Right now, unemployment remains at over 8% in the UK while real wages are lower than they were 7 years ago and are continuing to fall. Yes, you read that correctly. Which immediately leads one to ask: on this explanation of a recession as expounded by Karl, how much further do real wages have to fall to eliminate disequilibrium unemployment?
…I am finding the aggregate demand narrative an increasingly unsatisfying explanation of all that is happening in the British economy. Supply-side suffering is suffering too, and I think we need to take very seriously the chance that it is happening.
Here is his follow-up post. Do note there is no deflationary downward spiral in the UK. In a funny way, it is some of the more extreme Keynesian views which lead one to the most extreme stagnationist conclusions. I know, fiscal policy, fiscal policy, fiscal policy. But it can’t employ everyone forever. What does the level of real wages need to be?