4 ms·

> As wages rise the labor force participation rate also goes up. Wouldn't any such effect be temporary though? As wages rise, doesn't inflation rise as well, n

> As wages rise the labor force participation rate also goes up. Wouldn't any such effect be temporary though? As wages rise, doesn't inflation rise as well, negating the benefit of a rising wage. Wouldn't it also be true that as certain goods deflate in price, labor force participation should go up as well since the same wage allows you to buy more stuff? This goes back to wealth isn't the money you have, it's what you can buy. Today most people, even those at the bottom, have access to many things today than even John D. Rockefeller didn't have access to when he was alive. Anyways, not asserting anything in particular here, but just raising that it seems far more complicated than just wages rising lead to greater labor force participating.

pdonis 6y ago
> As wages rise, doesn't inflation rise as well No. Inflation is primarily caused by the government printing money, not by rising wages. If wages rise but productivity does not increase, yes, that will cause inflation, but if productivity is not increasing wages cannot rise because there is nowhere for the increased wages to come from. If wages rise because productivity is increasing, there are more goods and services available, so supply keeps up with demand and prices don't rise. (In fact they will generally fall in the areas where productivity is increasing, if the money supply is not being messed with.) > Wouldn't it also be true that as certain goods deflate in price, labor force participation should go up as well since the same wage allows you to buy more stuff? There will probably be more people willing to work, yes. Whether that translates into more actual jobs will depend a lot on how easy it is to start new businesses, since that's where the new jobs will have to come from. Our current regulatory regime makes it much more difficult than it should be to start new businesses. > wealth isn't the money you have, it's what you can buy. Today most people, even those at the bottom, have access to many things today than even John D. Rockefeller didn't have access to when he was alive. This is a very good point, which I wish more people would recognize.
- malandrew 6y ago
  Intuitively, printing money can't be the only cause at least at a non-macro level. If all the wealth currently currently squirreled away in places that banks can't trivially lend out (art, real estate, etc.) were instead cash in the hands of the lower and middle classes, I would expect a lot more money to be chasing those goods and services against which we measure inflation. This demand-pull inflation against the goods and services we use to measure inflation would cause the measure of inflation to rise and everything that indexes against this measure would adjust. A change in the savings ratio could also cause demand-pull inflation without an increase in printing money. As could a change in reserve requirements. There are also cost-push inflation from things like oil supply shocks, poor farm yields or changes in exchange rates. I would also expect changes in the aggregate balance of payments between a country and all its trading partners to impact inflation experienced by people in that country.
  - pdonis 6y ago
    > Intuitively, printing money can't be the only cause Theoretically it certainly can be. To take the simplest idealized example, if the production of goods and services is unchanging, and people's needs are unchanging, the only possible source of price changes is a change in the money supply. In the real world, of course, the quantity of goods and services does change and so do people's needs. But that just means the price system now has a genuine function: to inform people about the changes in supply and demand through changes in prices. Messing with the money supply just obfuscates those price signals with an arbitrary quantity of noise. So while it's true that messing with the money supply isn't the only cause of price changes in a real economy, that's certainly not an argument that printing money is okay. > If all the wealth currently currently squirreled away in places that banks can't trivially lend out (art, real estate, etc.) were instead cash in the hands of the lower and middle classes, I would expect a lot more money to be chasing those goods and services against which we measure inflation. That would depend on where the cash came from. In the case of real estate, for example, if you want a mortgage, the government will print most of the money (all but the three percent or so that banks in the upper reserve tranche have to put up--but IIRC even that minimal requirement was waived by the Fed fairly recently). So turning real estate into cash (by, say, taking out mortgages to buy homes from lower and middle income people who have more house than they want or who would rather rent instead) just means the government prints more money. Which will indeed increase average prices, but that's just an example of what I was talking about. If, OTOH, you're talking about something like auctioning off expensive art works and using the money to start a business that employs people, so those people now have more cash to spend, that just means a transfer of cash from whoever buys the art works. That won't affect average prices at all; it will, however, increase the price of art works (assuming that the supply of those is basically static) and decrease the price of whatever things the people who bought the art works would have bought instead. Those two changes will cancel out on average.
    - dragonwriter 6y ago
      > if the production of goods and services is unchanging, and people's needs are unchanging, the only possible source of price changes ...is changes in expectations about future needs or productivity. Or are we pretending that the omniscient, time-unbound actors of rational choice theory are a real thing?
deleted 6y ago
[deleted]

pdonis 6y ago

> As wages rise, doesn't inflation rise as well No. Inflation is primarily caused by the government printing money, not by rising wages. If wages rise but productivity does not increase, yes, that will cause inflation, but if productivity is not increasing wages cannot rise because there is nowhere for the increased wages to come from. If wages rise because productivity is increasing, there are more goods and services available, so supply keeps up with demand and prices don't rise. (In fact they will generally fall in the areas where productivity is increasing, if the money supply is not being messed with.) > Wouldn't it also be true that as certain goods deflate in price, labor force participation should go up as well since the same wage allows you to buy more stuff? There will probably be more people willing to work, yes. Whether that translates into more actual jobs will depend a lot on how easy it is to start new businesses, since that's where the new jobs will have to come from. Our current regulatory regime makes it much more difficult than it should be to start new businesses. > wealth isn't the money you have, it's what you can buy. Today most people, even those at the bottom, have access to many things today than even John D. Rockefeller didn't have access to when he was alive. This is a very good point, which I wish more people would recognize.

malandrew 6y ago
Intuitively, printing money can't be the only cause at least at a non-macro level. If all the wealth currently currently squirreled away in places that banks can't trivially lend out (art, real estate, etc.) were instead cash in the hands of the lower and middle classes, I would expect a lot more money to be chasing those goods and services against which we measure inflation. This demand-pull inflation against the goods and services we use to measure inflation would cause the measure of inflation to rise and everything that indexes against this measure would adjust. A change in the savings ratio could also cause demand-pull inflation without an increase in printing money. As could a change in reserve requirements. There are also cost-push inflation from things like oil supply shocks, poor farm yields or changes in exchange rates. I would also expect changes in the aggregate balance of payments between a country and all its trading partners to impact inflation experienced by people in that country.
- pdonis 6y ago
  > Intuitively, printing money can't be the only cause Theoretically it certainly can be. To take the simplest idealized example, if the production of goods and services is unchanging, and people's needs are unchanging, the only possible source of price changes is a change in the money supply. In the real world, of course, the quantity of goods and services does change and so do people's needs. But that just means the price system now has a genuine function: to inform people about the changes in supply and demand through changes in prices. Messing with the money supply just obfuscates those price signals with an arbitrary quantity of noise. So while it's true that messing with the money supply isn't the only cause of price changes in a real economy, that's certainly not an argument that printing money is okay. > If all the wealth currently currently squirreled away in places that banks can't trivially lend out (art, real estate, etc.) were instead cash in the hands of the lower and middle classes, I would expect a lot more money to be chasing those goods and services against which we measure inflation. That would depend on where the cash came from. In the case of real estate, for example, if you want a mortgage, the government will print most of the money (all but the three percent or so that banks in the upper reserve tranche have to put up--but IIRC even that minimal requirement was waived by the Fed fairly recently). So turning real estate into cash (by, say, taking out mortgages to buy homes from lower and middle income people who have more house than they want or who would rather rent instead) just means the government prints more money. Which will indeed increase average prices, but that's just an example of what I was talking about. If, OTOH, you're talking about something like auctioning off expensive art works and using the money to start a business that employs people, so those people now have more cash to spend, that just means a transfer of cash from whoever buys the art works. That won't affect average prices at all; it will, however, increase the price of art works (assuming that the supply of those is basically static) and decrease the price of whatever things the people who bought the art works would have bought instead. Those two changes will cancel out on average.
  - dragonwriter 6y ago
    > if the production of goods and services is unchanging, and people's needs are unchanging, the only possible source of price changes ...is changes in expectations about future needs or productivity. Or are we pretending that the omniscient, time-unbound actors of rational choice theory are a real thing?

deleted 6y ago

[deleted]