Inflation wiped out America's pay raises
edition.cnn.com
edition.cnn.com
-Causes people to pay taxes on capital gains even when their purchasing power hasn’t risen.
-Causes borrowers to get ahead of savers and lenders.
-Allows governments to spend more than drunken sailors.
-Causes the wealth of the rich to be eroded less than the wealth of the poor (who don’t own any assets).
-Causes both the wealth of the rich, middle class, and poor to be eroded away at different rates.
-Erodes away the middle class and makes them feel like wage slaves.
-Caused Satoshi Nakamoto to release Bitcoin.
-Isn’t stopping anytime soon.
When there is inflation, wages rise with prices. But people's debts are valued in nominal dollars, so it erodes those debts. Debtors are generally poor.
Moreover, savers generally invest their money instead of keeping it as cash in a mattress, and the prices of typical investment securities (e.g. stocks) rise with inflation in nominal dollars.
Inflation is primarily bad for lenders, and people trading in securities derivatives that are equivalent to lending.
Since most of them are in debt, inflation, as long as their wages are keeping up with it is good for the overwhelming majority of Americans.
I’ve saved let’s say 10 grand. Then the government gives everyone including the person who has saved nothing 5 grand. Now the new appliance I was going to buy costs more than it would because the person with no savings given 5 grand is also going to buy one. So sure the person with no savings can now also buy that appliance, and we can argue the merits of that, but ultimately the person who saved for it is robbed the increase in price, and the rich capitalist who owns the company that sells the appliance makes more money, and his assets go up in value, so he is fine.
What we effectively did is tax the saver to give to the person who didn’t save.
You may have ten grand in your bank account, but you also probably have a mortgage for another four hundred grand. Inflation to the degree that you describe would cause tens to hundreds of thousands of dollars of that debt to evaporate.
Unless you are underwater on your mortgage, you also have an asset worth at least $400k. "Savings minus debts" is not a (good) measure of net worth.
When your net cash balance is negative, you thereby benefit when the value of cash drops.
If the home is worth 600k, and the dollar loses a third of it's value, the home is now worth ~900k in new dollars, but 600k in old dollars.
Your 400k mortgage is still 400k, though - which makes it cost you ~266k in old dollars.
The true value of something doesn’t magically go up because of inflation. Ultimately inflation still find people. Maybe that is worth it, to avoid deflation, but everything is ultimately in the exchange. If my house was worth 1 million bananas, printing more US dollars doesn’t make it worth more than 1 million bananas.
Next thing you’re going to tell me is that wars are good for economies, because they cause an increase in spending.
I say that the debt that is attached to your house goes down in cost, which is a net improvement to your assets minus liabilities.
> If my house was worth 1 million bananas, printing more US dollars doesn’t make it worth more than 1 million bananas.
Correct. But if you owe the bank a million dollars, and the cost of a dollar goes down, you'll still own a house that is worth a million bananas, but will have a smaller debt burden.
Not necessarily. Interest rates tend to be higher during times of inflation because if inflation is expected then more people are eager to borrow today with the expectation that they'll be able to pay back the loan in the future with devalued currency, and then the banks hit their reserve ratio and are unable to lend more money. Then banks can charge higher interest rates for the now-scarce supply of loans.
But notice the current reserve requirements. Consequently loan interest rates are still very low.
This is a key assumption and as far as I can tell wages have not kept up with inflation, at least not consistently.
Is also caused by governments spending more than drunken sailors.
Food has stayed cheap, but also the content of boxes and bags have decreased. I’m not sure what the real inflation is, but it’s definitely not “low”.
Yes.
> Certain assets have been growing much faster than purchasing power.
Assets aren't part of inflation.
> And wages aren’t growing all that much.
Yes, that's typical with low inflation, since inflation both pushes wages up and is pushed by wage rises. It would be weird to have low inflation without nominal wages that are stagnant.
But asset price inflation can have negative effects on some, while it has positive effects for others. The murkier political calculus of winners vs losers makes asset price inflation less of a hot topic, but it does happen.
If I go back to the mid 2000s when I started working, and my pay only rose by official inflation statistics, there is no way I could afford any of the things I have now. If I take my expenses now, and go back to what they were in the mid 2000s, they grew far quicker than official inflation statistics.
As far as I am concerned, VOO what I need to keep up with to tread water to afford my expected lifestyle.
Yes, most people's individual experience is on one side of the other of the national aggregate.
> If I go back to the mid 2000s when I started working, and my pay only rose by official inflation statistics, there is no way I could afford any of the things I have now
Uh, duh? Its kind of normal to expect real wage increases over a 20+ year career. If your wages only rose at the rate of inflation, that would be no real wage increase. So, sure, most people could say that and its normal and what would be expected if the official inflation figures were both exactly correct and there was no deviation from the average.
> If I take my expenses now, and go back to what they were in the mid 2000s, they grew far quicker than official inflation statistics.
Again, that's fairly normal, even before considering whether your actual inflation experience is above or below the norm; people with rising real wages tend to adjust their lifestyle upward, not just save more.
True, I worded that incorrectly. I meant that there would have been no room to accumulate enough on wages to be able to make any big purchases, like land (house), education, or healthcare. Basically, I would never expect to simply work a job such as a factory job and accomplish any goals in life.
> Again, that's fairly normal, even before considering whether your actual inflation experience is above or below the norm; people with rising real wages tend to adjust their lifestyle upward, not just save more.
The point is the expectation of what one can achieve with a wage that does not continue increasing at a rapid pace is much less than in decades past (in the locations I am interested in living in). It’s “up or out”.
When discussing the economy, “inflation” without modification means consumer price inflation. Its not a matter of “political sensitivity”; it is just well established usage, and playing games otherwise is just equivocation. Money supply inflation and asset price inflation, are different, distinct (related in different ways) phenomena.
> The murkier political calculus of winners vs losers makes asset price inflation less of a hot topic, but it does happen.
“Asset price inflation” is a very hot topic, its just usually not called that and is usually viewed aa a good thing, except to the extent that there are signs that it might suddenly stop (bubble fears). Mostly, when people start talking about “asset price inflation” its an effort to tie it into fears about general (consumer price) inflation and thereby invert the normal response to “investments go up”.
You can, you know, look it up: https://www.minneapolisfed.org/about-us/monetary-policy/infl...
Yes
We’re overdue for inflation and higher rates. Too many stupid businesses are thriving, and too many industries have consolidated into little cartels due to cheap money.
If you can't afford a $100 coat because you have no money, you fall into despair when the price of the coat goes to $200 and you have no money. Everything is farther out of reach.
Consumer products are deflationary, powered by the unlimited potential of Asian and other workshops.
> -Causes people to pay taxes on capital gains even when their purchasing power hasn’t risen.
This one is actually true. We could easily fix it by calculating capital gains as adjusted for inflation (and make up the revenue by using the ordinary income rate instead of the capital gains rate).
> -Causes borrowers to get ahead of savers and lenders.
Savers who don't stupidly hold their savings in cash are unaffected, since securities prices increase with inflation.
Lenders are affected, but most lenders are banks, who are lending using fractional reserve banking, i.e. the money they lend is created when they make the loan and destroyed when it's paid back. The fact that it's worth less when it's paid back doesn't really affect them.
> -Allows governments to spend more than drunken sailors.
This is generally the cause rather than the consequence.
> -Causes the wealth of the rich to be eroded less than the wealth of the poor (who don’t own any assets).
The primary thing it erodes is contracts (i.e. loans) denominated in nominal dollars. In other words, it devalues nominal debts. This is generally good for the poor and bad for any rich lenders who aren't lending using fractional reserve banking.
> -Causes both the wealth of the rich, middle class, and poor to be eroded away at different rates.
This is true of nearly anything, but who comes out ahead depends more on factors like "are you a net borrow or lender" than your annual income or net worth.
> -Erodes away the middle class and makes them feel like wage slaves.
This is caused by low interest rates more than inflation, though they're somewhat related. The basic problem is that if money is cheap to borrow, people borrow it and bid up asset prices, and then people who don't already have assets (e.g. a home) are forced to buy high.
> Savers who don't stupidly hold their savings in cash are unaffected, since securities prices increase with inflation.
Savers save money in their savings account or in other accounts. Investors both save and buy appreciating assets. Savors hold savings, investors hold appreciating (or sometimes depreciating) assets.
>> -Allows governments to spend more than drunken sailors.
>This is generally the cause rather than the consequence.
They’re both correct. The Cantillon Effect, not having to raise taxes from a new bill, and being able to inflate the debt away are all seductive to those with the means to use it.
> This is caused by low interest rates more than inflation, though they're somewhat related. The basic problem is that if money is cheap to borrow, people borrow it and bid up asset prices, and then people who don't already have assets (e.g. a home) are forced to buy high.
Employee wages at the same company typically don’t rise to meet inflation. In the few companies that do, the employees still move higher up the income tax brackets.
>> -Causes people to pay taxes on capital gains even when their purchasing power hasn’t risen. >This one is actually true. We could easily fix it by calculating capital gains as adjusted for inflation (and make up the revenue by using the ordinary income rate instead of the capital gains rate).
True.
This is just using a narrow definition of "saving" that excludes investing. Moreover, if your "savings" is a hundred dollars, inflation on the hundred dollars is the least of your worries, and if your "savings" is a hundred thousand dollars and you're a "saver" and not an "investor" then the consequences are of your own choosing.
> They’re both correct. The Cantillon Effect, not having to raise taxes from a new bill, and being able to inflate the debt away are all seductive to those with the means to use it.
Those are all still the causes. If the government prints money and spends it then they don't have to collect the money as taxes, but that causes inflation, it doesn't result from it. Inflation can also devalue existing government debt, but that's counterbalanced for new spending by inflation resulting in higher bond rates because you have to compensate investors for holding dollar-denominated government bonds during a period of high inflation. Unless you have the central bank buying the bonds, which is equivalent to printing the money and we're back to things that cause inflation.
> Employee wages at the same company typically don’t rise to meet inflation.
Employers who don't give their employees cost of living adjustments would lose them to another company, and then have to pay the higher wages to replace them and the turnover cost of finding a new employee. That is more expensive than simply increasing wages for existing employees.
This is easily demonstrated by visiting https://www.portfoliovisualizer.com/ and observing that an investment in US stocks has always grown in value over sufficient time.
Not everyone has the forward runway of 20~25 years. There are periods of 20 years that gave little to no return in the stock market [in other words a loss].
"Sufficient time" might be long enough that I am on my death bed by that time. The opportunity cost of waiting in the hopes that the prices will some day pickup can be substantial.
U.S. Tax brackets are adjusted upward every year to account for inflation.
Basically, if the tax amount is less than the typical investment returns, you have something equivalent to the existing income tax but with a nasty new way to avoid it by finding asset classes that aren't covered or aren't easily valued or reported. And if you try to use a rate higher than typical investment returns, you blow up the whole world as people start burying gold in their yards in secret at scale instead of putting their wealth to productive use, because hiding it from the tax man any way you can becomes more profitable than investing it.
To the extent that the current capital gains tax amounts to a wealth tax, it doesn’t seem like that big a deal.
If corp tax rate + LTCG isn't less than or equal to the top income rate you are effectively incentivizing changes to commercial structures to turn more gains into income to escape the double taxation -- and away from open and accessible public markets.
That would also solve the existing perverse incentive to defer the double taxation by hoarding wealth inside of corporations that have no productive use for it, since the corporation can "invest" it (less efficiently) for an arbitrarily long period of time without the investor paying personal income tax on it, and investor's loss of efficiency from the principal agent problem is less than the losses that would be incurred from double taxation.
Otherwise it's more tax efficient to take a mixture of risks inside one entity, so that the losses in some can offset the success of others resulting in paying taxes on the true returns.
Well, hang on a second. While it would be stupid to hold savings in cash, the group we're really talking about are on the margins - the sort of people who might have 1-6 month's salary saved up for emergencies. That is too small an amount to invest; it needs to be available in an emergency.
I think it is unfair to call such people stupid. They are forced by circumstance to make a bad decision; they can't take the risk of being hit by a stock market downturn and a job loss at the same time. Inflation punishes them (saved 6 months salary, in preparation for a big crisis? Like say a global pandemic? Ha! Stupid! We'll drain that).
Even if you want to quibble about the wisdom of an investment strategy, inflationary policies are setting up terrible incentives here. People with an emergency fund should be rewarded, their behaviour was appropriate in preparing for 2020.
Also, we shouldn't be assigning the tax burden based on who is and isn't stupid. Not that I personally mind, but it isn't fair.
TIL I'm on the margin.
That prudence causes unemployment, business cycles and relative poverty. I would rather have a world without that kind of prudence.
Clearly you've never had the experience of being poor, living paycheck to paycheck, deep in debt and trying to scrape together what meager savings you can. What kind of person are you, to wish that experience on someone in the name of some pseudoscientific, unfalsifiable claptrap about business cycles? Savings is how the poor move to middle class; destroying that savings is pulling the ladder out from under them.
To be more precise it's not a bad decision, on the contrary - it's the optimal one. You definitely need to keep some cash for unforeseen events - and if you don't, this can be called a "bad decision".
This is such a weird and oft repeated lie [0], when in reality the poor are mostly net-debtors (even the ones who seem well off, given their mortgage) who benefit from inflation.
0: https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr...
Poor people tend to be borrowers.
> -Allows governments to spend more than drunken sailors.
Government spends stuff for people, including imopratant future investments. Also its silly to compare government spending to personal spending
> -Causes the wealth of the rich to be eroded less than the wealth of the poor (who don’t own any assets).
Except poor people are more likely to be badly in debt.
> -Erodes away the middle class and makes them feel like wage slaves.
A healthy inflation rate helps drive the economy. Loss of union power is responsible for poor and middle class not getting their fair share.
> -Caused Satoshi Nakamoto to release Bitcoin.
Isn't really useful for anything other then speculation. The fact that it's inherently deflationary prevents it from being a useful currency.
> -Isn’t stopping anytime soon.
Inflation for the year isn't likely to be much higher then normal and a constant rate of inflation is good for the economy.
>Isn't really useful for anything other then speculation. The fact that it's inherently deflationary prevents it from being a useful currency.
I don't think he's saying it's useful or not, just that it's a consequence of inflation. If anything he's anti-bitcoin, given that the other items on the list are mostly negative.
Inflation is what allows people to have jobs and contribute to productivity despite the unprecedented health crisis.
>-Causes borrowers to get ahead of savers and lenders.
When lenders expect interest rates that go above and beyond economic growth then either the loan contract will be void or the interest rate has to be lowered. The last bastion of the economic system that cannot be avoided is the devaluation of the currency used in the contract. At least that part refuses to deny reality. We should be proud that our system isn't completely dysfunctional. This means lenders are punished for risky and extortionate lending. For some reason people have "savers = good" wired into their brain even when the saver and lender do not have the best interest of the borrower in mind and only see the borrower as a pinata ready to be plundered.
>-Allows governments to spend more than drunken sailors.
When the capitalists build too much capital you end up with excess capacity in the economy. You either take it or destroy it. The latter has often motivated wars. Of course with the capitalist spirit there is no such thing as leisure and freedom from work so destroying the capital and starting over is preferred rather than doing large scale government projects. In a positive interest currency the existence of huge government spending is integrated into the currency otherwise the currency would fail a lot sooner.
>-Causes the wealth of the rich to be eroded less than the wealth of the poor (who don’t own any assets).
The poor keep most of their wealth in the form of their body. As long as they are healthy and young they can work which means they can earn money. No, the $400 in your bank account aren't most of your wealth. Now let me tell you something interesting. The bottom 80% lenders are net interest payers meaning that they get less in interest out than they pay on interest because businesses borrow money with interest and every product you buy has its price increased to cover interest. When the interest rate is extortionate then inflation reverts that extortion. So yes inflation creates inequality because it lets a monetary system function which encourages extortionate interest but don't make the mistake that it is just inflation alone, it's always interest+inflation and inflation always lags behind.
>-Causes both the wealth of the rich, middle class, and poor to be eroded away at different rates.
Sure but since the goal of inflation is to reduce extortionate interest you don't have many choices. The only real alternative would be to integrate inflation into the money system i.e. a permanent negate interest on cash which gives enough room to earn a return on 0% interest. The benefit would be that it is highly predictable and fair to everyone. It would do away with economic cycles and unemployment and a lot of factors that drive inequality.
>-Erodes away the middle class and makes them feel like wage slaves.
Well, now you have gotten things backwards. High interest debts with low inflation cause people to feel like wage slaves. The worst thing that inflation does is maintain such a system. Otherwise the system would have failed a long time ago. Have you ever wondered why interest rates are dropping? Because you cannot squeeze out blood from a stone. There aren't any borrowers left who can bear the burden of higher interest rates. Raising interest rates because of a fetish for higher interest rates would kill the economy and cause unemployment because positive interest above the growth rate never made sense to begin with.
>-Caused Satoshi Nakamoto to release Bitcoin.
The current fiat system is just terrible. Bitcoin is just a continuation of the current system. Bitcoin is the very thing that it despises. Bitcoin mining is the largest portion of the Bitcoin economy. It doesn't really make sense to speak of naturally occurring Bitcoin, the mining algorithm can be considered a form of government spending that creates money out of thin air. What does that tell us about Bitcoin and our own system? If there is a shortage of money and money is being created, people will work at the source of that money. Miners work to hash data. Construction workers do so to build bridges. This idea only makes sense because we want money to be scarce. We want the ability to extort other people by withholding money without their consent. Before you say that the banking system lends out money and makes it available again think about what happens when you lower the interest rate below 0%. People will take out their cash. Why? Because they insist on their ability to extort. The government doesn't care about the hostages so it creates replacements and you end up with inflation.
>-Isn’t stopping anytime soon.
Sure, as I said inflation is what keeps the system alive and from collapsing. You'll have inflation as long as the money system needs it to stay alive.
All of this garbage because people either know or don't know that money represents a claim to another persons time. You can't save time. You can't wait for a better day because all the days before that will be gone. Marx was an idiot. There is nothing extortionate about building a factory, employing workers and taking the risk of the business failing. There is something exceedingly extortionate about withholding money because it is used to pay salaries. If there is no money you cannot pay salaries. Rather than seizing the means of production he should have seized the means of employment (money). If there is no money in the local community then people cannot work. If they create their own money and start working then the central bank will come to their community and tell them "No you cannot work, no you cannot make your community a better place, no you are not allowed to escape poverty". So our last hope is that CBDCs are designed as complementary currency with a holding fee. What a stupid world.
Keeping inflation down has been the central policy of Western banks for 30 to 40 years. It absolutely absurd to claim that it is "not talked about."
For you perhaps. That spending helped countless people, averted untold hardship, and for some could only be described as life changing
Beyond that I am not sure the result will be worth the cost, especially for those that are the most price sensitive.
The poor are living oaycheck to paycheck and they will continue to do so. Yet the people on the first wrung of wealth building see their progress destroyed.
it is a combo of gov funds and employment that keeps them alive. see % of walmart employees on food assistance.
So it really depends on your industry, there are plenty of poor working class who have hospitality jobs.
If you have 5-15K in dollar-denominated-fixed-interest savings you either:
(1) Are in the middle class and have at least a couple orders of magnitude more than that in productive investments that aren't dollar-denominated fixed-interest assets.
Or, (2) are in the working, not middle, class, and probably despite having that in gross savings, have net dollar-denominated debt.
Is there something else I should be doing? I don't consider <5 years to be long-term savings. Am I incorrect?
I think you need to double-check your definition of "middle class".
Not only it hurts the poor more; it basically roasts them as they can’t pay for necessities.
There are many forces affecting wages, but inflation puts upward pressure on wages and wages put upward pressure on consumer prices, so they tend, and not just by coincidence, to move the same direction.
> I lived in a place with high inflation and wages did go down at that time because the economy was bad. (Stagflation)
“Stagflation” has a name as a combination of economic conditions because it is unusual.
Historically, periods of very low inflation (such as the 19th century during which currencies were pegged to the gold standard) were great creators of inequality, because they allow the wealthy to continuously expand their capital stock through rents.
Is that hard to do during inflation or something? Given that asset values generally don't get inflated away, I'm not sure how inflation would be bad for them.
The relationship between inflation and inequality is pretty complicated because there are a bunch of other factors (notably growth) that play a significant role. I just wanted to point out that the economics of inequality does not support OP's argument (i.e., inflation creates inequality).
If the economy expands, the money supply should expand. If the economy contracts, in a secular way and not a cyclical way, the money supply should contract.
Inflation is not bad per se. It's necessary, as others have pointed out, to prevent incumbents from being pointlessly enriched by rents.
What's bad is monetary inflation that raises the prices of everything. This means the growth in the money supply is outstripping productivity growth.
We appear to be tipping over into monetary inflation after four decades of good monetary policy. The last time this happened it took ten years to sort out.
The idea that it’s because of inflation that we need to raise the minimum wage does not hold water when housing is increasing in cost at a much faster rate.
Make housing covenants illegal.
Both of these ideas are super unpopular to the landlord/speculator class, but they'd certainly open up the housing market.
Heck, there are parts of California where housing prices have grown less than inflation. Want a house for less than 200k about 80 miles from San Francisco?
We need to reindustrialize.
You can, but there are no jobs there, which is why housing is so cheap. The residents of these towns are leaving for the nearest growing city in huge numbers, leaving behind cheap housing and economic stagnation for those that remain.
And in the places where the jobs are, housing is getting expensive. Even in the “rust belt”. They’re cheaper than San Francisco, sure, but with places like Columbus seeing their housing prices grow 20% year over year, it’ll get bad fast.
> Want a house for less than 200k about 80 miles from San Francisco?
Again, it depends on what you do for a living. How long is the commute from there to the nearest job center? I’m assuming the answer is “unbearably long”.
Again, right now housing is cheap where people dont want to live.
So focusing on building housing in the hot areas does not address the root cause.
I personally see no reason to block policy changed based on the theory that we’ll suddenly figure out another policy issues that we’ve been utterly failing at fixing. That’s a recipe for permanent inaction.
A small constant rate of inflation also helps drive the economy
Inflation is just a redistribution of wealth from cash savers to borrowers.
Ever wonder why most economists consider 3% inflation healthy, and don't like 0% inflation at all? There's a reason: it's a way to nudge the wealthy to put their cash to work, and to loosen the the handcuffs of people who are unproductive because they're burdened by debt.
WIth a small amount of inflation, if you hoard too much (univested) cash, inflation will cause that pile of money to slowly evaporate. If you struggle with too much debt for too long, your salary will eventually inflate enough to make it a little more manageable. Too much inflation is bad because it makes long-term financial planning difficult and creates some instability, but a little bit of inflation is much better than none at all.
Some forms of loans do have interest rates which wiggle up and down depending on an index (e.g. adjustable-rate mortgages might be tied to COFI or LIBOR), but most loans do not work this way, and I can't think of any type of loan which is tied to inflation.
And if the interest rate on the debt goes anywhere near where it used to be … kabbooie
And what does "kabbooie" actually look like?
Sorry if these are dumb questions...
That is what happened.
Screwed either way.
So yeah tax that money out of the economy. Maintain trust and peace.
Just how long the steep rise in inflation will last remains a subject of debate....The Federal Reserve is arguing that it won't be a long-term issue... If the inflation growth rate starts to ease, workers will be better able to enjoy their boost in pay.
"To the extent that inflation is transitory, this dip in real wages is also transitory," said Tim Duy, chief US economist at SGH Macro Advisors, a research firm for the financial industry and policymakers.
* For example, Paul Krugman points out "July’s inflation was substantially lower than June’s..." and took the numbers CNN is citing as proving that "Recent price increases reflect temporary disruptions as we recover from the pandemic rather than an underlying inflation problem."
https://www.nytimes.com/2021/08/12/opinion/inflation-infrast...
Pointing to inflation feels like (yet another) distraction from the actual wages problem being that the value of labor is secondary to the value of capital investment. ie. your workers are less valuable than your investors.
Whilst the base of most arguments is the collapse of the Bretton-Woods system[1], economics is a complex beast. This article[2] talks through some of the potential causes and ripple effects.
I say in a comment below, pointing to the current inflation situation as wiping out America's pay increases feels like distraction from the actual cause, and a(nother) tactic to delay addressing the cause, not the symptoms.
[0]: https://wtfhappenedin1971.com/
[1]: https://en.wikipedia.org/wiki/Bretton_Woods_system
[2]: https://cointelegraph.com/magazine/2020/09/24/wtf-happened-i...
I had to chuckle at this:
>“Austrian economics is really just trying to dispel the logical fallacies inherent in Keynesian logic, starting at first principles and then building you way up from there,” says Prentice
Keynesian economics is about maintaining the current money system, a system of logical fallacies. Any logical fallacies inherent in Keynesian logic only exist to make a logically incoherent system work. So yeah Austrian economists get to feel smart for criticizing the Keynesians that try to keep the leaky plumbing working. Meanwhile the Austrians argue for their own brand of leaky plumbing but this time with smaller pipes and tell you that if the pipes burst or the pipes leak half their water that is perfectly fine.
If one truly were against Keynesian intervention then you would try to find pipes that aren't leaky. It would obsolete the need for both ideologies.
While this page emphasizes the big macroeconomic changes and the changes to global banking, a greater contributor was probably the massive socio-political changes of the early 70s:
- Unions saw their power begin to erode (leading to less bargaining power for workers)
- Women entered the workforce en masse (households with dual incomes may be willing to put up with lower individual salaries if they still come out ahead)
- The USSR began sputtering out (leading to a political backlash against many forms of collectivism)
- Globalization started ramping up (a new glut of cheap labor)
- Software started taking hold (automation of jobs, etc)
Unfortunately there's not one simple, easy-to-explain reason that we can point to, but it is a strange phenomenon that we should work hard to correct if we want to live in a stable, peaceful society.
[1] https://en.wikipedia.org/wiki/Decoupling_of_wages_from_produ...
I'm not wanting to point at Bretton-woods singularly, or even necessarily as a major reason, hence my saying 'economics is complex beast'. Reaganomics[0] is another factor in the overall fabric.
I'm primarily trying to point out that this little 'blip' of inflation right here right now is a mere extension of the last 40-odd years, and anyone saying that "this dip in real wages is also transitory" exists firmly on the 'investment returns' rather than 'labor provision' side of the economics equation.
And for everyone arguing about who inflation hurts, here is the best categorization imo: it hurts anyone without a mortgage. There are small exceptions, but that's the general rule for 99% of people. Renters are fucked, homeowners who got a low rate are golden.
The Fed and Treasury know what they're doing more than I do but I hope this doesn't get out of control. Recognizing CPI increases could be attributed to factors outside technical inflation, and they're worried about deflation, there's the whole saying about the inflation genie being tough to put back in the bottle, and sentiment causing feedback making the problem worse.
I'm a liberal and I worry if we're currently talking about chip shortages and elevated shipping costs going for at least another year, people are going to see markedly higher prices on everything with possibly little to no pay increases by next year's elections, and the left will get crushed in contended seats. I also worry about people's ability to pay expenses and save of course, not to be cold-hearted and just think politics.
The US dollar is becoming a poorer and poorer indicator of value. I feel bad for those who own no assets right now. Your wage will not be rising as fast as prices and tangible assets will become more and more out of reach.
If Treasury rates are an indicator, this doesn’t seem to be the conclusion of the market. As of 8/13, a 10-year note is listed at 1.29% indicating a fairly high level of confidence. If those rates start approaching junk bond returns, then I’d say your claim has merit
Are you saying that the iraq/afghanistan war caused the inflation we're seeing today?
The funny part is that USD only have to be backed by the world economy. A war in Afghanistan certainly didn't help it become an important part of the world economy and therefore it didn't help the USD.
This is sustainable only so long as deficit spending is cheap—i.e. so long as interest rates and inflation stay low. If European-style welfare programs had to be paid for with European-style middle class taxes, we wouldn’t even be talking about $3.5 trillion in “infrastructure” spending.
If inflation becomes a thing again we could see a real political shakeup.
In the long run they can appeal to Reagan-type voters from the suburbs only so long before they risk splitting their party base entirely and the left wing of the party starts voting 3rd party at higher rates, or is just demoralized and doesn't show up at the ballot box.
"You have no other choice" isn't exactly an inspiring campaign slogan. Though it worked this last time around, I guess.
[1] - https://www.salon.com/2019/06/19/joe-biden-to-rich-donors-no...
I read this online pretty frequently, but haven't met anyone IRL who did this. If you like living somewhere like silicon valley, I can't really imagine choosing to move to Arizona to save a few bucks on taxes. A friend near Phoenix tells me it sometimes stays near 100F all night there. I wouldn't want to deal with that unless I was really backed into a corner.
My own parents moved to Washington state in retirement solely for taxes.
People absolutely move for taxes whether you know them or not.
Edit: For those downvoting, price increase for supply decrease != monetary inflation (at least not 1:1). That just simply the movement of economics and the movement of supply and demand curve that HN loves. Inflation on the other hand is the devaluation of money. While I can see why these two things are hard to decouple, they are not the same.
In my northern city, as soon as I felt comfortable going back to restaurants I quickly stopped - the wait everywhere is >2hr because they’re desperate for ppl. McDonalds is even offering $22/hr
To caveat, I am in a highly desirable submarket for entry level staff, with near 75% 1 year retention, and above market pay for my area, especially for part time staff.
To provide further context, I had a staff member quit a couple weeks ago, because I do not pay a "livable wage", while this staff member only worked 2 days a week based on their availability. I am not sure how to address this kind of issue.
Possibly dumb question, but how much do you pay per hour and how much are the rents in your local area?
I only have one employee working around 15 hours a week at A$28/hr (minimum wage is around A$26/hr for "casual" employees with no set hours or paid leave), but that's enough to cover all living expenses in shared accomodation plus a bit extra.
Key detail seems to be that shared accommodation is very undesirable for my staff, at least those few that live outside the family home.
I wonder how many issues of inequality and low living standards would simply disappear if we as a society simply decided to enact policies to drive the cost of housing down as low as possible, rather than inflating it and making it artificially scarce.
You would have to somehow transform 50+ years of suburban sprawl into a higher-density, less car dependent living arrangement, that's also _cheaper_ than the current one, and affordable to e.g. restaurant and retail workers.
At least in Australia, most of the increase in value comes from speculators and investors taking advantage of very generous tax concessions (negative gearing, capital gains tax reductions, reserve bank handing out low-interest loans to property investors).
Rental vacancy rates in Sydney and Melbourne have remained pretty much static over the past decade (excluding COVID), yet prices have soared by 60-70%.
I mean. People want their houses to be expensive. They also want their money to become expensive (deflation). It really doesn't make sense to me.
In theory expensive housing makes it easier to build more of it. That law of supply and demand doesn't really exist because it is not a free market. It's actually kind of funny. It's the subversion of the free market. As land and the house that sits on top of the land gets more expensive people want to reduce supply. They use politics to basically run what amounts to a housing cartel. You won't sell your house so that apartments can be built. Your neighbor isn't allowed to build them either.
It’s interesting to hear that this is driven by supply chain increases, but those seem much higher than what I see at my local grocer. Is there something particular to restaurant supply that makes it sticky enough to pay these doubled prices?
Secondly, restaurants usually purchase some portion of product as prepared or partially prepared which is being hit by the labor shortage for preparation cost in the production facilities.
Third, grocery increase are less noticeable due to the price point. Ten cents on a dollar is less noticeable than 1 dollar on 10 dollars.
If restaurants are seeing 100% ingredient increases, labor price increases, and labor shortages, I think we’re going to see a massive wave of restaurant bankruptcies in the next 18 months. There’s no way consumers are going to just swallow that.
My 100% increase converts to 15-30% at the price point. In the same way you are seeing that 30-40 at the grocery. Restaurants generally run %20-40 food cost.