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Workers of the world compete

Like generals fighting the last war, central bankers and politicians have seen inflation as the enemy of prosperity. In fact, we are suffering from a lack of demand caused by profits outstripping wages in a world of excess labour

By Gerald Holtham   December 2008

Much of the analysis of the current crisis has focused on financial institutions, regulation and monetary policy. Although these were important in shaping the crisis, they are not at its root.

The truth is that the world economy has changed in ways that are likely to lead to periodic instability. These changes have not yet been recognised and assimilated by central bankers or politicians.

The freeing of capital movements in the 1980s combined with the collapse of communism, releasing billions of new workers into the world economy, has recreated a global reserve army of labour. That in turn has contributed…

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