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What's missing from any analysis that only considers CPI is that price inflation doesn't take into account decreasing costs of production. Technological progres

What's missing from any analysis that only considers CPI is that price inflation doesn't take into account decreasing costs of production. Technological progress and innovation should be driving down prices of quality-adjusted products. So the fact that wages adjusted to inflation are staying constant indicates that there is downward pressure on wages of a similar rate to the rate at which general market costs are decreasing. In a world with no inflation, what we would see here is decreasing costs, decreasing wages, and increasing GDP. What's also missing from this analysis is that CPI doesn't adequately incorporate important things like that the quality-adjusted price of housing has massively increased at much faster than the general rate of inflation.

kbenson 5y ago
> So the fact that wages adjusted to inflation are staying constant indicates that there is downward pressure on wages of a similar rate to the rate at which general market costs are decreasing. Isn't that a simplistic point of view that assumed the U.S. is either a closed system or the rest of the world as progressed at the same rate we have? There's more global competition now, both for customers and for jobs. That wages have stayed inline with inflation in spite of the fact that America has shifted quite a bit to a services economy and those services have competition from other countries (the classic example is India), may actually point to the monetary policy preventing what would be a much worse problem, and for nothing to do with inflation. It's easy to pick one metric and paint a picture that supports a story. It's much harder to account for many important factors, which is also why it's not done as frequently. Anyone's theory that one specific thing is the result of many major worldwide changes is going to have an uphill battle with me. The time frame we're talking about includes the popularization of the internet, increased globalization, the recent aftermath of the civil rights movement, an over 100% increase of global population compared to a ~60% increase in United States population, and mode than halving the number of people in the world that live in extreme poverty. Every single one of those would have massive effects on the economy, production and wages of the United States. I'm not sure how anyone could credibly make claims about how monetary policy in the U.S. was the reason for effect over the last 50 years without accounting for these and other things. It's easy to point at two things that seem to correlate over time. It's much harder to prove causation.
- billytetrud 5y ago
  > those services have competition from other countries That absolutely might have an effect on wages in the US. However, its unlikely that real GDP would be unaffected while real wages stagnate in such a case. > I'm not sure how anyone could credibly make claims Lots of things happen in the world all the time in every decade. The internet isn't any more novel than electricity was or the industrial revolution was. Yes there are a lot of confounding variables that make it difficult to make empiracle conclusions. But the largest market manipulators (central banks and governments) do play a substantial role in macroeconomics, and its completely fair IMO to conjecture around the effects of those things using logic and theory.

kbenson 5y ago

> So the fact that wages adjusted to inflation are staying constant indicates that there is downward pressure on wages of a similar rate to the rate at which general market costs are decreasing. Isn't that a simplistic point of view that assumed the U.S. is either a closed system or the rest of the world as progressed at the same rate we have? There's more global competition now, both for customers and for jobs. That wages have stayed inline with inflation in spite of the fact that America has shifted quite a bit to a services economy and those services have competition from other countries (the classic example is India), may actually point to the monetary policy preventing what would be a much worse problem, and for nothing to do with inflation. It's easy to pick one metric and paint a picture that supports a story. It's much harder to account for many important factors, which is also why it's not done as frequently. Anyone's theory that one specific thing is the result of many major worldwide changes is going to have an uphill battle with me. The time frame we're talking about includes the popularization of the internet, increased globalization, the recent aftermath of the civil rights movement, an over 100% increase of global population compared to a ~60% increase in United States population, and mode than halving the number of people in the world that live in extreme poverty. Every single one of those would have massive effects on the economy, production and wages of the United States. I'm not sure how anyone could credibly make claims about how monetary policy in the U.S. was the reason for effect over the last 50 years without accounting for these and other things. It's easy to point at two things that seem to correlate over time. It's much harder to prove causation.

billytetrud 5y ago
> those services have competition from other countries That absolutely might have an effect on wages in the US. However, its unlikely that real GDP would be unaffected while real wages stagnate in such a case. > I'm not sure how anyone could credibly make claims Lots of things happen in the world all the time in every decade. The internet isn't any more novel than electricity was or the industrial revolution was. Yes there are a lot of confounding variables that make it difficult to make empiracle conclusions. But the largest market manipulators (central banks and governments) do play a substantial role in macroeconomics, and its completely fair IMO to conjecture around the effects of those things using logic and theory.