wage differentials from differences in productivity are a social evil and he imagines that a change in the nominal wage rate some how prevents wage differentials from occurring. That is simply not possible. You can’t peg wages, nor can you prevent a worker’s real wage from declining. Labor is not a homogenous group; it is made up of distinct individuals with a unique set of attributes and those individual attributes can be combined in many complex and complementary patterns, both within one individual and across individuals. If it were any other way, human history would be very different from what we know it to be. Diversity, for instance, would not be known. Wage differentials serve to signal which attributes and combinations of attributes offer the highest value to your society. Don’t you think that, in the long run, the effect of limiting the return to human activity through preventing wage differentials from occurring would actually be the opposite of what Kessler thinks? The bottom line is that Kessler piece is insulting, as he must imagine that people are idiots.
Wages will not go down but the currency will in regards to purchasing power in the global market - workers wont be upset as much and form labor unions because thier wages are going down and try to get the politicos to erect trade barriers.
Whose nominal wages would not go down - the least productive member of your society? That means the inflation rate would be set to account for the difference between the most productive sectors of the economy and the least. Wage differentials would still persist, but now the negative welfare impact from inflation would add to the misery of those least able to accommodate it.
China has a peg - this defeats currency fluctuations helping the workers - as her currency got stronger and ours weaker - wages and jobs would not be shifting so fast perhaps - more tempered transition. The way it is now - I hear workers are getting pissed off - and getting senator schumer to introduce trade barrier legislation - same as happened in the depression era.
Trade barrier legislation in the US (Smoot-Hawley) was already in place by 1930 and no doubt contributed to the depth and length of the great depression. And some economists have theorized that the pending implementation of the Smoot-Hawley Act’s tariffs precipitated the stock market crash.
Right, they could make a shirt with a machine for 5 dollars that in other countries was costing 15 with lower productivity. People from around the world bought the 5 dollar shirts - sending Gold to england and reducing the money supply of the outside world (in gold - which the currencies were linked too) and increasing Englands money supply - and I suppose in theory causing inflation in wages of English workers because thier money supply was increasing with thier increased textile productivity relative to the world.
England’s textile success expands her output not just in textiles but also in other goods and services, as the textile income is spent. However, unless England enjoys an absolute advantage in the production of all goods and services, some wage earners in England will experience decline as the terms of trade between England and the rest of the world has shifted, and the demand for their output will decline. This decline in wages for the industries that do not enjoy an absolute advantage vis-à-vis the rest of the world is not prevented from occurring by an influx of gold. Gold flows into England only if her output expands and only enough to keep the purchasing power of gold in England constant with the rest of the world.
If England and the rest of the world focus only on producing those goods and services where they enjoy an absolutely advantage, the aggregate wages level of all workers in the world will increase - in the long run. Under Kessler’s plan, by keeping wage differentials constant no shifting in production will occur and aggregate wages and output will stay constant. Now that may appeal to someone who has already made tens of millions in the financial industry, but I’d like to think the young kid working in McDonalds would have a better opportunity at improving their situation in a world that is expanding and shifting its output. |
