Wednesday, May 13, 2015

The missing link in macro economics: labor extracting what the market will bear

Glad I watched Stiglitz video to the very end -- to the part where he contradicts the (fading) free market consensus that pursuing LOWER inequality inevitably causes market distortions that lead to a loss of overall efficiency.

A more fundamental understanding than even progressive economists present (the missing link in macro economics if you ask me) for why HIGHER inequality is associated with higher in-efficiency, higher in-stability and lower growth is that the true market distortion results when labor is unable to test -- indirectly -- what the ultimate consumer would have been willing to pay for the combined product of capital and labor -- through collective bargaining with capital.

When labor is priced only in comparison with other labor – what I call a subsistence-plus labor market -- I think that the most serious miscalculation of relative value occurs.

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