American - Economist | July 26, 1933 -
I could try to incorporate or reflect in my models what it is that an employee, manager, or entrepreneur does: to recognize that most are engaged in their work, form expectations and evolve beliefs, solve problems, and have ideas. Trying to put these people into economic models became my project.
Edmund Phelps
WorkPeopleIdeasExpectationsTry
In Greece, Italy and, to a lesser extent, France, unsustainable tax cuts and spending sprees added to households' estimates of their private wealth relative to their wage income.
WealthTaxIncomeFranceGreece
The main cause of Europe's deep fall - the losses of inclusion, job satisfaction and wage growth - is the devastating slowdown of productivity that began in the late 1990s and struck large swaths of the continent. It holds down the growth of wages rates, and it depresses employment.
GrowthJobDeepFallLateDown
Disciples of Keynes, who focus on aggregate demand, view any increase in household wealth as raising employment because they say it adds to consumer demand.
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Economists of a classical bent lay a large part of the decline of employment, and thus lagging output, to a contraction of labour supply.
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After a major loss of dynamism in the 1960s, productivity growth rates began dropping in most countries, falling by half in the U.S. in the 1970s and more or less ceasing altogether in France, Germany and Britain in the late 1990s.
GrowthLossLateMoreFallingHalf
'Egalitarians' who complain about inequality view the wealth of the wealthiest as bad in itself: it disfigures society. They would enact a wealth tax to extirpate the offending wealth.
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Developing new products is labour- intensive. So is producing the capital goods needed to make them. These jobs disappear when innovation stalls.
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With less competition to fear, companies are emboldened to raise their mark-ups and profits. That lifts share prices and thus the wealth of already wealthy shareholders.
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Some economists believe that the Greeks' work ethic and thrift can pull them through. But the classical virtues can do nothing to offset the dearth of innovation that plagues the economy.
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The Keynesian belief that 'demand' is always at the root of underemployment and slow growth is a fallacy.
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No amount of debt restructuring, even debt forgiveness, will help the Greeks achieve real prosperity. What they need is not short-term relief but, rather, a long-term cure.
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