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Raising wages with Consumer Price Index (CPI) is dangerous, because it could cause spiraling inflation! After all, a company that needs to pay its workforce mo

Raising wages with Consumer Price Index (CPI) is dangerous, because it could cause spiraling inflation! After all, a company that needs to pay its workforce more will (a) fire some people to cut cost, or, (b) raise prices. Inflation is not something that "happens" to us, it is something that we cause. It is like complaining about the traffic jam you're in... you are literally part of the traffic jam, you are part of the problem...

mistrial9 4y ago
job creators have been printing money for more than a decade, with the powerful policy lever of "do not let working people get it, it will cause inflation" .. meanwhile check out the price behavior of appreciating assets, and important upper-middle class consumables. The stock market beating value records is not even reported since it occurs so often. The parent comment here amounts to "if working people get more money they will cause inflation"
- robertlagrant 4y ago
  None of that is inflating. Real money, voluntarily given, backs any investments. Valuations are just the price of the last share sold multiplied by the number of shares. They aren't to do with inflation. Inflation (in the US) is caused in Washington DC. Printing more money to spend, subtly taxing everyone by that increased percentage, and by policy.
  - jjoonathan 4y ago
    Printing $4T+ into asset markets didn't cause inflation, but printing $0.4T+ into peasant hands did? Uh-huh.
    - 988747 4y ago
      Putting money into asset markets causes "asset inflation" (see Nasdaq skyrocketing, until recently), putting it into "peasant hands" causes "peasant goods" inflation (hence the food or gas prices rising).
      - AlexandrB 4y ago
        At least part of this doesn't make sense. Why would giving people more money cause food price inflation? Were they not eating before? Did the demand for food skyrocket because people had money? Unless you're suggesting that food prices rose because food producers saw they were leaving money on the table, but this seems like a problem that could be solved with antitrust since collusion would be required to "artificially" raise prices in concert.
        creato 4y ago
        People change their food choices when they have more money, yes.
        robertlagrant 4y ago
        FMCG businesses try extremely hard to keep their costs low because their margins are razor thin, because competition means they must. If people feel comfortable paying even slightly more for goods, then the massive efforts to keep prices down can relax ever so slightly, and they can make more money in other areas (e.g. putting the money into decor or other nonessential feelgood factors that consumers will prioritise over prices).
      - dgb23 4y ago
        "Peasant goods" rise in price because the owners demand it after seeing an opportunity to do so. They could just keep stable. What is happening since half a century is that wealth gets shoveled to the top, with the above mechanism plus many others, while "peasants" can't afford their own place and education for themselves and their children anymore. They get cut off from sustainable spending and get turned back into pre-war wage slaves. What will happen is either owners getting to their senses and stop extracting so much god damn stuff for themselves for no reason, or workers rising up. Hiding behind political BS and pseudo science is a short term strategy that always ends in tears.
        AstralStorm 4y ago
        Also it's probably educational that the "peasant good" that exploded is actually fuel, which has far reaching consequences, and zero rationale for getting more expensive. What that did was vacuum a lot of money off the market, additionally causing compensatory raised prices because there's an excuse. The market never works on supply and demand, not even money, it works on increasing prices every other excuse to the maximum level unless it's forced not to.
    - JumpCrisscross 4y ago
      > Printing $4T+ into asset markets didn't cause inflation, but printing $0.4T+ into peasant hands did? Fiscal policy is far more powerful, monetarily speaking, than monetary policy. It's not 10x more powerful. But a dollar the Treasury creates is minted. A dollar the Fed creates is lent against an asset. It's a small difference with massive multiplier implications. (It's why, in a crisis, fiscal responses are so pleadingly called for by economists and central bankers.)
      - jjoonathan 4y ago
        Yeah, if you print money and give it to rich people they are less likely to spend it in the real economy. It still increases the purchasing power of rich people. It still pumps assets, favoring asset holders at the expense of asset purchasers. It's still weaponized class warfare. If you want to call this something other than money printing -- "lending," for instance -- I'm going to ask you to put money where your mouth is and bet that the Fed actually reduces its balance sheet to zero in some time frame. I have a sneaking suspicion that you will not be keen on taking this bet.
    - politician 4y ago
      A financial instrument does not require as many physical raw materials to produce as fuels, food, computers, or homes. Indeed, they often don't require anything but bits. It seems obvious that the $4T deployed into the imaginary playground of the asset markets wouldn't cause near as much inflation as $0.4T+ in the hands of peasants with their needs for tangible goods. If traders attempted to move $4T en masse into purchases at retail, the system would have crashed immediately.
  - jonnycomputer 4y ago
    When Congress spends money, it doesn't print it. It borrows it, at interest. Everyone talks about the national debt, but then they start talking about printing dollars in the next breath. Makes no sense. New money comes through the banking system, not Congress, and banks create money when they lend--a decision that depends on economic factors. However, when Congress moves around money, e.g. by borrowing from investors to give checks to lower income and middle class folks, that can cause inflation by shifting dollars to where they will be used for consumption rather than in investments, which tend to increase productivity which offsets inflationary effects of spending. However spending on lower income folks is almost surely a good bet in the long term, and while it may be inflationary in the short term, in the long term it must increase the productivity of the work force (and its inflationary effects can go away as soon as production in expectation of increased demand of those consumer goods ramps up).
    - robertlagrant 4y ago
      Well, true. Not literal printing :) For increasing the money supply my understanding is nothing to do with Congress - QE is the central bank purchasing (with new money) longer-term securities, and the other main process (I don't know the name of it) is where the central bank lends money (new money) to a commercial bank, which agrees to set some of it aside, and they can re-lend the rest out to other commercial banks. But neither process is borrowing. Those processes increase the money supply, which requires prices to go up, which requires wages to go up (or vice versa). Asset inflation is totally different, which was my original point.
- encryptluks2 4y ago
  Yeah.. they would be the type when billionaires and corporations cause pollution to destroy the earth to say.. it was your fault too. I might be 0.000000005% responsible for something but that doesn't mean that the people majorly responsible shouldn't have to do more to fix the issue.
- fundad 4y ago
  And none of this mentions Trillions in tax cuts and tariffs raising the cost of building materials and manufacturing inputs. Anyone paying attention in 2017 saw inflation coming but it became problem number 1 once the Muslim ban was reversed. Eat the rich.
- carapace 4y ago
  I've come to believe that the whole "wage increases cause inflation" meme, while perhaps not strictly false, is pushed largely by two groups: economic fundamentalists who see economics more as a religion than a tool, and apologists for the rich (who break down into subgroups: e.g. paid shills, temporarily embarrassed millionaires, and Stockholm Syndrome sufferers.) In any event, it's blindingly obvious to the rest of us that today's inflation is caused by profiteering on the part of large corporations and Private Equity, etc. The Haves are having more of the pie. I just want to reiterate this in case anyone's feeling gaslighted by the relentless propaganda ("If we pay you more we have to charge you more, silly workers." BS.)
- AnimalMuppet 4y ago
  "Job creators" don't "print money", in any sense. The Fed, sure. Banks arguably do also. But job creators? No.
  - mistrial9 4y ago
    it is a catchy political news term with some kind of fuzzy meaning -- lots of readers did read it that way
giantg2 4y ago
Doesn't the Denmark (or somewhere) tie wages to inflation? Is runaway inflation rampant there?
- markvdb 4y ago
  Belgium does. CPI here is fairly in line with neighbouring countries, but wage inflation is not. There's some complaints about this by employer organisations, but nothing serious for now. Neither the unions nor the main political parties want the indexation system to change. I expect the public sector to have to skip one or more 2% indexation steps in the medium term. The private sector will probably have to mostly sort this out on its own.
JumpCrisscross 4y ago
> Raising wages with Consumer Price Index (CPI) is dangerous, because it could cause spiraling inflation! Inflation isn't homogenous [1]. Geographically, but also across different income brackets. In a stable price environment, it makes sense for both workers and employers to negotiate wages market to market. America has historically had stable prices across the relevant time periods. We don't, presently, which is causing wage negotiations to start paying attention to a new data source. That the data wasn't considered before isn't some grand scheme or conspiracy; it's just that it wasn't the most relevant component. [1] https://www.bea.gov/news/2021/real-personal-consumption-expenditures-and-personal-income-state-2020 https://www.bea.gov/news/2021/real-personal-consumption-expe...
- lotsofpulp 4y ago
  What I am mostly seeing is people in the middle and upper income/wealth deciles complaining about their quality of life going down because the people in the bottom income/wealth deciles are getting higher wages and better work schedules. Many people might have been able to afford fast food at 11PM, but maybe they cannot now. I see that as an improvement for the person that no longer has to work a fast food job at 11PM for the lowest wages.
  - bombcar 4y ago
    One thing that's strange about the US is because of national chains and their advertising, prices are basically the same across the entire country. Dominos in podunk town X where there's the franchise owner and his wife running the whole show sells two pizzas for $5.99 each, and Dominos in New York sells the same. Sometimes you have "at participating locations" but rarely have I seen that actually used.
    - lotsofpulp 4y ago
      I see different prices on Walmart and Target’s websites based on location. The universal pricing might have been more pervasive when land and labor prices were not as different across the country, but there is only so much of a hit sellers can take from higher cost of goods sold.
Mezzie 4y ago
To a degree. Companies also have to have a stable society in which to operate, and the lowest classes in American society have zero ability to absorb any additional costs because over the last 10-15 years, the increase in data collectability + Fed/government policy giving the indicators that the free money spigot will go on forever and the working class can suck it has meant that it's been feasible to run things where the lowest are treading water but not getting anywhere. Now that inflation is hitting, the choice is: Give those people on the bottom more money or start incurring costs in other ways. If people can't feed themselves and their families on their wages, they aren't going to slink away and die to serve the Economy: They're going to start doing things like robbing grocery stores. Which means said grocery stores have to invest in security, lose more of their (now hard to get) stock, etc. The problem is that you give the people at the bottom more money, then people in the middle wonder why they're busting their asses for only a little more than they'd get at Wal-Mart, then THEY start leaving or demanding more, and so it goes. It's almost like running a society with no resilience is a bad idea. Go figure. Likewise, a lot of businesses (especially in large cities) rely on being able to pay low wages because people commute from long distances; once energy prices get high enough, that won't work. Low wages have basically been subsidized by the government since at least 2008 and now that it's ending it's a shitshow.
- AstralStorm 4y ago
  It's almost like it's a good idea to raise all wages, and in a flat way. Barring that, enforce price caps on important things or outright make them free.
  - Mezzie 4y ago
    There are some things that just cannot be addressed via free markets. There are some pre-conditions for markets that just cannot be met: Either because the demand for something is inelastic OR there's no way for the consumer to have the information they need to act in a rational fashion (in the economic sense of the word). I'm not anti-market; the closest thing to my economic position is market socialism, but treating housing and water the same way as video games is moronic.
dionian 4y ago
So the government gets away with stealing our wealth by printing money and keeping real wages low
maerF0x0 4y ago
> Raising wages with Consumer Price Index (CPI) is dangerous, because it could cause spiraling inflation! This is only true iff 1) there is no profit margin on the employee and 2) productivity is flat or falling. 1) Remember that each dollar a customer spends only requires < $1 to employ. So as employee costs go up there is a cushion before an employer must raise prices. 2) If productivity rises then they can pay more, _and_ there ought to be price deflation as supply increase (or some mix of the two) .
- jonnycomputer 4y ago
  Better to link to productivity then, rather than CPI, perhaps?
  - maerF0x0 4y ago
    But what better link to productivity is there than 1) Individual performance compensated (ie work harder get paid more) and 2) Equity share in the business (ie a share of the profits).
    - jonnycomputer 4y ago
      In an ideal world that might be true; but we live in a world in which people are not always paid more for working harder, or are unable to attain equity shares. The truth is that there are systematic, and stubbornly persistent, differences in bargaining power between workers and employers.
- Sebb767 4y ago
  > Remember that each dollar a customer spends only requires < $1 to employ. So as employee costs go up there is a cushion before an employer must raise prices. This logic is broken. Of course there's a margin in there, but to keep the business profitable, this margin must stay. So there's not necessarily a cushion to fall back on.
  - maerF0x0 4y ago
jonnycomputer 4y ago
Linking it automatically the the CPI is dangerous (as, I believe happened in the 70s and early 80s when union contracts were stronger and more ubiquitous). Linking it to productivity is much better. Some will say it already is, but I seriously doubt that is actually true, as the linkage between wages and productivity seems to have been broken decades ago and the power imbalance between workers and capital have only become more exacerbated.
drewcoo 4y ago
> Inflation is not something that "happens" to us, it is something that we cause. Really? I can't raise prices on anything. I'm just some plebe. People who opportunistically raise prices (blaming Russia or COVID or the weather or whatever else) cause inflation. Yes, we plebes allow it. We could all pressure our politicians to put a stop to that. We don't. Sadly, we don't even know how to pressure our politicians if we wanted to.
- AstralStorm 4y ago
  You cannot easily pressure somebody who gets paid to not do what you need them to. That would take enormous violence. Even getting them out of office is no consequence due to revolving business and lobbying doors.
AnIdiotOnTheNet 4y ago
Clearly the solution to inflation then is to pay workers nothing! If they have no money, there will be decreased demand which should result in lower prices, right?
- fundad 4y ago
  That’s the 2020 plan. Lay off 10 million people and drive prices down. And then complain prices aren’t as low when people get new jobs.
manuelabeledo 4y ago
> Inflation is not something that "happens" to us, it is something that we cause. This is like corporations reminding us about _our_ carbon footprint. Yes, we may be part of the problem. But for the past several decades, wages have stagnated while profits and sometimes inflation, have grown. Thus we are an infinitesimal part of it. Let me have a higher salary at the expense of corporations profits.
everybodyknows 4y ago
> Raising wages with Consumer Price Index (CPI) is dangerous, because it could cause spiraling inflation! Conclusion is correct, but you're missing initial driving factors: 1. Supply-side price shocks in oil, gas, food, manufactures (China zero-COVID policy) 2. Reduced financial subsidies to US: less world appetite for U.S. treasury bonds 3. Fed easing revealed now as pushed too far, given the world's run of very bad luck: COVID followed by war in Ukraine. So, the world has gotten poorer, the "pie" smaller, and most of us are going to be getting smaller slices for some time. As much as I'd like to see all the world pie's assets now held in the form of say, mega yachts seized and converted to floating medical clinics run by Medecin San Frontiere, I wouldn't be scanning the news for such a headline.
- AstralStorm 4y ago
  1. There were no important supply side shocks. There were "expected" shocks and a bunch of panic buying. This was converted into an excuse for price rises with concomitant profit increases. If it were a supply side shock, you'd see profit rates also falling or staying the same, after profiteering is done. 2. US literally tanked every currency of every economy due to fiscal manipulation, economies which were unable to compensate. China and EU mostly managed. (Where Euro is used, that is.) Everyone else got extra smashed. 3. Fed only defrauded other economies, but USA is also pretty hit by the greed.
impossiblefork 4y ago
Yes. It would certainly cause a wage-inflation spiral. Even so, such a spiral could be straightforwardly prevented if the policy intended to bring high wages was coupled with a policy requiring forced savings. There is no fundamental reason why high dividends does not cause CPI inflation. However, because of concentration in company ownership a larger fraction of dividends are reinvested than the fraction of wages that are invested-- i.e. those with large holdings have a lower propensity to spend. However, we can reduce the propensity to spend of those who work with laws. Such a policy would also permit reducing the extreme taxes on wages in some countries-- without a policy like this if we set taxes on income from wages equal to income from dividends, investment will drop and we will get CPI inflation-- a very undesirable situation. With this kind of policy, one wouldn't.

mistrial9 4y ago

job creators have been printing money for more than a decade, with the powerful policy lever of "do not let working people get it, it will cause inflation" .. meanwhile check out the price behavior of appreciating assets, and important upper-middle class consumables. The stock market beating value records is not even reported since it occurs so often. The parent comment here amounts to "if working people get more money they will cause inflation"

robertlagrant 4y ago
None of that is inflating. Real money, voluntarily given, backs any investments. Valuations are just the price of the last share sold multiplied by the number of shares. They aren't to do with inflation. Inflation (in the US) is caused in Washington DC. Printing more money to spend, subtly taxing everyone by that increased percentage, and by policy.
- jjoonathan 4y ago
  Printing $4T+ into asset markets didn't cause inflation, but printing $0.4T+ into peasant hands did? Uh-huh.
  - 988747 4y ago
    Putting money into asset markets causes "asset inflation" (see Nasdaq skyrocketing, until recently), putting it into "peasant hands" causes "peasant goods" inflation (hence the food or gas prices rising).
    - AlexandrB 4y ago
      At least part of this doesn't make sense. Why would giving people more money cause food price inflation? Were they not eating before? Did the demand for food skyrocket because people had money? Unless you're suggesting that food prices rose because food producers saw they were leaving money on the table, but this seems like a problem that could be solved with antitrust since collusion would be required to "artificially" raise prices in concert.
      - creato 4y ago
        People change their food choices when they have more money, yes.
      - robertlagrant 4y ago
        FMCG businesses try extremely hard to keep their costs low because their margins are razor thin, because competition means they must. If people feel comfortable paying even slightly more for goods, then the massive efforts to keep prices down can relax ever so slightly, and they can make more money in other areas (e.g. putting the money into decor or other nonessential feelgood factors that consumers will prioritise over prices).
    - dgb23 4y ago
      "Peasant goods" rise in price because the owners demand it after seeing an opportunity to do so. They could just keep stable. What is happening since half a century is that wealth gets shoveled to the top, with the above mechanism plus many others, while "peasants" can't afford their own place and education for themselves and their children anymore. They get cut off from sustainable spending and get turned back into pre-war wage slaves. What will happen is either owners getting to their senses and stop extracting so much god damn stuff for themselves for no reason, or workers rising up. Hiding behind political BS and pseudo science is a short term strategy that always ends in tears.
      - AstralStorm 4y ago
        Also it's probably educational that the "peasant good" that exploded is actually fuel, which has far reaching consequences, and zero rationale for getting more expensive. What that did was vacuum a lot of money off the market, additionally causing compensatory raised prices because there's an excuse. The market never works on supply and demand, not even money, it works on increasing prices every other excuse to the maximum level unless it's forced not to.
  - JumpCrisscross 4y ago
    > Printing $4T+ into asset markets didn't cause inflation, but printing $0.4T+ into peasant hands did? Fiscal policy is far more powerful, monetarily speaking, than monetary policy. It's not 10x more powerful. But a dollar the Treasury creates is minted. A dollar the Fed creates is lent against an asset. It's a small difference with massive multiplier implications. (It's why, in a crisis, fiscal responses are so pleadingly called for by economists and central bankers.)
    - jjoonathan 4y ago
      Yeah, if you print money and give it to rich people they are less likely to spend it in the real economy. It still increases the purchasing power of rich people. It still pumps assets, favoring asset holders at the expense of asset purchasers. It's still weaponized class warfare. If you want to call this something other than money printing -- "lending," for instance -- I'm going to ask you to put money where your mouth is and bet that the Fed actually reduces its balance sheet to zero in some time frame. I have a sneaking suspicion that you will not be keen on taking this bet.
  - politician 4y ago
    A financial instrument does not require as many physical raw materials to produce as fuels, food, computers, or homes. Indeed, they often don't require anything but bits. It seems obvious that the $4T deployed into the imaginary playground of the asset markets wouldn't cause near as much inflation as $0.4T+ in the hands of peasants with their needs for tangible goods. If traders attempted to move $4T en masse into purchases at retail, the system would have crashed immediately.
- jonnycomputer 4y ago
  When Congress spends money, it doesn't print it. It borrows it, at interest. Everyone talks about the national debt, but then they start talking about printing dollars in the next breath. Makes no sense. New money comes through the banking system, not Congress, and banks create money when they lend--a decision that depends on economic factors. However, when Congress moves around money, e.g. by borrowing from investors to give checks to lower income and middle class folks, that can cause inflation by shifting dollars to where they will be used for consumption rather than in investments, which tend to increase productivity which offsets inflationary effects of spending. However spending on lower income folks is almost surely a good bet in the long term, and while it may be inflationary in the short term, in the long term it must increase the productivity of the work force (and its inflationary effects can go away as soon as production in expectation of increased demand of those consumer goods ramps up).
  - robertlagrant 4y ago
    Well, true. Not literal printing :) For increasing the money supply my understanding is nothing to do with Congress - QE is the central bank purchasing (with new money) longer-term securities, and the other main process (I don't know the name of it) is where the central bank lends money (new money) to a commercial bank, which agrees to set some of it aside, and they can re-lend the rest out to other commercial banks. But neither process is borrowing. Those processes increase the money supply, which requires prices to go up, which requires wages to go up (or vice versa). Asset inflation is totally different, which was my original point.
encryptluks2 4y ago
Yeah.. they would be the type when billionaires and corporations cause pollution to destroy the earth to say.. it was your fault too. I might be 0.000000005% responsible for something but that doesn't mean that the people majorly responsible shouldn't have to do more to fix the issue.
fundad 4y ago
And none of this mentions Trillions in tax cuts and tariffs raising the cost of building materials and manufacturing inputs. Anyone paying attention in 2017 saw inflation coming but it became problem number 1 once the Muslim ban was reversed. Eat the rich.
carapace 4y ago
I've come to believe that the whole "wage increases cause inflation" meme, while perhaps not strictly false, is pushed largely by two groups: economic fundamentalists who see economics more as a religion than a tool, and apologists for the rich (who break down into subgroups: e.g. paid shills, temporarily embarrassed millionaires, and Stockholm Syndrome sufferers.) In any event, it's blindingly obvious to the rest of us that today's inflation is caused by profiteering on the part of large corporations and Private Equity, etc. The Haves are having more of the pie. I just want to reiterate this in case anyone's feeling gaslighted by the relentless propaganda ("If we pay you more we have to charge you more, silly workers." BS.)
AnimalMuppet 4y ago
"Job creators" don't "print money", in any sense. The Fed, sure. Banks arguably do also. But job creators? No.
- mistrial9 4y ago
  it is a catchy political news term with some kind of fuzzy meaning -- lots of readers did read it that way

giantg2 4y ago

Doesn't the Denmark (or somewhere) tie wages to inflation? Is runaway inflation rampant there?

markvdb 4y ago
Belgium does. CPI here is fairly in line with neighbouring countries, but wage inflation is not. There's some complaints about this by employer organisations, but nothing serious for now. Neither the unions nor the main political parties want the indexation system to change. I expect the public sector to have to skip one or more 2% indexation steps in the medium term. The private sector will probably have to mostly sort this out on its own.

JumpCrisscross 4y ago

> Raising wages with Consumer Price Index (CPI) is dangerous, because it could cause spiraling inflation! Inflation isn't homogenous [1]. Geographically, but also across different income brackets. In a stable price environment, it makes sense for both workers and employers to negotiate wages market to market. America has historically had stable prices across the relevant time periods. We don't, presently, which is causing wage negotiations to start paying attention to a new data source. That the data wasn't considered before isn't some grand scheme or conspiracy; it's just that it wasn't the most relevant component. [1] https://www.bea.gov/news/2021/real-personal-consumption-expenditures-and-personal-income-state-2020 https://www.bea.gov/news/2021/real-personal-consumption-expe...

lotsofpulp 4y ago
What I am mostly seeing is people in the middle and upper income/wealth deciles complaining about their quality of life going down because the people in the bottom income/wealth deciles are getting higher wages and better work schedules. Many people might have been able to afford fast food at 11PM, but maybe they cannot now. I see that as an improvement for the person that no longer has to work a fast food job at 11PM for the lowest wages.
- bombcar 4y ago
  One thing that's strange about the US is because of national chains and their advertising, prices are basically the same across the entire country. Dominos in podunk town X where there's the franchise owner and his wife running the whole show sells two pizzas for $5.99 each, and Dominos in New York sells the same. Sometimes you have "at participating locations" but rarely have I seen that actually used.
  - lotsofpulp 4y ago
    I see different prices on Walmart and Target’s websites based on location. The universal pricing might have been more pervasive when land and labor prices were not as different across the country, but there is only so much of a hit sellers can take from higher cost of goods sold.

Mezzie 4y ago

To a degree. Companies also have to have a stable society in which to operate, and the lowest classes in American society have zero ability to absorb any additional costs because over the last 10-15 years, the increase in data collectability + Fed/government policy giving the indicators that the free money spigot will go on forever and the working class can suck it has meant that it's been feasible to run things where the lowest are treading water but not getting anywhere. Now that inflation is hitting, the choice is: Give those people on the bottom more money or start incurring costs in other ways. If people can't feed themselves and their families on their wages, they aren't going to slink away and die to serve the Economy: They're going to start doing things like robbing grocery stores. Which means said grocery stores have to invest in security, lose more of their (now hard to get) stock, etc. The problem is that you give the people at the bottom more money, then people in the middle wonder why they're busting their asses for only a little more than they'd get at Wal-Mart, then THEY start leaving or demanding more, and so it goes. It's almost like running a society with no resilience is a bad idea. Go figure. Likewise, a lot of businesses (especially in large cities) rely on being able to pay low wages because people commute from long distances; once energy prices get high enough, that won't work. Low wages have basically been subsidized by the government since at least 2008 and now that it's ending it's a shitshow.

AstralStorm 4y ago
It's almost like it's a good idea to raise all wages, and in a flat way. Barring that, enforce price caps on important things or outright make them free.
- Mezzie 4y ago
  There are some things that just cannot be addressed via free markets. There are some pre-conditions for markets that just cannot be met: Either because the demand for something is inelastic OR there's no way for the consumer to have the information they need to act in a rational fashion (in the economic sense of the word). I'm not anti-market; the closest thing to my economic position is market socialism, but treating housing and water the same way as video games is moronic.

dionian 4y ago

So the government gets away with stealing our wealth by printing money and keeping real wages low

maerF0x0 4y ago

> Raising wages with Consumer Price Index (CPI) is dangerous, because it could cause spiraling inflation! This is only true iff 1) there is no profit margin on the employee and 2) productivity is flat or falling. 1) Remember that each dollar a customer spends only requires < $1 to employ. So as employee costs go up there is a cushion before an employer must raise prices. 2) If productivity rises then they can pay more, _and_ there ought to be price deflation as supply increase (or some mix of the two) .

jonnycomputer 4y ago
Better to link to productivity then, rather than CPI, perhaps?
- maerF0x0 4y ago
  But what better link to productivity is there than 1) Individual performance compensated (ie work harder get paid more) and 2) Equity share in the business (ie a share of the profits).
  - jonnycomputer 4y ago
    In an ideal world that might be true; but we live in a world in which people are not always paid more for working harder, or are unable to attain equity shares. The truth is that there are systematic, and stubbornly persistent, differences in bargaining power between workers and employers.
Sebb767 4y ago
> Remember that each dollar a customer spends only requires < $1 to employ. So as employee costs go up there is a cushion before an employer must raise prices. This logic is broken. Of course there's a margin in there, but to keep the business profitable, this margin must stay. So there's not necessarily a cushion to fall back on.
- maerF0x0 4y ago

jonnycomputer 4y ago

Linking it automatically the the CPI is dangerous (as, I believe happened in the 70s and early 80s when union contracts were stronger and more ubiquitous). Linking it to productivity is much better. Some will say it already is, but I seriously doubt that is actually true, as the linkage between wages and productivity seems to have been broken decades ago and the power imbalance between workers and capital have only become more exacerbated.

drewcoo 4y ago

> Inflation is not something that "happens" to us, it is something that we cause. Really? I can't raise prices on anything. I'm just some plebe. People who opportunistically raise prices (blaming Russia or COVID or the weather or whatever else) cause inflation. Yes, we plebes allow it. We could all pressure our politicians to put a stop to that. We don't. Sadly, we don't even know how to pressure our politicians if we wanted to.

AstralStorm 4y ago
You cannot easily pressure somebody who gets paid to not do what you need them to. That would take enormous violence. Even getting them out of office is no consequence due to revolving business and lobbying doors.

AnIdiotOnTheNet 4y ago

Clearly the solution to inflation then is to pay workers nothing! If they have no money, there will be decreased demand which should result in lower prices, right?

fundad 4y ago
That’s the 2020 plan. Lay off 10 million people and drive prices down. And then complain prices aren’t as low when people get new jobs.

manuelabeledo 4y ago

> Inflation is not something that "happens" to us, it is something that we cause. This is like corporations reminding us about _our_ carbon footprint. Yes, we may be part of the problem. But for the past several decades, wages have stagnated while profits and sometimes inflation, have grown. Thus we are an infinitesimal part of it. Let me have a higher salary at the expense of corporations profits.

everybodyknows 4y ago

> Raising wages with Consumer Price Index (CPI) is dangerous, because it could cause spiraling inflation! Conclusion is correct, but you're missing initial driving factors: 1. Supply-side price shocks in oil, gas, food, manufactures (China zero-COVID policy) 2. Reduced financial subsidies to US: less world appetite for U.S. treasury bonds 3. Fed easing revealed now as pushed too far, given the world's run of very bad luck: COVID followed by war in Ukraine. So, the world has gotten poorer, the "pie" smaller, and most of us are going to be getting smaller slices for some time. As much as I'd like to see all the world pie's assets now held in the form of say, mega yachts seized and converted to floating medical clinics run by Medecin San Frontiere, I wouldn't be scanning the news for such a headline.

AstralStorm 4y ago
1. There were no important supply side shocks. There were "expected" shocks and a bunch of panic buying. This was converted into an excuse for price rises with concomitant profit increases. If it were a supply side shock, you'd see profit rates also falling or staying the same, after profiteering is done. 2. US literally tanked every currency of every economy due to fiscal manipulation, economies which were unable to compensate. China and EU mostly managed. (Where Euro is used, that is.) Everyone else got extra smashed. 3. Fed only defrauded other economies, but USA is also pretty hit by the greed.

impossiblefork 4y ago

Yes. It would certainly cause a wage-inflation spiral. Even so, such a spiral could be straightforwardly prevented if the policy intended to bring high wages was coupled with a policy requiring forced savings. There is no fundamental reason why high dividends does not cause CPI inflation. However, because of concentration in company ownership a larger fraction of dividends are reinvested than the fraction of wages that are invested-- i.e. those with large holdings have a lower propensity to spend. However, we can reduce the propensity to spend of those who work with laws. Such a policy would also permit reducing the extreme taxes on wages in some countries-- without a policy like this if we set taxes on income from wages equal to income from dividends, investment will drop and we will get CPI inflation-- a very undesirable situation. With this kind of policy, one wouldn't.