Sunday, October 25, 2009

Wage Stickiness

I have been long aware of the problem with sticky prices and wages. That is why we have Keynesian economics, fiscal stimulus and the like. I said the solutionw as to make wages a share of revenue and I found that someone else already had this idea, L. Weitzman and his book on the Share Economy. He said wages shoudl be a percentage of gross revenues. I also read a book, Why Wages don't fall during a Recession by Truman Bewley. He interviewed employers and simply asked thim a simple question: Why don't you just cut everyone's wages during hard times rather than lay them off?

AS I heard the Savings and Loan Crisis of the 1990's I came up with the idea of the share economy, where all payemnts are simply a share of income. This is a cure for all sorts of financial crises.

Dr. Krugman cites this stickiness of prices in his proposal to rebalance the American Trade Deficit, let the dollar fall, beautiful in his citing of evidence about stickiness and relative real exchange rates. But he doesn't look at the alternatives,

  1. removing the stickiness of wages
  2. a consumption tax, particularly one aimed at badness

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