Comment on Open Thread, May 19 - 25, 2014

Tue, 20 May 2014 02:25:16 GMT

Part of it is that deflation in the early 1930s meant that workers were overpaid relative to the value of goods they produced (wages being harder to cut than prices). That caused wasteful amounts of unemployment. WWII triggered inflation, and combined with wage controls caused wages to become low relative to goods, shifting the labor supply and demand to the opposite extreme.

The people who were employed pre-war presumably had their standard of living lowered in the war (after having it increased a good deal during the deflation).

I won't try to explain here why deflation and inflation happened when they did, or why wages are hard to cut (look for "sticky wages" for info about the latter).

Discuss