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Are you aware that the Federal Reserve intentionally sets rates as a function of US economic policy to have a slight scarcity of employment? This is not a consp

Are you aware that the Federal Reserve intentionally sets rates as a function of US economic policy to have a slight scarcity of employment? This is not a conspiracy theory. It is part of the defined terms of the Fed. With this is mind, workers at the low end of the pay scale will, by result of US policy, never have significant negotiating power. To me at least, its feels reasonable that if the government is intentionally preventing low wage workers from having a reasonable ability to negotiate, then the government should also provide minimal protections for those workers. Would you instead prefer that the Federal Reserve be instructed to allow for a scacity of workers, causing significant inflation, in order to give all workers at all levels significant negotiating power? The situation is intentional. It is either A or B. Either you have workers at the low end with little negotiating power, or you have high inflation.

azernik 7y ago
WRT your first graph: the mandate of the fed is to "maximize employment". So no. There are lots of reasons low-wage workers are at a disadvantage in our political and economic system, but central banks are not one of them.
- toomuchtodo 7y ago
  The Federal Reserve manages inflation through credit. Inflation is used to reduce the value of fiat. Reducing the value of fiat requires you be able to invest to overcome inflation, or work more to recoup what's been artificially devalued. Ergo, the Federal Reserve is economically coercing people to work who might otherwise not need to, or who might prefer to work less. "Maximizing employment". This would be fine with sane labor protections (a reasonable living minimum wage, minimum PTO/vacation/sick days, maternity/paternity leave, etc), but is disastrous without them. This is what happens when you maximize for employment and GDP versus quality of life.
- areyouseriousxx 7y ago
  > In setting monetary policy, the Committee seeks to mitigate deviations of inflation from its longer-run goal and deviations of employment from the Committee's assessments of its maximum level. These objectives are generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the magnitude of the deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate. [1] Employment is maximized within the limitations of excessive inflation and vice versa. It is well established that a scarcity of workers has a direct, measurable effect on inflation. Therefore, one could conclude that it would be impossible for the Fedral Reserve to allow for a significant scarcity of workers, which is required for low wage workers to have meaningful leverage in negotiations, as it would voilate the mandate to maintain stable prices(inflation) as set forth in the Federal Reserve Act of 1913 [2] To elaborate on this a bit. This it not so much a direct action of the Federal Reserve to create a scarcity of workers, as much as it is a result of a scarcity of workers causing inflation. That inflation would force the Fed to raise interest rates. Those rate hikes would slow the economy and would result in there no longer being a scarcity of workers. The balance of the Federal Reserves two manadates, maximum employment and stable prices, results in about 4.25% unemployment(a slight scarcity) and 2% inflation(stable enough prices).[3] That is our current comporomise between stable prices and maximum employment. [1] https://www.federalreserve.gov/faqs/money_12848.htm https://www.federalreserve.gov/faqs/money_12848.htm [2] https://en.wikipedia.org/wiki/Federal_Reserve_Act https://en.wikipedia.org/wiki/Federal_Reserve_Act [3] https://www.chicagofed.org/research/dual-mandate/dual-mandate https://www.chicagofed.org/research/dual-mandate/dual-mandat...
  - jdietrich 7y ago
    See also: https://en.wikipedia.org/wiki/NAIRU https://en.wikipedia.org/wiki/NAIRU
drewmate 7y ago
This is an interesting perspective I had never considered. Are there similar implications for other levers of adjusting low-wage bargaining power like when a neighboring city raises its minimum wage?
skookumchuck 7y ago
Inflation happens when the money supply increase faster than the wealth in the economy. In the century before the Fed controlled the money supply, there was zero net inflation. There was no US government economic policy, either.
- anticensor 7y ago
  There was a different kind of inflation, which is also real, before central banks, so no.
  - skookumchuck 7y ago
    Explain, please. Net inflation 1800-1914 was zero. (The gold rushes produced inflation, for the same reason that the Fed printing money does.)

azernik 7y ago

WRT your first graph: the mandate of the fed is to "maximize employment". So no. There are lots of reasons low-wage workers are at a disadvantage in our political and economic system, but central banks are not one of them.

toomuchtodo 7y ago
The Federal Reserve manages inflation through credit. Inflation is used to reduce the value of fiat. Reducing the value of fiat requires you be able to invest to overcome inflation, or work more to recoup what's been artificially devalued. Ergo, the Federal Reserve is economically coercing people to work who might otherwise not need to, or who might prefer to work less. "Maximizing employment". This would be fine with sane labor protections (a reasonable living minimum wage, minimum PTO/vacation/sick days, maternity/paternity leave, etc), but is disastrous without them. This is what happens when you maximize for employment and GDP versus quality of life.
areyouseriousxx 7y ago
> In setting monetary policy, the Committee seeks to mitigate deviations of inflation from its longer-run goal and deviations of employment from the Committee's assessments of its maximum level. These objectives are generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the magnitude of the deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate. [1] Employment is maximized within the limitations of excessive inflation and vice versa. It is well established that a scarcity of workers has a direct, measurable effect on inflation. Therefore, one could conclude that it would be impossible for the Fedral Reserve to allow for a significant scarcity of workers, which is required for low wage workers to have meaningful leverage in negotiations, as it would voilate the mandate to maintain stable prices(inflation) as set forth in the Federal Reserve Act of 1913 [2] To elaborate on this a bit. This it not so much a direct action of the Federal Reserve to create a scarcity of workers, as much as it is a result of a scarcity of workers causing inflation. That inflation would force the Fed to raise interest rates. Those rate hikes would slow the economy and would result in there no longer being a scarcity of workers. The balance of the Federal Reserves two manadates, maximum employment and stable prices, results in about 4.25% unemployment(a slight scarcity) and 2% inflation(stable enough prices).[3] That is our current comporomise between stable prices and maximum employment. [1] https://www.federalreserve.gov/faqs/money_12848.htm https://www.federalreserve.gov/faqs/money_12848.htm [2] https://en.wikipedia.org/wiki/Federal_Reserve_Act https://en.wikipedia.org/wiki/Federal_Reserve_Act [3] https://www.chicagofed.org/research/dual-mandate/dual-mandate https://www.chicagofed.org/research/dual-mandate/dual-mandat...
- jdietrich 7y ago
  See also: https://en.wikipedia.org/wiki/NAIRU https://en.wikipedia.org/wiki/NAIRU

drewmate 7y ago

This is an interesting perspective I had never considered. Are there similar implications for other levers of adjusting low-wage bargaining power like when a neighboring city raises its minimum wage?

skookumchuck 7y ago

Inflation happens when the money supply increase faster than the wealth in the economy. In the century before the Fed controlled the money supply, there was zero net inflation. There was no US government economic policy, either.

anticensor 7y ago
There was a different kind of inflation, which is also real, before central banks, so no.
- skookumchuck 7y ago
  Explain, please. Net inflation 1800-1914 was zero. (The gold rushes produced inflation, for the same reason that the Fed printing money does.)