At 6:55 AM 1/31/95, [EMAIL PROTECTED] wrote: > It seems to me that the Federal Reserve is once again >operating under assumptions that may have been valid in years >past, in this case decades past, that are no longer valid. If >you will remember the Federal Reserve did this in the early >1980s when they should have known that financial deregulation >would change people's behavior and yet they still continued >to peg M1 which was a meaningless variable once funds started >crossing from other aggregates simply to chase high interest >rates. Or you could say that monetarism was a ruse to drive up rates to 21%. In any case, you have to count the Volcker period as highly successful from the point of view of capital, financial branch: it disciplined labor and cemented the political power of the ruling class. We can still feel its effects. > It is my contention that whether inflation comes >primarily from capacity utilitization or a tight labor >market is irrelavant in the face of very real international >competition. As long as all nations, or at least all >"relevant" nations do not face this situation of high >capacity or a tight labor market there will be considerable >pressure downward toward stability in prices. This is true >because if a US firm raises prices substantially, or in >some cases even marginally, they will lose sales to their >internation competitors. In addition, in the input market >more generally known as the labor market (Neoclassicals mess >things up so much with the special little terms) wages >are kept from growing at any substantial rate by the threat >of international competition for these jobs. As such, I >would argue that the US economy can in fact have an unemployment >rate as low as 3 to 3.5 percent consistently without any >real inflationary pressure. I'd love to see some real evidence on which markets are subject to international competitive pressures. Autos, yes, but more on quality than price. Consumer electronics? No US producers left there. Industrial goods? Yes, for sure. Services? None to speak of. Service inflation has long outpaced goods inflation, and there CU is much less relevant than the unemployment rate. An unemployment rate of 3-3.5% would radically transform the relation between capital and labor, and would, for that reason, be greeted with horror by capital. Or do we doubt that a sub-4% U would strengthen labor's hand dramatically? Doug -- Doug Henwood [[EMAIL PROTECTED]] Left Business Observer 250 W 85 St New York NY 10024-3217 USA 212-874-4020 voice 212-874-3137 fax
