8 ms·
If you think it through with a simple model, you might challenge your intuition. Let's say the entire economy consists of three people: #1, #10 and #100. #1 ea
by panarky 9y ago
If you think it through with a simple model, you might challenge your intuition.
Let's say the entire economy consists of three people: #1, #10 and #100. #1 earns $1,000 per month, #10 earns $10,000 a month, and #100 earns $100,000 a month.
Raising #1's salary to $1,500 a month might have a small effect on prices in the economy at large, but prices certainly wouldn't go up 50%.
That's because #1's share of the entire economy is very small.
In the US, 14.5% of the population are #1s, and 85.5% are #2s and #3s. And that 14.5% of people represents a minuscule portion of the economy, maybe something like 5% or less, since their incomes are so low.