<p>Without context, it is unclear what Blyth meant. However, the usual argument runs as follows. The worker starts out with a certain nominal wage, and nominal debts. If wages and prices fall by some percentage, for current spending, the two changes cancel out - goods will cost the same percentage of weekly wages as before. However, the drop in prices does not reduce debt payments, and so those are larger relative to wages.</p>

CC BY-SA 4.0
2020-04-24T20:33:10.737Z
Thank you for your help! Essentially, people get debts with their current incomes, as people accept lower wages in aggregate, they still still have to pay former debts (like a house or car), which can be substantial. I assume the same is true for student debts: people accrue large amounts of loans thinking thinking they'll get a decent-paying job, just to end up competing for lower wages and free internships due to a large demand for jobs.
Johnathan
CC BY-SA 4.0
2020-04-23T11:01:22.167Z
2020-04-23T11:01:22.167Z
Brian Romanchuk
<p>I am reading a book called "Austerity, the history of a dangerous idea" written by Mark Blyth. While talking about Keynes, the author writes:  </p>

<blockquote>
  <p>"he [Keynes] showed that although any worker can accept a wage cut to
  price himself into employment, if all workers did this, it would in the
  aggregate lower consumption and prices, and thus increase real wage
  (the wage-minus-price effect), leaving the worker who "adjusted"
  poorer and just as unemployed"</p>
</blockquote>

<p>I don't understand real wage/price effect. If prices drop with wages, how is the employee becoming poorer? If I make less but it costs less, shouldn't I be able to buy the same amount? </p>

<p>Thank you for your input!</p>

CC BY-SA 4.0
2020-04-23T10:56:11.997Z
I changed the title, this is not about what Keynes said, rather Blyth’s explanation.
Brian Romanchuk
<macroeconomics><keynesian-economics>
Trying to understanding Mark Blyth’s statement about Keynes
Johnathan
# Trying to understanding Mark Blyth’s statement about Keynes

(Asked by: username_0 on 2020-04-23)

I am reading a book called "Austerity, the history of a dangerous idea" written by Mark Blyth. While talking about Keynes, the author writes:

> "he [Keynes] showed that although any worker can accept a wage cut to
> price himself into employment, if all workers did this, it would in the
> aggregate lower consumption and prices, and thus increase real wage
> (the wage-minus-price effect), leaving the worker who "adjusted"
> poorer and just as unemployed"

I don't understand real wage/price effect. If prices drop with wages, how is the employee becoming poorer? If I make less but it costs less, shouldn't I be able to buy the same amount?

Thank you for your input!

**Tags:** macroeconomics, keynesian-economics

> **Comments:**
> **username_1**: I changed the title, this is not about what Keynes said, rather Blyth’s explanation.  

---

## 1 answers

### Answer by username_1 on 2020-04-23. Score: 0 | Accepted answer

Without context, it is unclear what Blyth meant. However, the usual argument runs as follows. The worker starts out with a certain nominal wage, and nominal debts. If wages and prices fall by some percentage, for current spending, the two changes cancel out - goods will cost the same percentage of weekly wages as before. However, the drop in prices does not reduce debt payments, and so those are larger relative to wages.

> **Comments:**
> **username_0**: Thank you for your help! Essentially, people get debts with their current incomes, as people accept lower wages in aggregate, they still still have to pay former debts (like a house or car), which can be substantial. I assume the same is true for student debts: people accrue large amounts of loans thinking thinking they'll get a decent-paying job, just to end up competing for lower wages and free internships due to a large demand for jobs.  

---

