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Comment by socialismisok | Hacker News Reader

Reducing power of workers in favor of capital is deeply disappointing to me. The idea that we'd want to increase unemployment rather than have everyone working is frustrating.

"But wages are too high!" Shouldn't the folks who believe in markets as a force for good want wages to be set by markets? The most profitable businesses can pay the wages for workers, and the least profitable ones can't hire?

Why do we need someone taking away power from labor when labor starts to gain even a small amount of leverage?

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Labor isn’t gaining power now, or else you’d see wages gains greater than inflation. Labor is losing to inflation.

It's gained some ground with movements like the $15 now movement in Seattle.

It can be the case it has gained but gained unevenly.

In aggregate, wage gains are behind inflation. In a country of 330 million, it will always be uneven. Everything is uneven at scale.

The only justification for this is preventing a self-perpetuating inflationary feedback cycle. Wage increases increase COGS, which increases prices, which leads to demands for wage increases.

Once that gets going (encoded in labor contracts and expectations), it's very hard and even more painful to break.

Whether that's what we're seeing now... or it's temporary supply side impacts... economists for more data than I can argue over.

But labor cost increases is a small part of COGS. So this means this feedback cycle you mention is steeply negative and will stop quite soon.

This entirely depends on the industry. In many industries, labor is a major input cost.

Price increases could be offset by a number of adjustments to other inputs to COGS. Reducing CEO pay, nationalizing health care (so it's no longer an employer cost), price controls on material inputs, reducing profit margins, increasing production efficiency, etc.

Yes, wages are a cost. But raising wages aren't a guarantee of price increases.

You must be underestimating the negative effect high long-term inflation has on a society. Labor doesn’t gain leverage, it loses a lot of buying power.

Not at all. I'm saying we have many levers to control inflation, worker power is only one.

What levers would you use?

In the article Powell says:

>"I wish there were a painless way to do that," Powell said. "There isn't."

Maybe you should email him your idea.

Also, I don't think it is accurate to say that the Fed sees worker power as a "lever" to control inflation. Their "lever" is interest rates. The problem is that hiking rates has the unintended side effect of increasing unemployment, in addition to fighting inflation. And this unemployment increase is due to a generalized economic slowdown, which hurts both labor and capital -- that's why the stock market is falling.

Despite your patronizing post, I'm going to give this a response.

We could attack the issue from the supply side - invest in production where there are bottlenecks (increasing supply of desirable goods), removing the profit motive by nationalizing some industries (for instance we could nationalize portions of the energy sector or transportation sector.)

Alternatively, we could use tight price controls on industrial inputs. This, in turn, would result in a slightly less efficient market, but a reduced inflation.

In fact, some have suggested that this inflation is not particularly demand side driven. Read this: https://www.frbsf.org/economic-research/publications/economi...

You'll also note that they 3 are obvious supply side problems associated with the current inflation - the war in Ukraine, COVID, to name some big ones.

Maybe you'd like a resource that looks longer term. Wage growth has not been a significant driver of the current inflation: https://www.epi.org/blog/wage-growth-has-been-dampening-infl...

Don't assume that someone who disagrees with your position is uneducated or less knowledgeable than you. I might not agree with you on economic policy (I'm sure you'll tell me nationalization is crazy talk) but just because we value different things is no reason to be patronizing.

> Shouldn't the folks who believe in markets as a force for good want wages to be set by markets?

They do, but what's that have to do with the Fed? The Federal Reserve is arguably one of the largest central planner entities in existence in the US (which as a mixed economy, not a free market one, has many).

It's an indirect impact of Fed policy. Low rates means low unemployment means higher wages. The reverse is true too, raise rates, wages go down.

>The idea that we'd want to increase unemployment rather than have everyone working is frustrating.

Keeping unemployment low is part of the Fed's mandate -- along with keeping inflation low. But sometimes you can't get everything you want.

- Full employment

- Low inflation

- High wages

Pick two.

Wages aren't the only input to inflation. It's not axiomatic that these three cannot be met simultaneously.

It also doesn't account for wage disparities. Even if I accept the premise that wages cannot increase without increasing either unemployment or inflation, it still doesn't follow that increasing the minimum wage imposes the same requirement. Under that model, employment/inflation could also be kept constant by increasing wages to workers while decreasing wages to management, or by increasing wages to both workers and management while decreasing rent extraction (e.g. stock buybacks, dividends).

Of course it does. You have a naive view of wages. You do not increase minimum wages and not have wage compression elsewhere in the workforce.

Increasing the minimum wage has the most dramatic impact on increasing the demand for goods because it impacts so many people. Increasing the maximum wage has little if any impact on broader demand for goods because it impacts so few. Unless your supply chain can keep up with the demand surge through raised wages, you will see inflation, which is our situation today.

You might naively assume the solution is to introduce price controls but the general outcome of that is the economy shifting transactions to barter-based, black markets, and non-denominated currency exchange, which causes more economic upheaval as GPD and tax revenues drop. There are many examples of this in the last 100 years, Venezuela being a recent one.

Thank you for the additional details, and that helps my understanding. That the key quantity to keep constant is the total demand, not merely the total distribution. Therefore, when working to reduce wealth disparities, an increase in the minimum wage must be coupled with a greater-than-proportional decrease in the maximum wage in order to avoid negative side effects.

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