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Comment by strbean | Hacker News Reader

> companies have more power in negotiation, they have more information and, most important of all, they can deal with a job opening not being covered most of the time

This will be the case as long as we have monetary policy based on the idea that "100% employment is the apocalypse".

It seems like it is accepted as fact that 100% employment would lead to hyperinflation, despite the fact that this has never occurred. It is a totally untested theory that is suspiciously convenient for employers and shitty for workers.

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This is one example that shows how economy is skewed against workers. If salaries rise because there is a shortage of workers, this should be accepted as normal. Instead, it is seem as a cataclysm for the economy that should be avoided because, of course, this shrinks the profit margin for companies. The monetary policy is designed to maintain the power of companies over labor.

Monetary policy is to benefit the owners; not the workers. 100% employment will drive wage growth as demand exceeds supply. That’s not good for the stock market.

Source? That is an extraordinarily broad statement to make.

Central Banks' (the primary institutions behind monetary policy) primary goal is to promote a stable environment for commerce. This typically means maintaining a stable rate of inflation (2-4% for mature economies, 4-7% for frontier economies). This often requires performing a balancing act between managing unemployment and inflation. We have PLENTY of evidence to suggest that inflation is harmful for everyone, ESPECIALLY for low income workers. The stock market usually has ZERO consideration in the decisions central bankers typically make.

Whatever their goal is, the execution obviously benefits owners of capital disproportionately more than sellers of labor.

If economic growth is more than the interest rate, the owners pocket the difference. If economic growth is less than the interest rate, the owners get bailed out. But in all cases, growth for the sellers of labor always lag the growth for the owners of capital.

The Federal Reserve has been trying to get inflation above 2% consistently for over 10 years. What are the chances that they get that even now with rates at zero?

Also, I would disagree with you about the Federal Reserve not targeting the stock market or other assets. Anytime in the past couple of years that the stock market in the USA has dropped roughly 10-15%, the Federal Reserve has jumped in dropped rates. They might say the don't target the market, but in reality that is what they are doing.

I think biggest issue in the future will be how will the Federal Reserve ever raise rates. They can't even go above 2.5% without the market collapsing.

If you really want to up inflation, go towards a %100 employment target :p

(this statement based on a theory with backed little to no evidence)

2% is the Fed's inflation target.

I agree with you in theory, but it seems naive to believe political appointees like a chairperson of central banks give zero consideration to the stock market when that market is fundamentally important to those who appoint them.

I hope they have that kind of integrity but I won’t be surprised if there’s a gap between theory and practice

> We have PLENTY of evidence to suggest that inflation is harmful for everyone, ESPECIALLY for low income workers.

I'm under the impression that inflation is disproportionately hurts those with large amounts of cash saved. In this hypothetical scenario where we have 100% employment and it causes inflation, wages would rise with inflation, so rising prices wouldn't be an issue... right?

> 100% employment will drive wage growth as demand exceeds supply.

I hesitate to call this a fantasy thought experiment (like all the atoms in the right place for a brick wall to allow a baseball to pass through). Not to mention the illusion of employment statistics (how it's measured), in many countries.

This stable equilibrium is impractical. The world is not a singular country. Employment within a single country is not representative of labor supply/demand, in this context.

This is the one of the two biggest flaws in most macroeconomics. They act as if the national economy is a closed system. Of course, if wages rise too high, (in addition to automation) the products the wages were producing can be produced in other economies and delivered as finished goods. Immigration is of course another violation of the closed system model, where labor flows to places with higher wages. (The other biggest flaw in macro is treating the economy as an undifferentiated GDP factory)

Not necessarily. In this case the business seeks an alternative to workers such automation or simply going without.

> This will be the case as long as we have monetary policy based on the idea that "100% employment is the apocalypse"

Can you share where you are deriving this from? I don't think monetary policy is based on this idea. I think it is based more on managing inflation and economic growth, with employment impacts being a side-effect.

> It seems like it is accepted as fact that 100% employment would lead to hyperinflation

I also don't think it is that 100% employment would lead to hyperinflation. It's more that full employment might imply inflation has taken place, meaning that a basket of goods/services might cost more (in terms of number of Dollars). But maybe I don't understand the argument here?

There's a lot of very understandable confusion in this thread about the directionality of the unemployment-inflation tradeoff. It's not that increased employment causes inflation, but rather the idea is that inflation will increase if central banks try to get there by printing money. So the frequently used statement of "increased employment will cause inflation" should only be considered in the context of monetary policy. But the phrasing is unfortunate because it implies the wrong causality.

https://en.wikipedia.org/wiki/Full_employment#The_NAIRU

It seems this targets difficulty depends on the the threshold to get registered outside the labour force and that options incentives vs regitering as unemployed. For example, motivated stay at home parents would need strong incentives to become employed.

I don't enough to say whether 100% employment is good or not, but I do know that this:

> It seems like it is accepted as fact that 100% employment would lead to hyperinflation

is a strawman. The argument is that 100% employment will cause an undesirably high inflation, but serious economists almost never talk about hyperinflation. (It tends to be a boogeyman used by deficit hawks and the like, since it almost never happens except in cases of war or truly disastrous policy).

It isn't a straw man. The theory states that inflation will continuously increase at an accelerating rate as long as employment is above the "natural level". For any definition of hyper-inflation, proponents of NAIRU believe that we will meet that definition at some point if employment stays too high.

> Only with continuously accelerating inflation could rates of unemployment below the natural rate be maintained. [0]

[0]: https://en.wikipedia.org/wiki/NAIRU#The_natural_rate_hypothe...

For it to be basically unlimited inflation would mean there is an unlimited amount of cash and capital and capital in the system. That seems on the surface improbable. It strikes more as one of the formulas has gone off the chart and someone is making assumptions.

Well, my own view is that NAIRU is a complete crock. shrug

Why? If prices and wages keep going up in step, why did you need unlimited cash and capital? You just keep raising people’s wages with the increasingly worthless cash you earn in revenues?

Eventually there would be some sort of equilibrium. There can be 'infinite cash' which would be inflationary. But with capital there is a finite amount of it. Most central banks only allow a particular amount of cash into their systems. So the 'printing press' would probably not be true either. But it can if they crank it up. Cash is a short term proxy of capital. Capital is limited as you can not make infinite amount of things. At least that is what I am thinking. There would have to be a ceiling to it. Now if you erode trust in the capital to cash proxy (with massive amounts of inflation/deflation) the equilibrium is met quickly as unemployment would rise as people would not trust cash transactions and bartering would enter the picture again.

This is the downfall of most economic theories people hold. They miss taking it a step or two out and assume all conditions will hold true forever. The market changes. You can eat a bad egg for breakfast and decide you hate eggs forever. Yet the day before eggs would have been an acceptable form of breakfast transaction. Now these theories have a place to play 'what if'. But usually are not that good to follow.

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