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Comment by dnautics | Hacker News Reader

Why does everyone jump to "demise of unions"? There is a far simpler explanation. For decades official government policy (especially in the us and Japan) has been job creation. Have you ever heard of a politician that hasn't advocated for job growth? The policy tool deployed to create jobs has been to use the central bank (via its mandate to maintain employment) to inflate the currency. Inflation works to goose employment by decreasing the real cost of labor (because, sticky wages). [0]

Wages are not growing because of a policy to screw labor out of its earnings, and the policy is working. No reason to impute other mechanisms or make things unnecessarily complicated.

[0]https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...

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You say

>Why does everyone jump to "demise of unions"?

And then

>Wages are not growing because of a policy to screw labor out of its earnings, and the policy is working.

Well yes, said policy would not be and was not tenable with powerful unions. Such abuses are only possible when workers have zero power, i.e. in the absence of unions as forces in the political and economic sphere. There has also been a concerted intentional policy of wealthy capitalists to demonize and destroy unions over the past few decades, continuing to this day, complete with legislation aimed at their destruction taking a variety of creative and ruthless avenues, violence and killings, extreme economic coercive force like shutting down entire businesses and factories in retaliation to even a sniff of workers talking about unionizing, and a massive and well financed propaganda effort. And the policy is working. The most powerful unions are teacher's unions and charter schools are being slammed through by wealthy interests in region after region with the explicit purpose of killing them off.

Things actually are complicated, we aren't making them so.

You're confusing an effect for a cause.

Interesting that you cite Krugman here, because my interpretation of the history (since the 70s) is the other way round: governments have prioritised inflation control, by controlling interest rates. And the transmission mechanism is that higher interest rates reduce investment and therefore employment. Policy has been to avoid full employment because it causes upwards wage pressure.

Well the real trend of the central bank interest rate over the last 30 years (since volcker) disagrees with you.

https://en.m.wikipedia.org/wiki/Federal_funds_rate#/media/Fi...

That graph is not a refutation, since inflation has also been falling over that period. I'm talking about the process of setting that rate: https://www.federalreserve.gov/faqs/money_12848.htm

> The FOMC noted in its statement that the Committee judges that inflation at the rate of 2 percent [...] is most consistent over the longer run with the Federal Reserve's statutory mandate

> the FOMC's policy decisions must be informed by its members' assessments of the maximum level of employment,

yes, inflation has been falling, but that is the second derivative of value, when we say "wages aren't growing" we are talking about the first derivative. Importantly, inflation is still greater than zero, so we should expect wages to not grow, because to a first degree approximation that means labor is still being screwed (albeit modestly slower).

This is ass backwards. Central bank/fed policy in the US, Europe, and Japan has consistently been to keep inflation low on behalf of the investor class for a long, long time now.

inflation is good for the investor class. The investor class has access to relatively low and importantly, fixed rate, interest rates, so having high inflation relative to interest rate allows them to take out leveraged investments and make multipliers on their investments, while inflation erodes the real value out from under those loans.

https://en.wikipedia.org/wiki/Lost_Decade_(Japan)

"Trying to deflate speculation and keep inflation in check, the Bank of Japan sharply raised inter-bank lending rates in late 1989."

If you want to "keep inflation low" you'd be crazy to drop interest rates, which is what japan and the US have been doing over the last 30 and 40 years, respectively. The whole point of fiscal stimulus is to try to goose the economy under the threat of impending inflation.

the Fed has an explicit dual mandate [1]. the two mandates are inflation AND employment.

not all CBs have two mandates, and if they only have one, not all CBs target inflation.

[1] https://www.google.com.sg/search?q=dual+mandate

Investors and the Government are the first in line to profit from inflation, since it devalues the one thing only they can afford: debt.

And investments in the stock market, real estate or anything else than actual money are at least protected by usually rising with inflation.

The one group that suffers disproportionally from inflation are the elderly, who receive a fixed pension (/social security) based on their lifetime dues.

Right after that are employees, because wages typically lag behind when inflation picks up.

>And investments in the stock market, real estate or anything else than actual money are at least protected by usually rising with inflation.

Quantiative Easing is used as a tool to increase inflation by the central bank through buying stock. Of course this means stock keeps it's value with increasing inflation while everything else doesn't keep up with inflation. Obviously this is bad for those who don't own stock.

Even a lot of positions that don't "need" unions could benefit from having at least some kind of union/guild. Things like uncompensated overtime and being expected to keep up with work/work emails from home shouldn't be acceptable, but software jobs being too comfortable otherwise makes everyone too complacent to care.

But inflation has been very low lately.

So? We're talking about changes over 40 year timespans. Your observation reads: Labor is being screwed slightly less quickly lately.

The inflation rate has been low for over 30 years, since the early 80's when Volcker killed it by creating a recession.

The Fed's loose money policy has only been around since 2008, with very low inflation since then.

While critics constantly predict inflation, it hasn't caused inflation in practice.

Yes, labor is getting screwed but how it's being done is not that simple.

what fantasy world do you live in where there hasn't been inflation since the 70s?

The minimum wage in 1990, (well after volcker), was 3.80/hr

would you be able to live on $3.80/hr today?

As for loose money policy, the current loose money policy is just very very extreme. In 1980 my parents bought a house at a 16% interest rate; in 1990, they bought a second house at the same value (side observation: it was of worse construction) at 8%, and then in 2001 they bought a third one at ~5%. It would be hard to argue that the fact that my parents obtained two houses at no extra yearly cost is not a result of a 'loosening' of policy.

I'm going by the official inflation rate. Here's a graph [1]. Where do you get your numbers?

How to include housing prices in the consumer price index is apparently controversial. (It's by "imputed rent", what you could theoretically get if you rented it out.)

[1] https://tradingeconomics.com/united-states/inflation-cpi

Minimum wage is now $7.25, could anyone live on that today. Taking that further if it was raised to $15 an hour that would mean half of the country would get a raise. http://www.slate.com/blogs/moneybox/2016/03/28/how_many_work...

Only in the USA.

By comparison, the minimum wage in Australia is about to be raised to $18.70 an hour.

The official line is that inflation is low; but as far as I see the amount of money in the American economy, which I put at, eg, ~7% in the last 12 months of the M1 [1], appears to be growing faster than the inflation rate which is what, ~2-3%?

If this isn't being measured as 'inflation', it makes me ask why inflation is the key measure. The amount of new money is pretty substantial.

[1] https://fred.stlouisfed.org/series/M1SL

Money supply is not the dominant cause of changes in the price level, despite what hard money advocates think.

You have to look at stocks and flows together.

M1 is the stock of money.

But if that money doesn't flow, then it doesn't drive economic activity.

Here's the velocity of M1 -- it falls off a cliff in 2009 and continues falling to the present day.

https://fred.stlouisfed.org/series/M1V

If velocity held constant as the money supply increased, then you'd have a very good point.

You can flood the system with liquidity, but if nobody spends it, then it makes no difference. I believe this is what economists call "pushing on a string".

Basically because the velocity of money is variable and depends on societal factors (lending practices, payment technologies, even psychology). What the central bank is really looking to do is keep the amount of money that's in flight supporting transactions at any given moment roughly stable. When velocity drops the money supply needs to increase faster than inflation to keep the amount of cash in flight the same. https://fred.stlouisfed.org/series/M1V

Depends on what you measure :-) yes white goods (flat screen tvs etc) have reduced in price but housing costs (not normaly included in inflation measures see the UK's CPI or RPI ) have shot up.

And not all groups have the same inflation rate eg pensioners vs those of working age - pensions spend more on heating for example.

Ok I agree on the housing thing. I was kinda measuring by interest rates.

> The policy tool deployed to create jobs has been to use the central bank (via its mandate to maintain employment) to inflate the currency.

In my previous comment here, I compared the United States' post-Carter economic policy to medicating with street stimulants [1].

[1] https://news.ycombinator.com/item?id=15301731

I also like to compare the government's money-pumping schemes to firefighters who point their hose where they see the fire (above the roof), instead of fighting it at its source.

Firefighters are smarter than that. I think 'gullible' is a requirement for most elected offices.

" No reason to impute other mechanisms or make things unnecessarily complicated."

Yes there is, because the reason you cited is not the most important cause structural cause of declining wages.

The issue is real wages - i.e. accommodating for inflation.

When we say 'nominal' we mean 'dollar value'.

When we say 'real' - it's an economic term for 'dollars in some present value'.

Issues are far more likely to be causes:

+ Masses of jobs gone overseas. 'High tech' is irrelevant. Here in Montreal, Bombardier employs 66 000 (!) people in jobs - consistent, good paying jobs. That's more than all the startups put together, and those jobs are mostly for the long-haul. So when things like 'Bombardier' shut down, it's a big deal.

+ The other issue is the fact that we may not be measuring inflation correctly. If 'real wages' are down - then why do University students have laptops, cell-phones, can travel, are sometimes even fashionable? I'm not that old and we had nothing. Even 'fast fashion' has changed the nature of clothing as we know it - only 20 years ago ... there was 'the Gap' and everything else was expensive, relatively speaking. Everything is like that: smartphones didn't are exist, and are enormously better now - online services, access to information. The # of people getting access to higher education. Even the quality of cars. Driven an 1980's car lately? The cheapest, crappiest new Honda is like riding in clouds compared to the best Mercedes from 1985.

Even the groceries. My good man - so much choice, so many brands, so much selection. It's amazing compared to 30 years ago.

Inflation is measured against a basket of goods - but those goos also increase in value, i.e. a tomato in 1985 may not be actually the same thing as a tomato in 2017 - if it's riper, nicer, healthier (not saying they are, but could be) - well, that's 'real' improvement, so it's not the same thing.

Very difficult to measure.

Those two things alone: offshoring/outsourcing of jobs - plus - our inability to measure quality of life increases ... would amount to enough that it's a major problem.

Lastly - I would add a financial effect - which is 'low interest rates' - this drives up the value of homes, and expands the disparity between those renting, those in 'starters' those in 'nice homes' and those in 'mansions'. It just exasperates the 'wealth effect' in dollar terms.

Anyhow - those are 'big drivers'.

A 2% inflation target is a really good thing, and it's not just about deflating wages. Nominal wages have kept up with the 2%.

> Inflation is measured against a basket of goods - but those goos also increase in value, i.e. a tomato in 1985 may not be actually the same thing as a tomato in 2017 - if it's riper, nicer, healthier (not saying they are, but could be) - well, that's 'real' improvement, so it's not the same thing.

This. Every time I hear wage growth stagnation all I think of is this.

$1,000 in 1977 buys a whole hell of a lot less VALUE than it does in 2017. Computers, phones, cars, furniture, clothing...the list goes on. Component prices have gone DOWN value (technology) has gone UP in many of the categories that people spend their wages on.

Sure if you measure the price and value of a can of coke or a pork rind and compare it to wage growth the picture doesn't look great, but it ignores all the things that have vastly improved on the value side.

In a category like "computers" in 1977 vs. a smartphone in 2017, both cost roughly the same and so are mentally "weighted" equally in the wage growth stagnation equation...but that causes us to ignore the huge amount of time VALUE you get back in your life with a smartphone -we assign that essentially a value of zero.

Its just doesn't make any sense to me. If we contracted that time line and said..."you get paid the same in 2016 as you did in 2017, but in 2016 you have a computer that costs $1000 and plays pong on a black screen and in 2017 you have an iPhone X that costs $1000 and basically makes you a living cyborg and folds your laundry"...I think the value increase would be immense and obvious and the wage stagnation sort of immaterial. But something about the passage of time makes this point invisible.

If I was making exactly the same nominal value in 1977 as I am in 2017, and things cost about the same (if not less in many cases) the amount of value my money extracts is far far greater today than it was then. None of that seems to get captured by just saying...the rate of dollars people get paid doesn't rise as much as we like.

> but that causes us to ignore the huge amount of time VALUE you get back in your life with a smartphone

how can you be sure the smartphone doesn't have a negative aggregate time value? For example, I should probably be writing a patch to my code, but I'm sitting on the toilet writing an hn comment instead. Lots of people play candy crush, or swipe with no effect on tinder.

The jury is still out on whether the things made possible by the data your phone provides to Google, Facebook, Apple, Microsoft (lol), Verizon, the NSA, etc. doesn't provide for a net negative in the end as well.

I'm doing OK YOY compared against Google, but I'm young and educated. Most people probably aren't.

>$1,000 in 1977 buys a whole hell of a lot less VALUE than it does in 2017. Computers, phones

If you consider computers and phones more essential than healthcare, education and a roof over your head, sure.

I can think of improvements in those areas, but what I can't think of is improvements reaped by the average person.

I wonder if that is partly information asymmetry. A person who buys a passivhaus knows what they're getting. But normal people pour their finance into granite countertops, inferior construction materials/labour and exhibit poor taste in a way that makes them ultimately poorer.

There are no machines that make meals, fold laundry for the average person and there won't be in ten years either. I think Ford did the 1999AD video showing this happening in the '70s. There are machines that may assist you in doing such things but they require a lot of human intervention and judgment.

did you read the article?

"I would add, however, that there’s another case for a higher inflation rate — an argument made most forcefully by Akerlof, Dickens, and Perry (pdf). It goes like this: even 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."

> Very difficult to measure.

That cuts both ways. Someone decides what 'the relative value' of an iphone vs, say, a motorola razor is. Whether or not that multiplier actually tracks the quality of life. (and they do apply hedonics to inflation measures). You can see how it could be easy to create some arbitrary metric (say, pixel count on the screen, or Mhz processing power) that makes that particular bean counter's manager happy because it 'aligns with the model' (which comes with its own baggage of preconceptions) and looks sufficiently 'sciency'. Promotions all around at the BLS/FED/DoC!

So when you say 'real wages keep up with inflation' and, the general experience of people in society, and predictable social trends (like widening gap between rich and poor) disagree, I would suggest that the person deciding these fudge factors is doing something wrong, and your assertion wages keeping up is suspect.

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