Employment for a Day

The problem as I see it, is unemployment. There are two approaches, blame the unemployed for their unemployment, saying what they produce is no longer desired and they must accept whatever they can find or go without resulting in deflation, or blame the employed, saying their wages are now too high and allow inflation to lower them and raise employment. The former attempts to preserve the value of debt but erodes the amount through default while the latter erodes the value of debt but preserves its amount. What do the employed owe the unemployed? What is the moral position and what will produce the best outcomes? Will real growth increase before inflation as well?

Deflation can work to a point, generally to the extent of productivity growth so nominal wages don't have to be reduced. Beyond that it doesn't. Deflation increases real debt faster than default can eliminate it. It is not effective in the face of high unemployment. Inflation can work to a point. That point is where most resources, or at least critical resources, are in use and it is anticipated. It is effective in the face of abundant unused resources. More inflation is warranted here and now.

Ideally, there is a middle ground that lets the most heavily indebted default, the burdened have their loads lightened, and promotes sufficient growth to ease unemployment. The same level of unemployment may not be reachable if the real output potential of the economy has fallen, but the only way high unemployment can be sustained is through both market failure and monetary failure.