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PROSPERITY: Economic Policy | May 17, 2000


An Unpublished Letter to Los Angeles Times

In "Liberals Rage at the Maker of Jobs", Matthew Miller should heed "a little economic literacy" himself.

After rightly acknowledging that "the gap between rich and poor keeps growing, and that many of the jobs created in this long expansion don't pay a living wage", Mr. Miller wrongly claims that "these are not things [Federal Reserve Chairman Alan] Greenspan can do anything about."

Mr. Miller states that newly employed "unskilled workers...have had a chance to get trained on the job and work their way toward the middle class." However, that is a form of "wage inflation", which, with price inflation, is precisely what the Fed is opposing with interest rate hikes.

In an economic expansion, as opposed to a recession, demand is greater than supply; so in a healthy, growing economy, there will typically be moderate inflation of prices for consumers and wages for workers as well as of profits for investors and tax revenues for governments: If our products and services sell, we all will make money; if they don't, we won't.

While the track record of Mr. Greenspan is commendable and, thus, reassuring, I just hope that this Fed, like some previous Boards, won't raise interest rates too high and thus "kill the goose that lays the golden eggs."

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