Stagflation

Stagflation is the combination of inflation and stagnation in an economy (2). Using traditional economic theory, treating either economic stagnation or inflation aggravates the other condition, resulting in a never-ending cycle that is difficult to break. Martin Weitzman takes on the issue of stagflation and suggests in The Share Economy that we do not have to be content with stagflation, and that there are creative approaches which can lead the American economy out of this vicious cycle.

Traditional methods for lowering unemployment and increasing growth (treating stagnation) is to stimulate the economy through expansionary monetary and fiscal policies. However, this can lead to inflationary momentum that is slowed by contractionary policies. This leads to increased unemployment and slow growth, which causes the cycle to begin anew. Contractionary processes can also have as by-products low productivity, budget deficits and debt crises.

Weitzman's view is that a new approach is needed since the traditional approaches have not been able to solve the problem of cyclical inflation and recession. Instead, countries have experienced cycles of growth and contraction that are determined more by the current political climate rather than economic principles.

What Weitzman recommends is a change in the employee compensation arrangements so that price stability is compatible with full employment. Instead of adopting a macroeconomic view of the economy to solve the problem of s

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eitzman pays much attention to macroeconomics, focusing on full employment and supply and demand across the economy as a whole. Under a share economy, Weitzman suggests that nonfunctional discrimination would be minimized, or eliminated. This would come about as a result of companies needing skilled labor; those companies which practiced nonfunctional discrimination would soon find themselves with workers unable to match the productivity of their competitors. These workers would eventually be lured away by the higher shares their peers received at the competing companies, and so companies would be encouraged to eliminate such discrimination (121). Another noneconomic benefit that Weitzman sees in a share economy is an increase in the self-esteem of working men and women as they now would see themselves as productive, functioning members of an organization rather than merely as "cogs in the wheel." Their contributions to the organization would be recognized through the share remuneration program, and would constitute significant increases in the concept of being useful members of society. Weitzman's book is broad in scope, crossing across economic, political and social bounds. Having laid out his apparently simple thesis in

Category: Economics - S