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Without a little inflation, bad investment drives out good. Moderate inflation enhances productivity by functioning like a scarecrow: the rise in nominal mortgage rates deters myopic home buyers, who naively watch the nominal interest rate (in its guise as the payment-to-income ratio) rather than the real rate. The recent house price bubble is often blamed on predatory, subprime lending; but low inflation created an environment conducive to such practices. Here a modified IS curve is used to derive a schedule of the neutral real interest rate-where "neutral" has the meaning established by Keynes (1964, p. 243). This shows that, contrary to the Taylor principle, a stabilizing monetary policy reaction function can be flatter than 45 degrees. The central bank need not be as hawkish as is presumed by those who fear that inflation is everywhere and always a runaway phenomenon. Inflation-induced self-selection of borrowers can enhance growth. Overzealous central bank discipline can cause crowding out.

In this model of contested exchange, ambitious salaried yuppies (in accounting, consulting, engineering, higher education, investment banking, law, management, marketing, medicine, or other professions) inevitably toil on the verge of depression, much as wage workers once toiled on the verge of starvation. This depression reduces diligence yet maximizes profit, subject to the rejection-rate Laffer curve. Chronic fatigue syndrome provides a status defense (conspicuous excess capacity) for workers denied promotion. Wellness programs, psychological counseling, anti-depressant drugs, exercise, and cheerful human resources management techniques improve profits more than morale. This may constitute exploitation in the sense of Roemer or Steiner.