Workers’ Pay Globally Hasn’t Kept Up with Inflation
wsj.com
wsj.com
Inflation is not enough stuff to go around. That loss has to be absorbed by people getting less. Either everybody gets a little less by wages not buying what they used to, or some people get a lot less by jobs and businesses disappearing.
Ideally we'd just make more, but after two years of messing around with global supply chains, we've fundamentally damaged them so they no longer have excess capacity to supply. Like an overstretched spring, it won't just go back to where it was.
It's going to take a while to get the virtuous spiral working again.
Either I try a slow life (which many do), emigrate to the US, emigrate to a cheap country and work as freelancer and/or start a B2B SaaS business which would give me the most freedom. I always enjoyed building something cool, so of course I chose the entrepreneurial path.
Side note: After over a year of nights + weekends and 96k SLoC later I'm finally ready to launch in the next 2 months, joining you lads :) tbh wealth isn't a motivator anymore, I just wanna help customers getting the most value if they use my SaaS.
A healthy society needs to be fair. To work hard just to continue being poor, a part from cruel, will have long lasting political consequences. Some people will go to Communism, other to Fascism as left or right authoritarian regimes grow with people desperation.
Things can get better, there are many good know ways of redistributing wealth and creating opportunity for younger generations. People deserves better.
Very much agree with this — an opportunity stupidly discarded.
Can you provide some examples of such "impropriety"?
>For example, I strongly suspect that if any real accountability and real restitution had followed in the wake of something like the 2008 financial crisis, we'd see a lot less radicalization today.
What would this look like? My impression of the 2008 financial crisis was that the factors were so varied and the responsibility of a single actor so diffuse that it was very difficult to actually convict anyone of causing the multi-trillion disaster.
This is particularly important in the face of change (technological, external, resource etc). Probably ancient Egypt survived in that form for so long because everything pretty much stayed the same - relative to our tumultuous modern world anyway.
I understand of course other parts of the market (stocks, perhaps other expensive things like cars and industrial equipment) have not experienced the same price increase and for this reason the inflation is measured as less. This is purely an academic difference for most people, who would not be encountering these products anyway.
Where are you getting "50-100%" for "Groceries and all utilities"? The BLS is only reporting 11.3% for the "Food at home" category.
There's also a divide between tactics efficient at the individual level and that efficient at a national or global level. E.g. you can tell an individual they should be a doctor/lawyer/engineer/etc and that's good advice, but if everyone does it then who grows food and cleans floors and etc?
I'm sorry it was difficult to understand.
How many are really increasing productivity in the long run anyway?
When you think about it, their own employers must be satisfied with the lower productivity of a smaller staff or they wouldn't be kicking people out.
Edit: Not my downvote. Corrective upvote actually.
Govt handouts during the pandemic added significant money without increased production to keep people afloat, which is good short term. The cost of that is inflation medium term. Long term wages rise to offset inflation. This has always been the pattern. Adding money for nothing to the system devalues each piece of money, so inflation is expected.
Long term wages for context https://www.visualizingeconomics.com/blog/2008/05/04/average...
https://theovershoot.co/p/americas-excess-household-savings
You’re likely referencing the savings rate, which is a different concept. This measures how much of newly earned income is saved, not how much excess savings somebody has in an absolute sense.
https://fred.stlouisfed.org/series/PSAVERT
Aside from savings, household credit is still below pre-pandemic trends in real terms, just touching the nominal trend recently.
Sounds like the problem is solving itself then?
History shows there’s likely going to be a severe recession at the end of this
Its almost always quite low, which is the reason inflation is high and the Fed has to throw the economy into recession.
Low unemployment is a recession precursor, not the other way around. Very clear from the data
Show me on this chart where unemployment goes low and stays low for an extended period? It has never happened.
Recession dynamics in relation to unemployment are well understood. Low unemployment as a driver of inflation is well understood. Fed reaction function in relation to inflation is well understood. The consequence of higher unemployment as a result of higher real rates is well understood
Only immaculate disinflation can prevent a recession at this point. If fed has to induce it, a recession is all but guaranteed
Show where on the chart it stays flat for long period of time.
You're just moving goalposts at this point.
The fact is, and is demonstrated by that chart, that unemployment tends downwards between recessions, then jumps during them. And each recession had an uptick before the recession. The down trend length is not at all indicative of impending recession from that chart. And, as I pointed out to begin with, the current unemployment is not having that uptick. Many of the upticks took over a year from uptick start to recession. And there's ample upticks more than 5 years before the next recession. So uptick does not imply recession, but lack of uptick implies no recession soon. There is not a single example among the 12 recessions in that data (and, if you look at other country data, the same pattern appears).
My original point is correct: there is yet no sign in the unemployment data of impending recession, no matter how much you seem to want one, so much so you make incorrect claims about the data without actually checking the data.
>Recession dynamics in relation to unemployment are well understood. Low unemployment as a driver of inflation is well understood. Fed reaction function in relation to inflation is well understood. The consequence of higher unemployment as a result of higher real rates is well understood
Those are partially understood - if there were such a causal or even empirical link from one to the other we'd not need the NBER to analyze macro variables to decide on recessions. This is not physics - there is a lot more uncertainty, and some factors move over time as different factor weights change (and even political will to do things). That there is no simple way to look at all the variables you mention and claim "impending recession!" with any certainty is the most salient fact of all.
And, as I pointed out, unemployment is not at this moment pointing to immediate recession, unless you have a never before seen relation between them.
Where as soon as each official recession has been deemed to occur in retrospect according to today's terms, then unemployment shoots up since so many people are kicked out.
As we have seen.
Yes, that graph shows the "retrospect" recession start, and every one is after unemployment rises. But not every rise in unemployment yields a recession.
Currently there is not a rise in unemployment.
This isn't propaganda - it's econ 101. Read any intro econ textbook and all this is completely expected, historically backed up by many events for centuries in hundreds of countries. There's no propaganda.
M1 money (a common measure of the money supply) went from around 4 trillion to over 16 trillion in a matter of months during the pandemic [1] as a result of the govt adding trillions of dollars - a completely unprecedented amount.
Do you really think a govt can simply throw trillions into an economy at this rate and not have inflation?
This is how it's been done the world over, and it works pretty well, despite pop articles creating more panic than is warranted. Money has been added in the past to smooth out the 18th and 19th century boom and bust cycles, and it has worked extremely well compared to past pain.
Every country on the planet has chosen central banking since the evidence it's better than the alternatives has been overwhelming for almost a century.
(Ironically the one time I was one of the few hundred, our chosen candidate - who was excellent - got beaten by the Greens in an election upset)
• Women entering the work force
• Immigration
• Globalization
This is by design.
https://www.visualizingeconomics.com/blog/2008/05/04/average...
For example there were far different people enjoying the peaks to the right of Bill Clinton than there were suffering the downturns beforehand, which continued for so many. So the adjacent data there actually comes from two different places but it's the best generic income statistic we have.
Looks like the professor has done a realistic job in his own way of rationalizing some moving targets through history and coming up with some figures that may be about as comparable as they can be over the decades. I can only imagine it took a lot of math to visualize this as meaningfully as it is.
But remember it's the well-heeled people who bring the average up disproportionately more as the income disparity between high & low widens over the decades.
If you consider a time when a dollar had been an ounce of silver like forever (about the left half of the chart), then made it through the Nixon & Reagan Recessions, you would have seen how the average person (not the average income) was too devastated to participate in very much of the upticks since those crushing years.
But still subject to downticks being amplified to push them surely below the trough every time since. As the middle class, even the upper-middle class, had their wealth systematically removed by predatory forces that caused even more of a downward spiral in the average and below-average earners.
Often dipping well beyond the belt-tightening of the '80's, while the well-to-do maintained their compensation during the same adversity, not much differently than they're doing now by declaring higher dividends. Keeping the high-rollers in position to exclusively benefit when it does turn around, leaving everyone else further behind each time.
And in terms of "per Tax Unit", the left 2/3 of the graph is with one earner, but after that it's two different breadwinners for the most part.
Even though these are legitimate statistics, and look as similarly adjusted for inflation as other experts, it can be definitely confirmed that average income alone, no matter how well adjusted, is not a very accurate indicator of how the income of the non-exceptional population has been devastated by inflation worse than average. From what we know now, or at least the way it appears. If they could only have half of their dollars paid to them in half ounces of silver, they'd surely be a lot better off, but probably still not where it should have been, before all these additional means of devaluing the currency became possible.
Remember the way Bill Clinton was like when he started campaigning, it was the first contingent of overtime workers to have worked 20 years bringing in two incomes without getting ahead at all, compared to their fathers who had accomplished way more in their 20 years on one income.
And there were even more younger people who recognized that the promise of employment just wasn't what it used to be, since at the time it looked more hopeless than ever going into the future.
So one of his campaign promises was to grant $5000 to any American who would start their own business, employment hadn't been much hope for quite some time.
By design you were supposed to get an ounce of silver for each dollar you worked for.
That design changed long ago.
You realize that was completely a terrible idea, that the US tried to force (tying them together), and the screw market pressures nearly resulted in the USD equivalent of the sterling crisis in the UK? There was nothing stable about it - it was a sham to keep goldbugs from losing their minds, nothing more. There was never enough silver to keep those prices, and lots of people around the world knew it, and were running arbitrage games on the US, extracting money from us. Trying to fix a currency so tightly to the amount of metal one can find is a terrible way to run an economy, which is why not a single country out of over 200 still does it.
If you think somehow silver or gold is stable, and the US dollar is not, take some goods like rent or food and price them in USD since the US dropped the fake game. You'll find that metals are vastly more volatile than USD (which is why the USD is valued the world over as both reserve currency and a currency to use for stability).
>average person (not the average income) was too devastated
The median wages tell the same story (below). Wages increased for individuals, for tax units, for households.
>is not a very accurate indicator of how the income of the non-exceptional population
Did you bother to look that up? It's simply untrue (I posted a few more series before since the word "average," which can mean median or mean (or many other averages) is not clear enough for you.
Do you understand carefully the difference between mean and median?
>And in terms of "per Tax Unit", the left 2/3 of the graph is with one earner, but after that it's two different breadwinners for the most part.
Did you check this or simply "feel" it's true? A tax unit is a single person or a married couple. There are now more single led households and far fewer married people than in the left 2/3 of the graph, and a significant amount of the left part of the graph had a lot of women in the labor force.
So your claim fails on pretty much every trend. All your factors trend down over that graph, yet incomes trend up. Don't like that one, here's real median person income, up from 26k in 1975 to 38k now [1]. Here's real median household income [2].
But more importantly all these companies blaming inflation for prices increases but then reporting proportionately increased profits should be required to pay a recovery tax to bring their profit back down to pre “inflation” proportion.
And of course this is all moot, because inflation calculation intentionally ignore anything that doesn’t impact corporations (cost of living, credit interest rates for individuals, etc), and does include things like interest rates that corporations receive.
You can mandate price fixing, but that just tends to cause death spirals where the cost of producing something rises above what you're allowed to charge, so you either keep producing and can't pay your own workers or you stop producing and there's no further supply at any price.
Of course, the fact that this has played out before means that I know that people will just ignore the lessons from Brazil, Zimbabwe, etc. and screw themselves yet again because inflation solves political problems while causing real ones.
The implied proposal sounds like a great way to get a wage-price spiral.
As in, greed is "spiralling" out of control