We all have to buy into this economic pyramid to keep it running. And since many of us enjoy decent, long-run returns on our 401 (k)s and our home values -- while simultaneously afflicted by fraud anxiety -- we tend to go along with the program and hope it all works out in the end.
Oops.
Come the next economic recovery, the substitution effect of a pay increase dominating in labor supply decisions -- which Professor Conley commingles with the fraud anxiety he refers to, and reinforces by the ability of improved communication to blur boundaries between work and home -- might again be counteracted by the income effect, something that is unlikely to surprise regular readers of Cold Spring Shops.
(Cross-posted to Cold Spring Shops.)
