Jake:
I don’t understand. Do you mean, a falling wage rate implies a greater demand for labor in the future, in as much as labor will be cheaper in the future, since wage rates are falling now?
On the face of it, a falling wage rate (now) implies a lesser demand for labor (now). Or, if I’m wrong, please explain.
Adam
Maybe I am confusing his causality, but if wage rates fall in the face of falling prices, there is no problem. If wage rates don’t fall but consumer spending falls, the quantity demanded of labor becomes too low because wages are out of equilibrium. If they do fall, qunatity demanded will increase from the disequilibrium quantity. I should have said “quantity demanded” instead of “demand.” I was using the term “implies” in the sense of “leads to.”
No. You maintain the standard misconception. Central bank market operations have no effect. I think they tout these to make themselves look more important than they are. Central banks are glorified print shops and nothing more.
Their key rate … what they charge for the paper notes they print is the base for all other rates. This rate is simply declared.
The central bank is not the creator of money. Money is created in the lending activities of the local bank.
Business does not create the demand for labor. The demand for labor comes from consumer spending. Business markets labor services, but if wages fall, then demand for labor will fall too. It is the consumer dollar, derived from wages, that creates the demand for the labor, and so if wages fall demand for labor will fall too.
You seem to think that costs and prices are closely linked. They are not. Prices are according to what the market will bear. Production too, is not according to today’s profit or sales, but according to expected sales and profit.
I think my second question hasn’t been answered yet: In times of deflation, a potential investor could have a certain rate of return by just sitting on his cash, which is steadily gaining purchasing power, whereas in times of inflation, everyone is kind of “forced” to invest his money somewhere, if he doesn’t want to lose purchasing power.
Concluding from this, won’t there be a lack of investments in times of secular deflation?
Tobbog:
Isn’t this an investment in one’s cash holdings?
The greater value of each dollar would increase the tendency to spend it.
Yes, deflation is not good. As I said before, it is not just that money is pulled to the sidelines, but the creation ( borrowing) of money is curtailed. Deflation, as inflation, does tend to spiral. That the dollar is worth more today than yesterday does not encourage the spending of it, because the trend shows that it will be worth more tomorrow.
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