Originally posted by hugoestr
What I have read is that the crisis in the 1970s made Keynes unpopular. Friedman's school of thought offered some solutions against inflation that have been moderately successful. The main problem with the Chicago thought is that many of their policies ended up created massive income gaps between the poor and the rich.
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I am afraid I do not agree with the above statement! The real cause of "massive income gaps" is the per-cent raise! That is, at some point in time, someone came up with the idea to give all employees a raise, not of the same amount of spendable income, but a raised based upon their current wage! As anyone who can understand "compound-interest", this type of wage, is highly biased towards those making highest wage!
Thus, assuming a yearly wage for the lowest paid government employee (I use gov. employee, because they were the first to use this method of giving raises on a large scale, other than Unions) made $4,000 per year in say 1969, and they were given a 5% raise,then their new yearly pay would be $4,200, but suppose the top rate/grade for this same government employee, (as a top manager) was $7,000 PA, then the same percentage raise would be in the amt. of $350.00 and the new rate of pay would be $7,350 PA! In other words, in purchasing power the higher grade employee would receive an additional $150.00 per year, to spend!
Now all one has to do is to use this same 5% raise, and let it run for 40 or so years! I'm sure someone has the mathematical mind to do this exercise!
Do, it and see what come out? Then see if you can see how such raises, over a long period of time make the "rich" richer! And by far!
Note, that when we started the above comparison the gap between the lowest employee and the highest paid employee was $3,000.00!(I.e. $3,000 and $7,000!) What will it (the earnings gap) be, assuming an average raise of 5% for 40 years?
I'll bet you would be surprised?
Regards,
Edited by opuslola - 11-May-2010 at 15:00