/lit/ - Literature

>>18340741
ok I think i'm starting to understand what you're saying. Yes, in the real world, if they are overpaying their employees, store-owners can quickly lower it, specifically by laying people off (or cutting their benefits [which I had happen in covid]), but I get it, like you said, laying people off reduces that store's productivity. and that's ok. yes, the reason why bernanke fears deflation is because the velocity of money slows and employment fall. but if you'll remember from the book: if the business model makes the business fail, then it is by definition a misallocation of resources. that employee would be better suited to work in another business that will make it worth his time.

But you have to remember that wages are nothing more than a price and are subject to supply and demand like everything else. Why (in your senario) would that man's wages be overvalued? because either there was low demand (he was making a product nobody wanted) or there was high supply (his next door neighbor was willing to do his job for cheaper). so it's fine that he's moving on to another job.

another thing to consider is the benefits of deflation. if we were all our needs were met by robots (who would feed and clothe us) we would have mass unemployment, but the price of food and clothes would be so cheap because it would be so abundant, we wouldn't have need for employment. case in point amazon and electronics have been so productive and made our quality of life so much better that they brought massive deflation (the fed had to adjust their projections)