Lower long term economic growth is the result of each of these factors. Economists have debated throughout the 1990s about whether inflation is under control. For much of the 1990s, Dr. Huenneke has believed that inflation worries are largely misplaced. Dr. Huenneke has argued to me that global competition has kept the lid on inflation for many years. This competition is so fierce that few companies can afford to raise prices and stay competitive.
Many industries have worldwide productive overcapacity.
He pointed out that U.S. wages and salaries were increasing at a rate of three percent or less. I responded to Dr. Huenneke and told him that eventually every expansion ends, and then there is a recession, which pushes the economy down toward a new nadir. Anyway, I told him towards the end of an expansion, you will find that labor shortages and inefficiencies due to production running up against capital limitations which push up resource prices and also decrease the marginal efficiency of both capital and labor. If businesses can pass on the higher costs in the form of higher prices to consumers they will, and the signals of building inflation will cause the Fed to raise interest rates. If businesses cannot pass on these higher costs to consumers, they will take a hit in terms of their profits.