Real wages have been flat since the 1970s (https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...). "Okay, so people's living standards are about the same since 1970?" Not even close. The problem with inflation is that its calculation is fraught with all kinds of selective weighting, bias, and politics. Take a look at the relative differences between the things which have decreased and increased in cost in real terms (https://static.seekingalpha.com/uploads/2017/5/29/saupload_i...). Okay, so TVs and cellphones are cheaper, but necessities like college, childcare, and healthcare are up significantly.
And when you drill in more, there are other issues. For example, the housing metric appears relatively flat in real terms, right? Except, that doesn't tell the story for the majority of Americans. Housing costs are WAY up in cities as Americans migrate to where the jobs are, while housing costs are down in all the areas where jobs are disappearing. In practise, housing costs are actually significantly up for most Americans, but because the CPI is calculated across the entire nation, the government can claim inflation is low. This allow them to keep the fed rate low, which keeps stock valuations high. This LOOKS great and generates great headlines, but the reality is that most Americans are significantly worse off since the 1970s.
And then we come to the other elephant in the room: why are real wages flat? Given the incredible performance of the American economy since 1970, shouldn't real wages be significantly UP? This is yet another reminder that wealth is being squeezed from the bottom and funnelled straight up. As a non-American, it's heartbreaking to see efforts to unify the underclass completely derailed by this ridiculous race war. Poor people in America have FAR more in common with each other than the rich, no matter race. I really hope you all manage to set aside the obvious red herring of race and unite in tackling your staggering wealth inequality.
Wages have not kept up with cost of living for 50 years in the US.
We need to stop pretending flat wages are some modern problem of inflation, and we need to stop pretending inflation is some problem caused by the pandemic.
> most Americans are significantly worse off since the 1970s
I think this is obviously false and hurts the credibility of the rest of this comment.
There are many pitfalls with measuring long-term inflation. How much did an internet connection cost in the 1970s? What about a computer? What about a smartphone? These modern technologies make peoples lives much better and were somewhere between impossible and impossibly expensive in the 1970s so an inflation metric can’t really take their price changes (from infinity to cheap) into account. Another is quality. Compared to the 70s, a new car is faster, safer, more comfortable, and more fuel efficient. Similarly, most houses are bigger and better in America today.
I think it is important to note that talking about long term inflation is different, and perhaps harder, than talking about short-term inflation which is what the OP is about.
> As a non-American, it's heartbreaking to see efforts to unify the underclass completely derailed by this ridiculous race war.
Yeah, well, it's not like things are much better in Europe. Far-right parties are now mainstream in most major EU countries, and their n.1 priority is exactly the same.
You state govt keeps inflation low by manipulating how it's calculated in order to keep the fed rate low, which insidiously keeps stocks up. And this happens, apparently, because the Fed really cares about news headlines? Does the ECB and BOJ enact the exact same policy but for unrelated (but equally conspiratorial) reasons? Are all the central banks and politicians around the world in cohorts, or is there something else going on here?
Long term interest rates have been going down for decades. This is a long term trend, caused by low GDP growth expectations. The labor force participation rate keeps trending down. Healthcare costs keep trending up. Population is aging. These are fundamental problems for which there is no great solution, and interest rates are low (along the curve) as a consequence. The Fed is ultimately only a minor player in this. They can provide excess liquidity, but only for so long. Ultimately rising inflation forces the Fed to withdraw liquidity and the market will inevitably deflate. Fed policy postponed a market crash by a couple of years so it wouldn't hit at the same time as covid, and that's a good thing.
But who benefits from a steady stock market? Regular people. Pension funds. Who benefits from crashes and wild gyrations? The wealthy. Hedge funds. This makes perfect sense, because a treacherous market is best navigated by the most experienced and wealthiest parties.
You seem to argue the opposite: that a market that has steadily gone up and up and up because of Fed/inflation manipulation has somehow benefited the wealthy elites at the expense of regular people?
Yes, workers get paid too little and much in the world is unfair. But your analysis is mostly conspiratorial silliness. I don't know what you mean by "ridiculous race war", but Black people in the US are 20x poorer (by net worth, on average) compared to whites so a race/color blind analysis of the economy doesn't work.
There's more to employee compensation than just wages. Real total employee compensation has risen significantly since the 1970s when you factor in employer contributions to health insurance premiums. While some of that money is wasted, employees are getting tangible benefits in the form of new medical treatments that weren't even available 50 years ago.
What we need to do is decouple health insurance from employment.
> Except, that doesn't tell the story for the majority of Americans. Housing costs are WAY up in cities as Americans migrate to where the jobs are, while housing costs are down in all the areas where jobs are disappearing. In practise, housing costs are actually significantly up for most Americans, but because the CPI is calculated across the entire nation, the government can claim inflation is low.
I think this is basically wrong in that it's only true for a minority of Americans -- the kind that are overrepresented on this forum. If you're in tech or finance or law, then there are big payoffs to moving to San Francisco or New York, but this actually isn't the case for the typical American. When you compare cost of living it's clear pretty quickly that the median American is still doing just fine in the vast middle of the country.
The median household income in the NYC metro is $83,160 and the typical home costs $571,556. In St. Louis, say, the median household income is $66,417 and the typical home is $222,076. For the average American, the second option is a much better deal. Sure, you make $16k more in NYC, but does anybody believe that the entire cost difference between the two metros is $16k per year? It's not even close. The median American is much better off in St. Louis.
A lot of people reading this are in households that make many times the median household income and they have understandably concluded that their best options are in a few costal cities. But it simply isn't true for the typical American.
There's kind of a dual (seemingly contradictory) error here in that people both under- and over-estimate how wealthy the U.S. is. They overestimate in that they forget that the majority of Americans are living on much less than the average software engineer, but they underestimate in that they forget that our poorest states are still much wealthier than than the average European country.
Honestly I do not know how people are getting by given the cost of everything has gotten dramatically more expensive the past few years. In southern California gas is $5 a gallon, groceries usually are $200-300 a week for three people. Housing is beyond insane, every single family house in our city is now above $1M(you could find dozens of houses in the $800k-900k range a year and a half ago). This is not sustainable and I don't know what the final outcome will be but it won't be pretty.
A number of responses to this are arguing over whether real wages were really flat since the 1970s or how one would judge given the differences in the things we spend money on (larger houses, new tech, etc). But for any choice of how to calculate inflation which makes worker's wages go up over time, doesn't that imply that the total growth since the 1970s is also larger, and the absolute value captured by the capital-owning class is even larger? You can skew the picture to make the situation for workers less crappy, but not without making the success of the capital owners even more extreme.
Piketty frames stuff in terms of the share of growth that goes to labor vs capital-owners, and I can't stop viewing the situation in those terms. My understanding is that recent data shows that in general, companies selling a lot of consumer goods have improved their margins -- they're raising prices faster than their costs are increasing -- meaning effectively we're shifting money from consumers to shareholders. Every crisis is an opportunity to argue for the richest to enrich themselves further.
When the federal government can dilute the value of money while giving tons of it to banks and mega corps as near free loans, it becomes inevitable that there is a transfer of wealth up from the bottom.
Something else to add context as far as the complexities of inflation and buying power. Yea TVs are cheaper, but the production of TVs have been shifted more and more to overseas locations where various costs are cheaper such as waste management, labor, etc. So while Americans have better buying power over computers, lets say, a lot of the computers are no longer made in the US.
Regarding your question there is a simple explenation. YES we are much much productive then before. BUT wages are decided by markets. No one is paying you your "fair" share if it is possible to hire someone cheaper. Its like a commodity in the end. Good devs or spezialized doctors get a very very good sallary, so it just depends on your "market value".
I honestly think simply raising the minimum wage gradually to inflation-adjusted $20/hour and then adjusting for productivity increases over time would permanently address these issues. Another option is to adjust based on local cost of housing, ie 4 times the average two bedroom apartment rent.
I think life is better today than it was in 1970. You must consider that the 1970s started about 25 years after the United States bombed the bejeezus out of every single major industrial center in the world. America made "the best cars in the world" at a time when factories in Stuttgart, Munich, and Ingolstadt were lying in ruble--and with the world's top scientists, engineers, artists, designers, and architects pouring into the country. The American middle class saw a rapid rise in their wealth and standard of living during this time. An inexperienced worker could walk into a factory job in the US and enjoy a very high level of affluence relative both to their skill and the rest of the world. This state of affairs completely broke down in the 1970s and economic progress in the US after this time has been of an entirely different flavor.
To take 1950-1970 as an example of "the way things ought to be" is highly unrealistic.
Workers in the US are still making more, much much more in most cases, than their counterparts in other countries.
I think the most recent experience on inflation is very clear on this. The government reported number is 6%. But for people who spend most of their money on daily items, like rent and grocery, 6% is like lying to my face telling me red is blue.
> And then we come to the other elephant in the room: why are real wages flat?
A lot of it is because workers are doing less. They may be working just as hard, or maybe even harder. They are doing tasks that enable more production. But they are doing less. And many fewer people are required to do it.
More people do the last mile of work that can’t be automated, requiring 0 skill, and little thought. Low end jobs still used to require a fair bit of expertise, but are now dead ends.
Performance in many of these jobs is upper bounded at just showing up and doing it. It’s not even a rat race.
Housing supply (NIMBYism by landlords) has not kept up with population growth and immigration in most dense cities. There is also the massive increase in multiple houses bought and left empty by the rich which are ghost houses. Healthcare will go up because that is regulated by politicians who do their best to raise prices for vested interests. The 2003 law passed by Republicans to prevent the government from even negotiating drug prices with Big Pharma is an example. You can’t even do parallel imports of drugs from say Europe. The number of doctors is restricted by the AMA and they even do the guidelines on how well they should be compensated. Educatlon is a third party payment “scam” where there is no incentive to restrict your costs, and there is every incentive to spend money on non-academic activities like massively bloated football programs and bureaucracies.
Very interesting points; there is a scientific clarity in your analysis. But, I would like to add a point: the reality is that the production is in global scale now, the production has no borders, races, nationalities, but the capital has its local interests. The working class is a global class, while bourgeoisie is a local class. But since the bourgeoisie is the dominant class, it makes the working class divided. Like the role of black bourgeoisie in the disguising class struggle under the hood of racial issues. I think this small piece of text helps make my point a little bit clear: http://www.theinternationalism.org/2020/07/return-to-marx.ht...
We had an all-hands meeting recently where we got to submit anonymous questions. One of the questions was 'with inflation rising at 6%, will the company reconsider their 'standard' 2% raise?' The lady answering looks dead in the camera and goes 'Honestly? No' and goes on to talk about how we're reasonably competitive with the local market. Hey, credit where credit is due, at least she was a refreshingly straight shooter. It pretty much let everyone on the call know what they needed to do if they wanted a good raise.
As someone who does OK, but lives in reality (not the bay area), I feel a revolution coming. I hope it's not a violent one, but who knows at this point. Hopefully it's just a politician with big policy changes.
People feel completely disenfranchised. You keep hanging housing over their head but just out of reach like some baby toy, then inflation spikes everything else. What's the point of working even?
I don't know the solution, but I don't have a good feeling about the next 10 years.
"in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment, not just temporarily, but on a sustained basis."
Worker pay not keeping up with inflation is not merely an effect of inflation. It is the policy goal.
It never does. This is just accelerating the pandemic-era wealth transfer that started with the rich getting trillions to prop up their assets while everyone else got $600.
This isn’t exactly great news, but it’s probably not as bad as you think. It means that inflation is a tractable problem. The Fed as a lot of tools at its disposal (first of which is to take its foot off the gas). If we were in a situation where workers were demanding higher wages because they were expecting prices to go up, and businesses were raising prices to pay workers who were demanding higher wages, then we’d be in a much tougher spot. Wages not keeping up with prices means that’s not happening yet. By the end of next year, the narrative will shift away from rising inflation as the Fed tightens up, which will in turn cause inflation to fall.
Not sure how inflation is calculated globally; but where I live (Norway) we leave housing costs out of inflation. That always seemed very strange to me. Our main cost of living, (which has gone through the roof the last 25 years) is somehow left out of the calculation. My rent, or cost of buying a house - is much more important than the cost of a Snickers bar.
That's because this is Keynesian 'semi-inflation', which is a reallocation and rationing of increasingly scarce resources by price. Markets are doing what markets do.
Those with the power to match prices with wage demands stay where they are, and the cost is transferred to those who cannot push wages, and those who lose their jobs.
That's actually how inflation is actually controlled - via the threat of unemployment and wage suppression.
Interest rate changes are the Wizard of Oz. Wage suppression and unemployment are the man behind the curtain.
Most of this discussion seems to be off topic hot takes on conspiracy theories about inflation and big corp.
I am worried about a wage price spiral. But I’m not expecting it to commence yet. Common sense suggests most people are not going to look at inflation forecasts and say “well, I’d better ask for a preemptive wage rise”, rather people will notice price rises, adjust their budget, and when the rises become intolerable they will say “hang on, I really need a pay rise.” Most people are too busy to follow macroeconomics.
So I’m expecting wage bargaining and rises to become a central theme in 2022 once people really notice. Even at an annualised rate of 5%+ that takes time.
It’s very difficult to see how wage rises won’t be granted, which makes me wonder how politicians are imagining they’re going to prevent a spiral. This is exactly why we don’t print money and put it into retail accounts.
I’ve pointed it out before, but in the 80s in Britain Lawson and Thatcher spent years trying to end the spiral, and they really struggled despite throwing everything they could at it. Wage spirals are as much about politics and psychology as they are about economics.
What happens when prices keep rising but wages don't keep up?
Prices stop rising. Look back over the last 40 years and you'll see the same pattern. Inflation spikes are sharp but short. In the last few decades, inflation spikes tend to be followed by deep recessions as well.
For example, in 2008, the rip-roaring CPI print of 5% seemed very menacing. Few suspected that an honest to god financial panic was right around the corner.
For further evidence, consider the financial and commodity markets:
- the eurodollar futures market recently inverted
- the 30 year treasury is yielding -5% in real terms
- the dollar is not crashing in the face of rising CPI, as the popular wisdom says it must - instead the dollar has been rising for a year
- gold, the eternal inflation hedge, has gone nowhere in one year and is at the same place it was 10 years ago
All of these indicators point to lower inflation and lower growth ahead. Possibly much lower.
Looking at the chart it's pretty obvious that wages aren't pegged to inflation in any way. You will always be paid based on the conditions of the labor market, not the price of an arbitrary basket of goods.
Heck you can see that wage growth outpaced inflation in ~10 of the last 12 years. Isn't that a good thing?
The only signal that results in pay-rises is whether people are leaving to get higher pay elsewhere.
This is the signal that tells an employer that "the market" is valuing people more and so you should pay more to keep them.
Inflation based pay rises are a myth, in that the company is giving a pay rise because the rest of the market is giving pay rises and that delicate balance between retaining people and losing people can be upset.
Should you leave to find something better paid elsewhere? Sure... if money is all that drives and motivates you. But it's not always the case geographically that you have options, and remote work remains somewhat limited for the majority of people.
If people leave my employer will that bump my salary? Sure... if enough people leave and their exit interviews all reveal this "we are under valued and I can earn more down the road" pattern. If people leave for a myriad of personal reasons then the company has no evidence that the market is paying more and they should bump their salaries in return. Even then, it will happen next year as this stuff takes time to build the evidence and result in the change.
Inflation based pay rises were not what you thought they were, and now inflation is rising it's plain to see.
Is it not rather that the inflation of the past 6-12 months has taken everyone by surprise, including employers, and the wages haven’t had time to adapt yet? What we don’t see in the article’s graph is that inflation used to be somewhat consistent but has risen sharply starting in March 2021: https://tradingeconomics.com/united-states/inflation-cpi
If you want to make good pay, you have to make it happen. You have to change jobs occasionally (every 2 years). You have to suck up a bit to managers. You have to be at least average at your job. You have to manage your CV. And you have to negotiate.
I'm not saying this is right or fair or nice.
I'm just saying the vast majority of people I've worked with don't do any of those things (except for being at least average at their jobs). Then they're surprised when it's been 10 years, they haven't gotten a raise or a promotion and they don't have a CV that can get them one.
If you don't play the game, you will lose. We all know the game isn't fair. But you have only those options.
I've played it for the last few years and I'm very well paid. Playing does work. People just don't, in part because no one tells them to.
If worker pay isn't keeping up but company profits and equity are, this means that people are overvaluing being a worker and undervaluing being an owner, compared to market equilibrium.
Why would that be? Risk aversion? With the latest advances in global connectivity, online business infrastructure, ubiquitous technology and so on, I'd expect risk to be as low as it ever was.
This article doesn't cite any sources to support its claim. There is one chart in a linked article about increasing Consumer Price Index but where is the data to compare wage increase vs inflation?
Is it possible that this idea is just being propagated without much evidence to in effect create a state of peril? I would very much appreciate if someone has looked at any evidence.
Always remember, inflation is the goverment printing (inflating) currency to the market in order fund it's agenda by stealing your savings. Basicaly inflation is just another process how government steals your money. Inflation is NOT rising prices, they are trying hard to derail the definition. That's why your purchasing power stagnates - by design.
[+] [-] Gareth321|4 years ago|reply
And when you drill in more, there are other issues. For example, the housing metric appears relatively flat in real terms, right? Except, that doesn't tell the story for the majority of Americans. Housing costs are WAY up in cities as Americans migrate to where the jobs are, while housing costs are down in all the areas where jobs are disappearing. In practise, housing costs are actually significantly up for most Americans, but because the CPI is calculated across the entire nation, the government can claim inflation is low. This allow them to keep the fed rate low, which keeps stock valuations high. This LOOKS great and generates great headlines, but the reality is that most Americans are significantly worse off since the 1970s.
And then we come to the other elephant in the room: why are real wages flat? Given the incredible performance of the American economy since 1970, shouldn't real wages be significantly UP? This is yet another reminder that wealth is being squeezed from the bottom and funnelled straight up. As a non-American, it's heartbreaking to see efforts to unify the underclass completely derailed by this ridiculous race war. Poor people in America have FAR more in common with each other than the rich, no matter race. I really hope you all manage to set aside the obvious red herring of race and unite in tackling your staggering wealth inequality.
[+] [-] throwawaycities|4 years ago|reply
Wages have not kept up with cost of living for 50 years in the US.
We need to stop pretending flat wages are some modern problem of inflation, and we need to stop pretending inflation is some problem caused by the pandemic.
[+] [-] dan-robertson|4 years ago|reply
I think this is obviously false and hurts the credibility of the rest of this comment.
There are many pitfalls with measuring long-term inflation. How much did an internet connection cost in the 1970s? What about a computer? What about a smartphone? These modern technologies make peoples lives much better and were somewhere between impossible and impossibly expensive in the 1970s so an inflation metric can’t really take their price changes (from infinity to cheap) into account. Another is quality. Compared to the 70s, a new car is faster, safer, more comfortable, and more fuel efficient. Similarly, most houses are bigger and better in America today.
I think it is important to note that talking about long term inflation is different, and perhaps harder, than talking about short-term inflation which is what the OP is about.
[+] [-] toyg|4 years ago|reply
Yeah, well, it's not like things are much better in Europe. Far-right parties are now mainstream in most major EU countries, and their n.1 priority is exactly the same.
Signed,
a Brexit victim.
[+] [-] gizmo|4 years ago|reply
Long term interest rates have been going down for decades. This is a long term trend, caused by low GDP growth expectations. The labor force participation rate keeps trending down. Healthcare costs keep trending up. Population is aging. These are fundamental problems for which there is no great solution, and interest rates are low (along the curve) as a consequence. The Fed is ultimately only a minor player in this. They can provide excess liquidity, but only for so long. Ultimately rising inflation forces the Fed to withdraw liquidity and the market will inevitably deflate. Fed policy postponed a market crash by a couple of years so it wouldn't hit at the same time as covid, and that's a good thing.
But who benefits from a steady stock market? Regular people. Pension funds. Who benefits from crashes and wild gyrations? The wealthy. Hedge funds. This makes perfect sense, because a treacherous market is best navigated by the most experienced and wealthiest parties.
You seem to argue the opposite: that a market that has steadily gone up and up and up because of Fed/inflation manipulation has somehow benefited the wealthy elites at the expense of regular people?
Yes, workers get paid too little and much in the world is unfair. But your analysis is mostly conspiratorial silliness. I don't know what you mean by "ridiculous race war", but Black people in the US are 20x poorer (by net worth, on average) compared to whites so a race/color blind analysis of the economy doesn't work.
[+] [-] helpfulmandrill|4 years ago|reply
It feels like it would be better if the basics were cheaper and the trinkets were more expensive...
[+] [-] nradov|4 years ago|reply
What we need to do is decouple health insurance from employment.
[+] [-] specialist|4 years ago|reply
Corporate profits soared while wages flat-lined. Coincidence?
Would a little bit of profit sharing be so terrible?
[+] [-] kilroy123|4 years ago|reply
https://www.youtube.com/watch?v=1gEz__sMVaY&t=33s
[+] [-] dionidium|4 years ago|reply
I think this is basically wrong in that it's only true for a minority of Americans -- the kind that are overrepresented on this forum. If you're in tech or finance or law, then there are big payoffs to moving to San Francisco or New York, but this actually isn't the case for the typical American. When you compare cost of living it's clear pretty quickly that the median American is still doing just fine in the vast middle of the country.
The median household income in the NYC metro is $83,160 and the typical home costs $571,556. In St. Louis, say, the median household income is $66,417 and the typical home is $222,076. For the average American, the second option is a much better deal. Sure, you make $16k more in NYC, but does anybody believe that the entire cost difference between the two metros is $16k per year? It's not even close. The median American is much better off in St. Louis.
A lot of people reading this are in households that make many times the median household income and they have understandably concluded that their best options are in a few costal cities. But it simply isn't true for the typical American.
There's kind of a dual (seemingly contradictory) error here in that people both under- and over-estimate how wealthy the U.S. is. They overestimate in that they forget that the majority of Americans are living on much less than the average software engineer, but they underestimate in that they forget that our poorest states are still much wealthier than than the average European country.
See here: https://www.aei.org/carpe-diem/us-gdp-per-capita-by-state-vs...
[+] [-] subsubzero|4 years ago|reply
[+] [-] abeppu|4 years ago|reply
Piketty frames stuff in terms of the share of growth that goes to labor vs capital-owners, and I can't stop viewing the situation in those terms. My understanding is that recent data shows that in general, companies selling a lot of consumer goods have improved their margins -- they're raising prices faster than their costs are increasing -- meaning effectively we're shifting money from consumers to shareholders. Every crisis is an opportunity to argue for the richest to enrich themselves further.
[+] [-] cblconfederate|4 years ago|reply
[+] [-] birdyrooster|4 years ago|reply
[+] [-] tcmart14|4 years ago|reply
[+] [-] MichaelRazum|4 years ago|reply
Regarding your question there is a simple explenation. YES we are much much productive then before. BUT wages are decided by markets. No one is paying you your "fair" share if it is possible to hire someone cheaper. Its like a commodity in the end. Good devs or spezialized doctors get a very very good sallary, so it just depends on your "market value".
[+] [-] jkingsbery|4 years ago|reply
[+] [-] Robotbeat|4 years ago|reply
[+] [-] throw__away7391|4 years ago|reply
To take 1950-1970 as an example of "the way things ought to be" is highly unrealistic.
Workers in the US are still making more, much much more in most cases, than their counterparts in other countries.
[+] [-] temp8964|4 years ago|reply
[+] [-] oDot|4 years ago|reply
"Peter Schiff vs Warren Buffett; The Middle Class in the 50's, and Now"
https://www.youtube.com/watch?v=byxd7dTnlXU
[+] [-] fundad|4 years ago|reply
[+] [-] Quindecillion|4 years ago|reply
https://wtfhappenedin1971.com/
[+] [-] jl6|4 years ago|reply
I wasn’t around in the 1970s, so can someone explain to me how great it was with some examples that would make me want to go and live in the 1970s?
[+] [-] oneoff786|4 years ago|reply
A lot of it is because workers are doing less. They may be working just as hard, or maybe even harder. They are doing tasks that enable more production. But they are doing less. And many fewer people are required to do it.
More people do the last mile of work that can’t be automated, requiring 0 skill, and little thought. Low end jobs still used to require a fair bit of expertise, but are now dead ends.
Performance in many of these jobs is upper bounded at just showing up and doing it. It’s not even a rat race.
tl;dr low skill labor supply outstrips low skill labor demand.
[+] [-] mrkentutbabi|4 years ago|reply
[+] [-] 1cvmask|4 years ago|reply
We reap what we sow.
[+] [-] abbassi|4 years ago|reply
[+] [-] trizuz|4 years ago|reply
[deleted]
[+] [-] snarf21|4 years ago|reply
[deleted]
[+] [-] WalterBright|4 years ago|reply
Good question. One answer is the government consumes ever more of the GDP. This is going to negatively impact real wages.
[+] [-] wing-_-nuts|4 years ago|reply
[+] [-] silisili|4 years ago|reply
People feel completely disenfranchised. You keep hanging housing over their head but just out of reach like some baby toy, then inflation spikes everything else. What's the point of working even?
I don't know the solution, but I don't have a good feeling about the next 10 years.
[+] [-] dnautics|4 years ago|reply
https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...
"in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment, not just temporarily, but on a sustained basis."
Worker pay not keeping up with inflation is not merely an effect of inflation. It is the policy goal.
[+] [-] ralph84|4 years ago|reply
[+] [-] baron816|4 years ago|reply
[+] [-] bjarneh|4 years ago|reply
[+] [-] neilwilson|4 years ago|reply
Those with the power to match prices with wage demands stay where they are, and the cost is transferred to those who cannot push wages, and those who lose their jobs.
That's actually how inflation is actually controlled - via the threat of unemployment and wage suppression.
Interest rate changes are the Wizard of Oz. Wage suppression and unemployment are the man behind the curtain.
[+] [-] randomsearch|4 years ago|reply
I am worried about a wage price spiral. But I’m not expecting it to commence yet. Common sense suggests most people are not going to look at inflation forecasts and say “well, I’d better ask for a preemptive wage rise”, rather people will notice price rises, adjust their budget, and when the rises become intolerable they will say “hang on, I really need a pay rise.” Most people are too busy to follow macroeconomics.
So I’m expecting wage bargaining and rises to become a central theme in 2022 once people really notice. Even at an annualised rate of 5%+ that takes time.
It’s very difficult to see how wage rises won’t be granted, which makes me wonder how politicians are imagining they’re going to prevent a spiral. This is exactly why we don’t print money and put it into retail accounts.
I’ve pointed it out before, but in the 80s in Britain Lawson and Thatcher spent years trying to end the spiral, and they really struggled despite throwing everything they could at it. Wage spirals are as much about politics and psychology as they are about economics.
[+] [-] pezzana|4 years ago|reply
Prices stop rising. Look back over the last 40 years and you'll see the same pattern. Inflation spikes are sharp but short. In the last few decades, inflation spikes tend to be followed by deep recessions as well.
For example, in 2008, the rip-roaring CPI print of 5% seemed very menacing. Few suspected that an honest to god financial panic was right around the corner.
For further evidence, consider the financial and commodity markets:
- the eurodollar futures market recently inverted
- the 30 year treasury is yielding -5% in real terms
- the dollar is not crashing in the face of rising CPI, as the popular wisdom says it must - instead the dollar has been rising for a year
- gold, the eternal inflation hedge, has gone nowhere in one year and is at the same place it was 10 years ago
All of these indicators point to lower inflation and lower growth ahead. Possibly much lower.
[+] [-] paxys|4 years ago|reply
Heck you can see that wage growth outpaced inflation in ~10 of the last 12 years. Isn't that a good thing?
[+] [-] buro9|4 years ago|reply
This is the signal that tells an employer that "the market" is valuing people more and so you should pay more to keep them.
Inflation based pay rises are a myth, in that the company is giving a pay rise because the rest of the market is giving pay rises and that delicate balance between retaining people and losing people can be upset.
Should you leave to find something better paid elsewhere? Sure... if money is all that drives and motivates you. But it's not always the case geographically that you have options, and remote work remains somewhat limited for the majority of people.
If people leave my employer will that bump my salary? Sure... if enough people leave and their exit interviews all reveal this "we are under valued and I can earn more down the road" pattern. If people leave for a myriad of personal reasons then the company has no evidence that the market is paying more and they should bump their salaries in return. Even then, it will happen next year as this stuff takes time to build the evidence and result in the change.
Inflation based pay rises were not what you thought they were, and now inflation is rising it's plain to see.
[+] [-] cissou|4 years ago|reply
[+] [-] WalterBright|4 years ago|reply
The only way this can work is if wages, salaries, etc., don't keep up with inflation.
None of that government spending everyone loves comes for free.
[+] [-] LatteLazy|4 years ago|reply
If you want to make good pay, you have to make it happen. You have to change jobs occasionally (every 2 years). You have to suck up a bit to managers. You have to be at least average at your job. You have to manage your CV. And you have to negotiate.
I'm not saying this is right or fair or nice.
I'm just saying the vast majority of people I've worked with don't do any of those things (except for being at least average at their jobs). Then they're surprised when it's been 10 years, they haven't gotten a raise or a promotion and they don't have a CV that can get them one.
If you don't play the game, you will lose. We all know the game isn't fair. But you have only those options.
I've played it for the last few years and I'm very well paid. Playing does work. People just don't, in part because no one tells them to.
[+] [-] ricardolopes|4 years ago|reply
If worker pay isn't keeping up but company profits and equity are, this means that people are overvaluing being a worker and undervaluing being an owner, compared to market equilibrium.
Why would that be? Risk aversion? With the latest advances in global connectivity, online business infrastructure, ubiquitous technology and so on, I'd expect risk to be as low as it ever was.
Something else? What am I missing?
[+] [-] chx|4 years ago|reply
[+] [-] vegai_|4 years ago|reply
[+] [-] seesawtron|4 years ago|reply
Is it possible that this idea is just being propagated without much evidence to in effect create a state of peril? I would very much appreciate if someone has looked at any evidence.
[+] [-] batushka3|4 years ago|reply