US Federal Reserve says its goal is 'to get wages down' (2022)
canadiandimension.com
canadiandimension.com
This is crazy on a couple of levels. Why is there a central planning authority for this? Why don't people demand better evidence that this insane policy is a good idea? The situation is mad.
Wages in this case are an indicator of inflation, and that’s what the federal reserve was trying to manage. It’s the same response presented anytime someone says let’s raise minimum wage to $25/hr. That works briefly, but then inflation pushes everything back up and you’re back to square one.
This isn’t the Fed saying they want to slash wages so the average Joe can’t get ahead. They’re trying to make wages affordable for businesses so the economy continues to function.
(I’m not advocating for this particular economic approach)
Once the housing is blown away, reverse the policies until wages depress and you're left with serfs.
It's the worst nightmare of free market gone wrong at the behest of a doubling down government. They've absolutely fucked us; we would have been better off left alone.
Not a function of good government. _It’s just business_.
Except we are at the stage where middle class has no more money to be stole from by the rich. And with middle class living paycheck to paycheck they will soon find out the road is heading towards a cliff for everyone.
It isn't on me to wade into a system that appears to have gone off the rails and find the internal inconsistencies on its terms. When policies are on the face of it stupid the defenders of that policy have to explain it with reference to evidence. In this case, as far as I can tell, they can't. It is just a transparent wealth grab organised by unelected elites.
Which then artificially sets interest rates, etc.
Hot take: Jerome Powell knows the current state is very bad and what he needs to do will be bad. He wants to have the guts to do it. Market/politicians will hate him. We’ll see if he can do it.
* Their core aim that prices should be rising exponentially.
* That the best tool to achieve that aim is dumping money into asset markets.
* That their tell for when to stop giving money asset owners is when they see evidence that it is trickling over into wages, at which point the party ends because the wrong people are getting handouts.
All of those ideas are obviously stupid. Their approach to monetising the US debt for the last 20 years is also highly questionable; the obvious way that ends is painfully.
And it also does them no favours that when the outcomes of their activities become obvious to voters, they try to blame COVID and Russia. Sure COVID and Russia can cause problems, but they aren't responsible for sustained systematic price increases. If it was external shocks, we'd see prices snap back down again as the market adjusts. But the fact is that the US is mainly the victim of its own policies. Their press release is playing politics as opposed to being straightforward.
This is just wrong. As, I pointed out earlier, there was no evidence that lower interest rates were trickling into wages at the time. Inflation adjusted earnings were down and reversed when interest rates got increased.
https://fred.stlouisfed.org/series/LES1252881600Q
I agree that excessive quantitative easing is widening the wealth gap, but that problem is that without it, we'd probably have another Great Depression. Like you said, the US is the victim of it's policies and policies are made by the elected politicians. You don't blame the surgeon for the side effects of coronary bypass surgery. You blame the patient who can't stop eating barrels of pork.
There was, that is what prompted Powell's comment. Unless he's trying to push real wages down, which would be quite the radical position to take.
> Inflation adjusted earnings were down and reversed when interest rates got increased.
I'm not exactly sure in context what you're saying with that. Since it is obvious that inflation-adjusted earnings won't show inflation trickling into wages, I'm assuming this is an implicit suggestion that the Fed raises interest rates when wages drop. That seems like an interesting position though, so maybe you should unpack it a little bit - why should the Fed be responding to real wages dropping by raising interest rates?
> ... but that problem is that without it, we'd probably have another Great Depression...
This is what I mean by just-so stories. People act like there is one variable that led to the great depression and it was interest rates/monetary policy. That is just an indefensible position - the great depression literally only happened once and it is unreasonable to ignore the literally thousands of variables that go into an economic crisis.
This isn't an argument. It is barely even evidence. We can state without any reference to evidence that the worst crisis in US history was also the worst managed one, and a quick skim of the Wiki page will reveal that there was a lot going wrong at the time, most of which is probably more causal to the crisis than central bank policy [0]. People point to one crisis, don't even explain what they thought the problem was and pretend like they've somehow demonstrated that only permanent inflation can ward off the Satan. The really weird part to me is I don't think that is the consensus position among the economists because their whole job is studying that sort of complex situation and they tend to lean very laissez-faire in their outlooks.
The fact that the take-away from the Depression was "we just have to shovel money into asset markets. No other options. We tried everything, the alternatives are the worst!" is suspicious, to put it mildly.
[0] The monetarists have a strong point that reductions in the money supply will cause all the metrics to go down. It is far less obvious that is a crisis. Metrics should go up and down. If anything the crisis is when the monetary supply goes up too quickly, but nobody is forced to recognise economic damage while that is happening. But it is almost self-evident that easy credit leads to waste, easy credit can only encourage resources getting redirected to economically marginal activity.
If he's not trying to push real wages down, then what's the problem? People were being hurt more by inflation than they were helped with increasing wages, so it makes perfect sense to prioritize inflation reduction over nominal wage growth. The Fed was happy with keeping low interest rates during the wage growth the occurred during from 2012-2020 because inflation was also low.
> why should the Fed be responding to real wages dropping by raising interest rates?
My point is that they were more interested in reducing inflation than they were about moderating wage growth. That real wages ended up increasing is evidence of this.
> there was a lot going wrong at the time, most of which is probably more causal to the crisis than central bank policy
There is a lot going wrong when an unhealthy person dies from a heart attack. I certainly wouldn't characterize the lack of a coronary bypass surgery as "causal," but that's the only actionable thing a surgeon has the power to do. No matter the cause an a medical emergency, the first goal is to keep blood circulating in your body, so you don't end up with cascading problems like organ failure. The same goes for monetary policy. If the economy continues to spiral downward despite conventional measures, why wouldn't you resort to more aggressive interventions?
> But it is almost self-evident that easy credit leads to waste, easy credit can only encourage resources getting redirected to economically marginal activity.
So you agree that we've been long overdue for higher interest rates?
Yeah fair point. I suppose what I'm thinking is that the Fed doesn't have any tools that create real wealth, they only control monetary policy. That can only have one of two effects - adjusting the value of the dollar relative to the real economy and causing reallocation of resources.
The policy levers are consistently set to shuffle wealth from labour capital holders, with a particular focus on bondholders and pumping money into credit markets. They shouldn't have their finger on the scales like that; it isn't fair and there is no reason to think it is efficient or productive. It does reallocate away from wages but I don't expect to see that in short term statistics.
> People were being hurt more by inflation than they were helped with increasing wages
Nothing changed recently. Picking on, say, average hourly earnings [0]; that isn't keeping up with the M2 [1]. It hasn't even doubled in 20 years. People are becoming worse off. Inflation adjusted wages aren't a reasonable way of measuring wellbeing because they measure against consumer price inflation and that builds in an assumption that people don't accumulate assets and prepare for their own retirement.
Their policy has been making people worse off for decades. They spend a lot of time calibrating it so the damage isn't evident day-to-day.
> [heart attack analogy]
I suppose I can't argue that directly because arguing about an analogy doesn't make sense. But I will say that if we start - for the sake of argument - with the assumption that the Fed didn't cause the depression, then the argument falls apart because they didn't prevent it and depression not recurring isn't evidence that their policy is helping. Something else introduced a cause and removed the cause. Probably Congress. So the policy of crisis management in 2024 doesn't make sense.
If we take the antithesis of that and accept that Fed policy was a contributing factor to the depression, we'll note that the time period when they set it up was before the money supply contracted, so the policy mistake was more likely overexpansion of the money supply. I'll accept that inflationary policy might sometimes be appropriate, the idea that deflation = great depression is unsupported. If deflation causes the economy to collapse, that means the pre-deflationary policy was building an economy that was prone to collapse. Which is stupid policy and also what the Fed spends most of its day setting up.
> So you agree that we've been long overdue for higher interest rates?
Yeah. I'm arguing that the central bank inflation policy is bad. Since their policy is implemented using interest rates, it seems reasonable to say that I always think they are setting interest rates too low. Indeed, the idea that a committee 'sets' interest rates is a major bone of contention. Setting a price by committee action is a bad idea in every other other market and there isn't evidence it works well in this one either. Extraordinary claims need extraordinary evidence.
And in principle, even quasi-elected and/or quasi-appointed governors of a quasi-public entity are subject to dramatically more scrutiny by full metal jacket elected officials than leaders in the private sector. The kind of tinker-toy reductio absurdum is a pure gold standard with a de Beers-style mineral cartel governance, for which there is ample precedent. In that event, do you want the CEOs of metal mining companies to determine the interest rates or ostensible public servants?
The debt-originated, pure fiat, fractional reserve banking system is the highest performing one we know about under uncorrupted and competent leadership. It's got the highest peak output (existential proofs via natural experiment are abundant). But it is more easily corrupted and captured than other systems, which is a kind of hyper-fragility in the current broad-spectrum climate.
I don't care if you call it a conspiracy or an emergent phenomenon or an unstable Nash equilibria symmetry group with spontaneous symmetry breaking state space regions: the outcomes at the moment are consistent with our society collectively deciding that its singular goal is to maximize the Gini Coefficient at any cost up to and including arbitrary human life and arbitrary damage to the planet.
It tends to polarize people less and bring out less low-signal, one-bit tribalism if we collectivize the agency across everyone as a notational convenience as opposed to addressing the underlying class dynamics, so let's go with that: one way or another all of society is united in the pursuit of maximum wealth inequality, the fungibility of wealth into political capital, that power's use for the inducement of market failures that super-linearly increase this capture in a tight loop.
Under that system it doesn't matter if Jerome Powell or Sam Blankman Fried are in charge of the availability of credit: they're going to turn the knobs the same way.
The real shame of all this is that it's basically one person's fault and was avoidable. Karl Marx was a deeply insightful scholar in flashes of intuition, but not a rigorously analytical thinker, and he bundled a blindingly accurate forecast of the problems with a disastrously bad set of policy prescriptions, thereby tarnishing the good name of far better analysts who almost always get it right (Graeber comes to mind may he rest).
It is in fact that case that in the presence of rapid compound GDP growth and loosely but consistently correlated technological advance that class dynamics become the whole show, but the totally collectivized command economy was never going to work.
https://www.federalreserve.gov/mediacenter/files/FOMCprescon...
The actual quote is "...I think put supply and demand at least closer together than they are, and that that would give us a chance to have lower—to get inflation—to get wages down and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially."
So the goal is to stop wages from rising so fast (not to lower current wages) in order to stop the inflationary spiral that hurts workers in the end.
Amazing how it gets spun as "US Federal Reserve wants to hurt workers", when it's really "US Federal Reserve is try to get inflation under control without hurting workers".
Also, from the linked article:
"The website for the Board of Governors of the Federal Reserve System reports that the Fed Chair's salary in 2019 was set at $203,500. It also says that the annual pay for other Board members that year was $183,100.
Meanwhile, according to Equilar data cited by Fortune, the median pay among CEOs of the top 100 US companies clocks in at about $20 million."
[1] (https://finance.yahoo.com/news/fed-chief-jerome-powell-says-...)
[2] https://www.the-independent.com/news/world/americas/us-polit...
Trickle down compensation, already.
"...because vacancies are at such an extraordinarily high level. There’re 1.9 vacancies for every unemployed person, 11.5 million vacancies, 6 million unemployed people"