“Los Angeles Review of Books – Post-Scarcity Economics”

“Los Angeles Review of Books – Post-Scarcity Economics” http://lareviewofbooks.org/article.php?type=&id=1845&fulltext=1&media=#article-text-cutpoint

‘Keynes saw the fallacy in this reasoning. He recognized that workers, after all, are also consumers. Drive down their wages, you also drive down their ability to purchase goods and services. Lowering wages was no panacea; it would just knock demand even further down. And since entrepreneurs base their decisions to invest and hire on whether sales are increasing, lower wages would lower sales, which would lower investment and so just increase misery without raising employment. It is a fallacy of composition. If I reduce my workers’ wages, I increase my own profits, but if everybody else also lowers the wages of their workers, sales will fall for all. From this misery some sort of equilibrium would emerge, but Keynes insisted it would not be a full employment equilibrium.’

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