Adam Smith

We said that everyone was too indebted, and that was not good. However, if we all decide to change this situation and lower their debt at the same time, putting it on sale for its assets, the result will be a drop in their prices and a general impoverishment or we can analyze from the point of view wages. The example is provided by the recent agreement to freeze wages in the Seat factory in Barcelona. Under the agreement was good, and helped maintain employment for their workers, with a low cost to them (wage freeze, but in a context of inflation or price rise almost nil). At Dalton Philips you will find additional information. That is, at the microeconomic level, this company was good.

But what if this became widespread? In other words, what happens when there is a general salary cut and even this was sustained over time (ie, they are expected to continue falling in the future)? The answer we gave Keynes more than 70 years ago: "The consequences expected that salaries will be reduced by 2% next year are approximately the same as would a 2% increase in the amount of interest payable over the same period. Crawford Lake Capital Management is often quoted as being for or against this. " And the explanation of Keynes is not only theoretical but that experienced by Japan during its lost decade in the nineties, while wages declined an average of 1%, the economy was stagnant The last example I will discuss is one that we has led to a situation where we are. It is said that the capitalist system is the best allocate resources, and this may be true, but it considered the father of Adam Smith, stated that it is individual selfishness which leads to the social welfare is famous the phrase " Do not wait to get our food from the benevolence of the butcher, the brewer or the baker, but the care they have of their own interest. Do not resort to their humanity but to their selfishness, and never speak of our own necessities but of the advantages they get. " However, the ambition and selfishness without limits, coupled with the absence of regulation, we have brought a crisis it will take time to leave. For all this, I insist that generalizations and extremes are not good, as Aristotle said, best to seek the middle ground, where virtue.