4 ms·

"Inflationary spirals" - as existed in the US in the 1970s, are caused by a wage-price hike cycle. Prices go up, workers demand more money, prices go up more.

"Inflationary spirals" - as existed in the US in the 1970s, are caused by a wage-price hike cycle. Prices go up, workers demand more money, prices go up more. The US "fixed" that problem by squashing the ability of workers to demand more money - starting with Reagan in the 80s and extending all the way 'till now. The problem is that increased prices just meant a lower standard of living and more people more precarious. By the time Covid hit, a large precentage of people were living pay check to paycheck. 28% of renters didn't paid rent in July and 30% won't be able to this month. That printed money has essentially had devastating consequences.

8note 6y ago
Isn't that a consequence of the lowering standard of living, not the printing money?
- joe_the_user 6y ago
  You have a point. The main thing is they all go together. Tracing chains of causation is in economics is the hardest and least useful process of analysis.
refurb 6y ago
"The US "fixed" that problem by squashing the ability of workers to demand more money" That seems like an incredibly simplified and wrong explanation. Monetary policy changed drastically in 1979 in order to get inflation under control.
- bleepblorp 6y ago
  Given that US inflation-corrected wages have stagnated since the early 1970s, this explanation is substantively accurate. Sources: https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us... https://www.epi.org/publication/charting-wage-stagnation/ https://www.epi.org/publication/charting-wage-stagnation/ https://fas.org/sgp/crs/misc/R45090.pdf https://fas.org/sgp/crs/misc/R45090.pdf
  - refurb 6y ago
    Sure, but wages are only component of total compensation. You can't ignore everything else. Total compensation as a percentage of national income has remained pretty steady, which means productivity growth is being passed on to employees.[1] Not necessarily as wages thought. [1]https://www.nber.org/digest/oct08/w13953.html https://www.nber.org/digest/oct08/w13953.html
    - spaetzleesser 6y ago
      "Total compensation as a percentage of national income has remained pretty steady, which means productivity growth is being passed on to employees.[1] Not necessarily as wages thought." Considering that wages is the main income of lower incomes this means that most growth has gone to higher incomes.
    - bleepblorp 6y ago
      I haven't looked very closely at the NBER paper's methodology but the conclusion flies in the face of the raw data on total compensation as a share of GDP/GDI from the BEA[1] and other sources[2]. The NBER paper bases its conclusion on a suggestion that GDP figures are not accurately estimated; this seems like somewhat of a strange position but I am not qualified to evaluate it on merits. The raw data indicate that total compensation as a percentage of GDP/GDI has been falling since at least the early 1970s. These percentages are derived by comparing nominal dollar values within the same year (e.g. 2018 total compensation divided by 2018 GDP, both in 2018 nominal dollars). Unlike estimates of long-term real wages, these percentages are not dependent on inflation assumptions. The long term trend paints a clear picture that people who earn most of their income (including benefits) from wage labor have been losing ground economically for decades. Even without metrics, this conclusion is supported by living memory history. In 1970, a single middle-class full-time income could support a comfortable lifestyle for a family of four. In 2020, a single middle-class full time income can't support housing costs in most (possibly all?) urban centers. We're going backwards. [1] https://fred.stlouisfed.org/series/A4002E1A156NBEA https://fred.stlouisfed.org/series/A4002E1A156NBEA [2] https://fred.stlouisfed.org/series/LABSHPUSA156NRUG https://fred.stlouisfed.org/series/LABSHPUSA156NRUG
- viburnum 6y ago
  Monetary policy to "get inflation under control" is the same thing as "squashing the ability of workers to demand more money." Higher interest rates slow investment, employment drops, workers lose bargaining power. That was the point! https://nplusonemag.com/issue-34/reviews/other-peoples-blood-2/ https://nplusonemag.com/issue-34/reviews/other-peoples-blood...
  - refurb 6y ago
    Yet the economic expansion in the 80’s was some of the highest in the past 50 years.

8note 6y ago

Isn't that a consequence of the lowering standard of living, not the printing money?

joe_the_user 6y ago
You have a point. The main thing is they all go together. Tracing chains of causation is in economics is the hardest and least useful process of analysis.

refurb 6y ago

"The US "fixed" that problem by squashing the ability of workers to demand more money" That seems like an incredibly simplified and wrong explanation. Monetary policy changed drastically in 1979 in order to get inflation under control.

bleepblorp 6y ago
Given that US inflation-corrected wages have stagnated since the early 1970s, this explanation is substantively accurate. Sources: https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us... https://www.epi.org/publication/charting-wage-stagnation/ https://www.epi.org/publication/charting-wage-stagnation/ https://fas.org/sgp/crs/misc/R45090.pdf https://fas.org/sgp/crs/misc/R45090.pdf
- refurb 6y ago
  Sure, but wages are only component of total compensation. You can't ignore everything else. Total compensation as a percentage of national income has remained pretty steady, which means productivity growth is being passed on to employees.[1] Not necessarily as wages thought. [1]https://www.nber.org/digest/oct08/w13953.html https://www.nber.org/digest/oct08/w13953.html
  - spaetzleesser 6y ago
    "Total compensation as a percentage of national income has remained pretty steady, which means productivity growth is being passed on to employees.[1] Not necessarily as wages thought." Considering that wages is the main income of lower incomes this means that most growth has gone to higher incomes.
  - bleepblorp 6y ago
    I haven't looked very closely at the NBER paper's methodology but the conclusion flies in the face of the raw data on total compensation as a share of GDP/GDI from the BEA[1] and other sources[2]. The NBER paper bases its conclusion on a suggestion that GDP figures are not accurately estimated; this seems like somewhat of a strange position but I am not qualified to evaluate it on merits. The raw data indicate that total compensation as a percentage of GDP/GDI has been falling since at least the early 1970s. These percentages are derived by comparing nominal dollar values within the same year (e.g. 2018 total compensation divided by 2018 GDP, both in 2018 nominal dollars). Unlike estimates of long-term real wages, these percentages are not dependent on inflation assumptions. The long term trend paints a clear picture that people who earn most of their income (including benefits) from wage labor have been losing ground economically for decades. Even without metrics, this conclusion is supported by living memory history. In 1970, a single middle-class full-time income could support a comfortable lifestyle for a family of four. In 2020, a single middle-class full time income can't support housing costs in most (possibly all?) urban centers. We're going backwards. [1] https://fred.stlouisfed.org/series/A4002E1A156NBEA https://fred.stlouisfed.org/series/A4002E1A156NBEA [2] https://fred.stlouisfed.org/series/LABSHPUSA156NRUG https://fred.stlouisfed.org/series/LABSHPUSA156NRUG
viburnum 6y ago
Monetary policy to "get inflation under control" is the same thing as "squashing the ability of workers to demand more money." Higher interest rates slow investment, employment drops, workers lose bargaining power. That was the point! https://nplusonemag.com/issue-34/reviews/other-peoples-blood-2/ https://nplusonemag.com/issue-34/reviews/other-peoples-blood...
- refurb 6y ago
  Yet the economic expansion in the 80’s was some of the highest in the past 50 years.