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"the fed is already considering rate cuts even though we're in the biggest bull market" Inflation is extremely low, so the Fed should consider cutting rates. L

"the fed is already considering rate cuts even though we're in the biggest bull market" Inflation is extremely low, so the Fed should consider cutting rates. Lower rates means lower unemployment, which should eventually lead to higher wages. As a model for what the Fed rate should be, assume that it should always be 0% plus whatever amount is needed to limit inflation. Since inflation has been low and stable, the rate should remain close to 0%. After all, we should want a world where unemployment goes low enough that wages eventually go up. And, it is important to notice, in today's world, even an unemployment rate of 3.6% has not been low enough to cause the kinds of wage gains that were normal for most of the 20th Century. If wages aren't rising and if inflation is low, then the Fed should be pushing the rate back toward 0%. The lower the rate, the easier it is for entrepreneurs to get money, to build a business, and thus to stimulate economic activity, and if enough entrepreneurs do so, then presumably unemployment will eventually go down to whatever level is needed to raise wages.

UncleOxidant 7y ago
Isn't an unemployment rate of 3.6% effectively full employment? It seems I can recall in the past that 5% unemployment was considered effectively full employment. The core rate of inflation may be low by the government's accounting, but there are problems with the way we calculate inflation, it seems, given how much rents and medical expenses have risen even during what was considered slow economic growth.
- cardiffspaceman 7y ago
  Last time this concept was popular I read the Wikipedia article on "Non-Accelerating Rate of Unemployment" NARU. This is the (lowish) level of unemployment that doesn't cause huge wage inflation. Folks were worried where that level was in the 90's.
- mandelbrotwurst 7y ago
  Full employment is "the condition in which virtually all who are able and willing to work are employed." Arguably, because the commonly cited U3 unemployment rate is the percentage of people who are able to and actively looking for work and unable to find it, any unemployment rate above zero means that you're not at full employment. That said, because even in the "best" economies that we've ever actually experienced there is always at least some level of job loss and it's always going to take at least some amount of time to find a new job, many people / economists tend to view full employment as something more like "the lowest level that we can realistically expect unemployment to reach given some unavoidable level of job churn". This is why you see statements like "4% unemployment is full employment". Personally, I don't agree with this redefinition because I think it is at least _theoretically_ possible to get to a state where those who lose their jobs due to layoffs etc. are employed again extremely rapidly and the rate ends up being much closer to zero.
  - mywittyname 7y ago
    > Personally, I don't agree with this redefinition because I think it is at least _theoretically_ possible to get to a state where those who lose their jobs due to layoffs etc. are employed again extremely rapidly and the rate ends up being much closer to zero. This has never happened though. U3 being the Official Rate appears to because it's the metric comprised of orthogonal data points. The U4-6 rates are linearly related to the U3 rate; when the U3 doubles, so does the U5 and U6, likewise when the U3 halves. Which makes reporting the U4+ pointless for trending, it doesn't matter if you pick the rate that goes from 4% to 8% or the one from 7% to 14%. The U1 & 2 rates do not demonstrate this correlation. The U1 can remain flat while the U2 spikes because they represent different pools of people. So while we intuitively think that including discouraged workers make since, from an analytical perspective, including them doesn't give us any more predictive power than we had before. Calling sub-5% U3 unemployment "full employment" is more of an empirical definition than a logical one; it just happens to be the lowest point we've ever measured.
- entangledqubit 7y ago
  You're not remembering incorrectly. If you compare old job reports to more recent ones, they now talk a lot more about the "labor force participation rate". Basically, the unemployment rate is distorted by the character of the job loss in the Great Recession so you can't really decide on a full recovery from looking at that one number.
- mandevil 7y ago
  Well, by the standard that economists used to use, yes, U3 being 3.6% should be associated with high inflation because it should be much better than full employment. Congresswoman Ocasio-Cortez asked Fed Chair Powell about this at a recent hearing, and Powell said that it meant that the economists (including him) were wrong about the relationship between unemployment and inflation. That has led many to wonder if "full employment" (something economists technically call NAIRU- non-accelerating inflation rate of unemployment, meaning that full employment was the lowest unemployment consistent with stable prices) is a real thing or not, if that was another thing that is no longer operative in our current economy.
wavepruner 7y ago
Housing prices have doubled in the past decade. Home ownership has declined in the past decade. Seems like inflation to me.
- UncleOxidant 7y ago
  Housing and health insurance are the largest portion of many family budgets but for some reason don't seem to significantly enter into the inflation calculations.
  - munificent 7y ago
    Cynical take: Because the people in power defining the inflation calculations don't want people to realize they're being fleeced.
  - esoterica 7y ago
    Rent and health insurance are included in CPI.
    - UncleOxidant 7y ago
      But how much weight are they given?
      - tathougies 7y ago
        I will forever fail to understand why commenters on hacker news ask questions for which the answer is public and readily available. I think it's because they think that the answer to the question will favor them and the idea is that astute readers will do research and thus be convinced of the commenter's point. Unfortunately, in this case, an astute reader would do research and conclude that the point you are trying to make is completely mythical. Housing (total, rent + everything else) accounts for 42% of the CPI calculation, and the 'owners equivalent of rent' (i.e. how much you would have to pay to rent your home) makes up ~24%: https://www.bls.gov/cpi/tables/relative-importance/2016.pdf https://www.bls.gov/cpi/tables/relative-importance/2016.pdf That captures rent renters pay as well, since for apartment buildings, the owner's equivalent rent is the rent being paid.
roenxi 7y ago
> Inflation is extremely low Consumer price inflation is low. Given the scale of money creation, it is likely that 'real' non-consumer prices are not completely real and are actually experiencing inflation, but for some reason the people claiming the money are competing for financial assets rather than consumer resources.
- bobthepanda 7y ago
  > people claiming the money are competing for financial assets rather than consumer resources. Well, we are an increasingly unequal society, and rich people don't need to spend as much as a share of income on consumer goods.
- Symmetry 7y ago
  In addition to the consumer price index being on target, the producer price index is also at 2%[1]. In general low interest rates do mean higher prices for investments but when Amazon's market cap goes from a hundred billion to two hundred billion that doesn't mean that it has absorbed a hundred billion dollars from the economy. The buyers of the stock lose money but the sellers of the stock gain money and it isn't removed from the larger economy. [1]https://www.marketwatch.com/story/wholesale-prices-barely-rise-in-may-ppi-shows-and-inflationary-pressures-muted-2019-06-11 https://www.marketwatch.com/story/wholesale-prices-barely-ri...
  - roenxi 7y ago
    The producer price index should be roughly capped by consumer prices, if it were rising faster than CPI mid-long term then all the businesses would obviously go bust. The money is going into financial assets. > when Amazon's market cap goes from a hundred billion to two hundred billion that doesn't mean that it has absorbed a hundred billion dollars from the economy Totally on board with that, but it does mean ~100 billion dollars of control have been transferred from persons unknown to someone who knows how to borrow money; because lending is the mechanism for creating new money. I consider myself an asset owner. This is all great for me short term, I'm getting wealthier relative to many of my peers because I own assets and they do not. I'm just completely mystified why anyone thinks this is a good outcome, because obviously in the long term economic control is going to transfer from capitalists who know how to make things work to financiers who found their way in front of the money hose. I don't want the reward structure to favour giving control to entities who borrow vast sums of money, I want the reward structure to favour people who manage capital responsibly. The current reward structure is obviously going to cause crises and crashes. And I don't see it as responsible for creating real wealth, so I don't think it is a good system. I mean, I understand why we do it. But that understanding hinges on the assumption that people don't trust the ability of numbers and incentives to predict the future.
blevin 7y ago
A price inflation measure like CPI is a summary statistic, so it does not capture the underlying dispersion of costs as various people experience them. It is true that imported, mass-manufactured goods remain cheap, such as TV’s. At the same time, domestic resources like housing, health care, and education are difficult for many to afford. It turns out those things are vital to a good life, more so than TV’s. A monetary supply inflation measure like M1 shows a remarkable rise since 2008. The central bank added lots of money by financing the US government debt, and that has indirectly bid up financial assets, VC, etc. If you owned US financial assets over the last decade you are flush; if you didn’t you are wondering why important things in life are so expensive.
- hkmurakami 7y ago
  Those domestic goods are kept scarce either through regulation or difficult to build attributes such as brand power of schools.
- aeternus 7y ago
  Education is more accessible now than ever. It's amazing that anyone anywhere in the world can watch Feynmann and Leonard Susskind's lectures on General Relativity without giving a penny to CalTech/Stanford. There is also plenty of cheap housing in the US, just not in large cities and highly desirable areas. If you do decide to live in a low-cost area, there are more options for remote work than ever before. Over the last 20 years, humans have really mastered cooperation on a global rather than a national scale. IMO, the economy as a whole has expanded as a result.
  - shkkmo 7y ago
    > Over the last 20 years, humans have really mastered cooperation on a global rather than a national scale. There may have been improvements, but mastered? I guess a lack of global scale cooperation has nothing to do with our failure to address global warming....
    - aeternus 7y ago
thorwasdfasdf 7y ago
Inflation isn't extremely low. The last 2 years was 2.4% and 2.1% (https://www.usinflationcalculator.com/inflation/historical-inflation-rates/ https://www.usinflationcalculator.com/inflation/historical-i...). Also, I question the 2% target the Fed is supposedly using. with so much money in equities and real estate, there is a huge inflation risk ahead of us. Just think what would happen if people actually started to sell off that equity and start spending it (such as those retiring baby boomers). Furthermore, the fed is supposed to be smoothing out the economic cycles. If it keeps feeding the bull market with lower interest rates, it won't be able to do anything once we hit a recession. The result is much larger booms and much larger recessions: the exact opposite of what the fed is supposed to do.
- UncleOxidant 7y ago
  Mostly agree with your thesis that inflation isn't extremely low, but wouldn't boomers selling off assets (housing, stocks) actually be deflationary not inflationary? They'd be selling the house to pay for longterm care which means they're going into cash.
  - thorwasdfasdf 7y ago
    Asset prices of equities aren't figured into the inflation calculations. So, when equities get sold off, all that money comes flooding into the money supply.
- ianai 7y ago
  Yep, the fed should be removing the punch bowl before the peak of the party. Start a decline in a slow manner as opposed to an eventual panic and crash. Also gives the fed something to do in the future.
r00fus 7y ago
I keep hearing how "inflation is low" - well the CPI is gamed, is what. It doesn't use energy, healthcare, housing or any of the other many required things we pay for as a basis for its measure. It is essentially disconnected from the daily costs we bear and has been for a long time.
- deleted 7y ago
  [deleted]
- eclipxe 7y ago
  CPI includes rents.
  - runT1ME 7y ago
    Of current renters, which often trails “market rate”.
- hiram112 7y ago
  Yep I've been stuck on less than inflation level raises at my job for the last 5 years, partially because I started at a really high salary and partially because I'm a wimp* when it comes to pushing for raises; I do like my job and company though. Regardless, I keep stats, and I'm doing worse than I was 5 years ago. My rent has gone up about $300 a month (16%), health insurance about 30%, my daily coffee at Starbucks 18%, the toll road costs 33%, and various services like Netflix, cable, phone, etc. are up about 12%-15%. I just priced what it will cost to replace my car with the equivalent I bought in 2013, and it, too, looks like both the car and insurance will end up being about 15% higher. I'm a single guy who makes good money and has few expenses, plus half my earnings end up in the stock market which has done well, so I can't complain. But I still don't understand how my coworkers - the guys with 2 kids, a wife who works part-time, and an average priced $600K house - do it year after year, especially when the biggest increase in prices seem to be things they spend far more on (health insurance, daycare, housing, education, etc). * After five years of no raises, I just took matters into my own hands by moving, without asking, to a much more inexpensive city 120 miles away where housing is 1/2 the cost. I worked remote mostly anyway, and now only come back for important meetings about 1-2x a month. If they need me, I'm always on Slack or teleconference on Skype. My employer hasn't said a word, either. Guess we're both bad with confrontation. ;)
cbanek 7y ago
> Lower rates means lower unemployment, which should eventually lead to higher wages > And, it is important to notice, in today's world, even an unemployment rate of 3.6% has not been low enough to cause the kinds of wage gains that were normal for most of the 20th Century. You're talking about the Phillips curve (https://en.wikipedia.org/wiki/Phillips_curve https://en.wikipedia.org/wiki/Phillips_curve). I wonder if it's not dead. We've got the lowest unemployment rate in decades but no very little increase in AHE (average hourly earnings). It seems like while a lot of people are competing for jobs, companies still aren't willing to pay more. It's really flummoxed some economists, for example https://www.npr.org/2018/10/29/661879814/is-it-time-for-the-fed-to-say-goodbye-to-the-phillips-curve-theory https://www.npr.org/2018/10/29/661879814/is-it-time-for-the-... Just search for "is the Phillips curve dead" just to find bunch of them. It is a head scratcher for me, but of course, I'm not sure who's right (and I don't think anyone does) I think part of it is that there are large swaths of the labor force that are basically replaceable (retail, food service are examples), so there's no real need to pay someone more. Just get someone new.
- ethbro 7y ago
  My ignorant gut would be that greater portions of the workforce are replaceable with capital nowadays than in previous times. You want to hand manufacture more widgets, you need to hire more people. I'd be curious if there's also a de facto inflection point, whereby decreasing requirements for broadly available labor limit wage gains, which stunts demand, which stunts additional labor and hiring. Essentially: in a bifurcated economy demand and unemployment become less tightly coupled.
  - cbanek 7y ago
    > greater portions of the workforce are replaceable with capital nowadays I totally agree. I think this is even something they intended. And the workforce parts that aren't capital are more serving the capital (running expensive machines) rather than the machines helping workers be more productive. People's jobs have been tailored around becoming replaceable widgets, where you want to be able to replace someone as fast as possible (with minimal training). But all this is basically saying the Phillips curve is dead. In that, lower unemployment doesn't lead to higher wages.

UncleOxidant 7y ago

Isn't an unemployment rate of 3.6% effectively full employment? It seems I can recall in the past that 5% unemployment was considered effectively full employment. The core rate of inflation may be low by the government's accounting, but there are problems with the way we calculate inflation, it seems, given how much rents and medical expenses have risen even during what was considered slow economic growth.

cardiffspaceman 7y ago
Last time this concept was popular I read the Wikipedia article on "Non-Accelerating Rate of Unemployment" NARU. This is the (lowish) level of unemployment that doesn't cause huge wage inflation. Folks were worried where that level was in the 90's.
mandelbrotwurst 7y ago
Full employment is "the condition in which virtually all who are able and willing to work are employed." Arguably, because the commonly cited U3 unemployment rate is the percentage of people who are able to and actively looking for work and unable to find it, any unemployment rate above zero means that you're not at full employment. That said, because even in the "best" economies that we've ever actually experienced there is always at least some level of job loss and it's always going to take at least some amount of time to find a new job, many people / economists tend to view full employment as something more like "the lowest level that we can realistically expect unemployment to reach given some unavoidable level of job churn". This is why you see statements like "4% unemployment is full employment". Personally, I don't agree with this redefinition because I think it is at least _theoretically_ possible to get to a state where those who lose their jobs due to layoffs etc. are employed again extremely rapidly and the rate ends up being much closer to zero.
- mywittyname 7y ago
  > Personally, I don't agree with this redefinition because I think it is at least _theoretically_ possible to get to a state where those who lose their jobs due to layoffs etc. are employed again extremely rapidly and the rate ends up being much closer to zero. This has never happened though. U3 being the Official Rate appears to because it's the metric comprised of orthogonal data points. The U4-6 rates are linearly related to the U3 rate; when the U3 doubles, so does the U5 and U6, likewise when the U3 halves. Which makes reporting the U4+ pointless for trending, it doesn't matter if you pick the rate that goes from 4% to 8% or the one from 7% to 14%. The U1 & 2 rates do not demonstrate this correlation. The U1 can remain flat while the U2 spikes because they represent different pools of people. So while we intuitively think that including discouraged workers make since, from an analytical perspective, including them doesn't give us any more predictive power than we had before. Calling sub-5% U3 unemployment "full employment" is more of an empirical definition than a logical one; it just happens to be the lowest point we've ever measured.
entangledqubit 7y ago
You're not remembering incorrectly. If you compare old job reports to more recent ones, they now talk a lot more about the "labor force participation rate". Basically, the unemployment rate is distorted by the character of the job loss in the Great Recession so you can't really decide on a full recovery from looking at that one number.
mandevil 7y ago
Well, by the standard that economists used to use, yes, U3 being 3.6% should be associated with high inflation because it should be much better than full employment. Congresswoman Ocasio-Cortez asked Fed Chair Powell about this at a recent hearing, and Powell said that it meant that the economists (including him) were wrong about the relationship between unemployment and inflation. That has led many to wonder if "full employment" (something economists technically call NAIRU- non-accelerating inflation rate of unemployment, meaning that full employment was the lowest unemployment consistent with stable prices) is a real thing or not, if that was another thing that is no longer operative in our current economy.

wavepruner 7y ago

Housing prices have doubled in the past decade. Home ownership has declined in the past decade. Seems like inflation to me.

UncleOxidant 7y ago
Housing and health insurance are the largest portion of many family budgets but for some reason don't seem to significantly enter into the inflation calculations.
- munificent 7y ago
  Cynical take: Because the people in power defining the inflation calculations don't want people to realize they're being fleeced.
- esoterica 7y ago
  Rent and health insurance are included in CPI.
  - UncleOxidant 7y ago
    But how much weight are they given?
    - tathougies 7y ago
      I will forever fail to understand why commenters on hacker news ask questions for which the answer is public and readily available. I think it's because they think that the answer to the question will favor them and the idea is that astute readers will do research and thus be convinced of the commenter's point. Unfortunately, in this case, an astute reader would do research and conclude that the point you are trying to make is completely mythical. Housing (total, rent + everything else) accounts for 42% of the CPI calculation, and the 'owners equivalent of rent' (i.e. how much you would have to pay to rent your home) makes up ~24%: https://www.bls.gov/cpi/tables/relative-importance/2016.pdf https://www.bls.gov/cpi/tables/relative-importance/2016.pdf That captures rent renters pay as well, since for apartment buildings, the owner's equivalent rent is the rent being paid.

roenxi 7y ago

> Inflation is extremely low Consumer price inflation is low. Given the scale of money creation, it is likely that 'real' non-consumer prices are not completely real and are actually experiencing inflation, but for some reason the people claiming the money are competing for financial assets rather than consumer resources.

bobthepanda 7y ago
> people claiming the money are competing for financial assets rather than consumer resources. Well, we are an increasingly unequal society, and rich people don't need to spend as much as a share of income on consumer goods.
Symmetry 7y ago
In addition to the consumer price index being on target, the producer price index is also at 2%[1]. In general low interest rates do mean higher prices for investments but when Amazon's market cap goes from a hundred billion to two hundred billion that doesn't mean that it has absorbed a hundred billion dollars from the economy. The buyers of the stock lose money but the sellers of the stock gain money and it isn't removed from the larger economy. [1]https://www.marketwatch.com/story/wholesale-prices-barely-rise-in-may-ppi-shows-and-inflationary-pressures-muted-2019-06-11 https://www.marketwatch.com/story/wholesale-prices-barely-ri...
- roenxi 7y ago
  The producer price index should be roughly capped by consumer prices, if it were rising faster than CPI mid-long term then all the businesses would obviously go bust. The money is going into financial assets. > when Amazon's market cap goes from a hundred billion to two hundred billion that doesn't mean that it has absorbed a hundred billion dollars from the economy Totally on board with that, but it does mean ~100 billion dollars of control have been transferred from persons unknown to someone who knows how to borrow money; because lending is the mechanism for creating new money. I consider myself an asset owner. This is all great for me short term, I'm getting wealthier relative to many of my peers because I own assets and they do not. I'm just completely mystified why anyone thinks this is a good outcome, because obviously in the long term economic control is going to transfer from capitalists who know how to make things work to financiers who found their way in front of the money hose. I don't want the reward structure to favour giving control to entities who borrow vast sums of money, I want the reward structure to favour people who manage capital responsibly. The current reward structure is obviously going to cause crises and crashes. And I don't see it as responsible for creating real wealth, so I don't think it is a good system. I mean, I understand why we do it. But that understanding hinges on the assumption that people don't trust the ability of numbers and incentives to predict the future.

blevin 7y ago

A price inflation measure like CPI is a summary statistic, so it does not capture the underlying dispersion of costs as various people experience them. It is true that imported, mass-manufactured goods remain cheap, such as TV’s. At the same time, domestic resources like housing, health care, and education are difficult for many to afford. It turns out those things are vital to a good life, more so than TV’s. A monetary supply inflation measure like M1 shows a remarkable rise since 2008. The central bank added lots of money by financing the US government debt, and that has indirectly bid up financial assets, VC, etc. If you owned US financial assets over the last decade you are flush; if you didn’t you are wondering why important things in life are so expensive.

hkmurakami 7y ago
Those domestic goods are kept scarce either through regulation or difficult to build attributes such as brand power of schools.
aeternus 7y ago
Education is more accessible now than ever. It's amazing that anyone anywhere in the world can watch Feynmann and Leonard Susskind's lectures on General Relativity without giving a penny to CalTech/Stanford. There is also plenty of cheap housing in the US, just not in large cities and highly desirable areas. If you do decide to live in a low-cost area, there are more options for remote work than ever before. Over the last 20 years, humans have really mastered cooperation on a global rather than a national scale. IMO, the economy as a whole has expanded as a result.
- shkkmo 7y ago
  > Over the last 20 years, humans have really mastered cooperation on a global rather than a national scale. There may have been improvements, but mastered? I guess a lack of global scale cooperation has nothing to do with our failure to address global warming....
  - aeternus 7y ago

thorwasdfasdf 7y ago

Inflation isn't extremely low. The last 2 years was 2.4% and 2.1% (https://www.usinflationcalculator.com/inflation/historical-inflation-rates/ https://www.usinflationcalculator.com/inflation/historical-i...). Also, I question the 2% target the Fed is supposedly using. with so much money in equities and real estate, there is a huge inflation risk ahead of us. Just think what would happen if people actually started to sell off that equity and start spending it (such as those retiring baby boomers). Furthermore, the fed is supposed to be smoothing out the economic cycles. If it keeps feeding the bull market with lower interest rates, it won't be able to do anything once we hit a recession. The result is much larger booms and much larger recessions: the exact opposite of what the fed is supposed to do.

UncleOxidant 7y ago
Mostly agree with your thesis that inflation isn't extremely low, but wouldn't boomers selling off assets (housing, stocks) actually be deflationary not inflationary? They'd be selling the house to pay for longterm care which means they're going into cash.
- thorwasdfasdf 7y ago
  Asset prices of equities aren't figured into the inflation calculations. So, when equities get sold off, all that money comes flooding into the money supply.
ianai 7y ago
Yep, the fed should be removing the punch bowl before the peak of the party. Start a decline in a slow manner as opposed to an eventual panic and crash. Also gives the fed something to do in the future.

r00fus 7y ago

I keep hearing how "inflation is low" - well the CPI is gamed, is what. It doesn't use energy, healthcare, housing or any of the other many required things we pay for as a basis for its measure. It is essentially disconnected from the daily costs we bear and has been for a long time.

deleted 7y ago
[deleted]
eclipxe 7y ago
CPI includes rents.
- runT1ME 7y ago
  Of current renters, which often trails “market rate”.
hiram112 7y ago
Yep I've been stuck on less than inflation level raises at my job for the last 5 years, partially because I started at a really high salary and partially because I'm a wimp* when it comes to pushing for raises; I do like my job and company though. Regardless, I keep stats, and I'm doing worse than I was 5 years ago. My rent has gone up about $300 a month (16%), health insurance about 30%, my daily coffee at Starbucks 18%, the toll road costs 33%, and various services like Netflix, cable, phone, etc. are up about 12%-15%. I just priced what it will cost to replace my car with the equivalent I bought in 2013, and it, too, looks like both the car and insurance will end up being about 15% higher. I'm a single guy who makes good money and has few expenses, plus half my earnings end up in the stock market which has done well, so I can't complain. But I still don't understand how my coworkers - the guys with 2 kids, a wife who works part-time, and an average priced $600K house - do it year after year, especially when the biggest increase in prices seem to be things they spend far more on (health insurance, daycare, housing, education, etc). * After five years of no raises, I just took matters into my own hands by moving, without asking, to a much more inexpensive city 120 miles away where housing is 1/2 the cost. I worked remote mostly anyway, and now only come back for important meetings about 1-2x a month. If they need me, I'm always on Slack or teleconference on Skype. My employer hasn't said a word, either. Guess we're both bad with confrontation. ;)

cbanek 7y ago

> Lower rates means lower unemployment, which should eventually lead to higher wages > And, it is important to notice, in today's world, even an unemployment rate of 3.6% has not been low enough to cause the kinds of wage gains that were normal for most of the 20th Century. You're talking about the Phillips curve (https://en.wikipedia.org/wiki/Phillips_curve https://en.wikipedia.org/wiki/Phillips_curve). I wonder if it's not dead. We've got the lowest unemployment rate in decades but no very little increase in AHE (average hourly earnings). It seems like while a lot of people are competing for jobs, companies still aren't willing to pay more. It's really flummoxed some economists, for example https://www.npr.org/2018/10/29/661879814/is-it-time-for-the-fed-to-say-goodbye-to-the-phillips-curve-theory https://www.npr.org/2018/10/29/661879814/is-it-time-for-the-... Just search for "is the Phillips curve dead" just to find bunch of them. It is a head scratcher for me, but of course, I'm not sure who's right (and I don't think anyone does) I think part of it is that there are large swaths of the labor force that are basically replaceable (retail, food service are examples), so there's no real need to pay someone more. Just get someone new.

ethbro 7y ago
My ignorant gut would be that greater portions of the workforce are replaceable with capital nowadays than in previous times. You want to hand manufacture more widgets, you need to hire more people. I'd be curious if there's also a de facto inflection point, whereby decreasing requirements for broadly available labor limit wage gains, which stunts demand, which stunts additional labor and hiring. Essentially: in a bifurcated economy demand and unemployment become less tightly coupled.
- cbanek 7y ago
  > greater portions of the workforce are replaceable with capital nowadays I totally agree. I think this is even something they intended. And the workforce parts that aren't capital are more serving the capital (running expensive machines) rather than the machines helping workers be more productive. People's jobs have been tailored around becoming replaceable widgets, where you want to be able to replace someone as fast as possible (with minimal training). But all this is basically saying the Phillips curve is dead. In that, lower unemployment doesn't lead to higher wages.