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HN users have predicted 9 out of the last 5 recessions. More seriously, this does suggest that inflation will be more persistent than we had hoped. I'd like t

HN users have predicted 9 out of the last 5 recessions. More seriously, this does suggest that inflation will be more persistent than we had hoped. I'd like to remind people, however, that higher wages don't have to result in high inflation. As formerly low-income households earn more, there are two things they can do with their extra income: they can spend it, or they can save it. One leads, of course, to price growth. The other will actually be very good for the economy. So please don't listen to the fearmongerers who will suggest that higher wages will destroy the economy; it isn't true.

MichaelRazum 4y ago
It is just causal that higher wages are inflationary. Reasons: - People will spend more with higher wages - Companies will pass over the higher costs to the customers
- SantalBlush 4y ago
  Higher wages will definitely cause some inflation, I agree. My point is simply that household saving also has the potential to increase, which is a very good thing and often overlooked in this scenario. One problem is that real interest rates have been negative for some time, which is bad for inflation and for saving, but that is beyond the control of wage earners.
  - ianai 4y ago
    You’re both missing a key point. The labor market likely priced labor below the market clearing rate. If people aren’t filling positions at a specific wage level then up the wage level. Laborers have a willingness to work for each level of wage and it’s going to increase with wage.
    - MichaelRazum 4y ago
      Nah, don't think so. With such low unemployment you basically have full employment, that is how economist would describe the situation since it can't got to 0%. Now the wages go up, since you have more competition for labor force and of course people want higher wages based on inflation. PS: Sure, more people retired and the labor participation rate is lower then before covid. BUT you will not get them back to work with an increase of 10% or let's say 20% in salary. They retired, that's it.
      - ianai 4y ago
        Yea the data support retirees being a stronger factor as discussed here: https://news.ycombinator.com/item?id=34554546 https://news.ycombinator.com/item?id=34554546 But raising pay does still increase the number of people willing to work across the market. It’s also basically the only direct way to increase the labor pool without exogenous or distant factors to the labor market. Raising interest rates would affect the labor market by diminishing financing to the point demand for labor falls. It’s a blunt/economy wide instrument. Labor did enjoy increased market demand and increased wages after the 1918 pandemic. Historically, not wanting to raise wages just reads as sour grapes.
  - qualudeheart 4y ago
    You’ve given me an idea. If widespread automation drives down wages, it should also lead to deflation. That should make welfare programs cheaper as the State needs to pay out less money to welfare recipients.
shmatt 4y ago
According to surveys most Americans live paycheck to paycheck, including most making over $100k/year [1][2] So...yeah saving is a nice idea when rents don't increase in 40% in the past couple of year. Low income households also have a much harder time buying their own housing. People won't work if it won't pay their rent or food, thats the only reason wages have gone up. It's just impossible to pay minimum wage anymore because itll get your employees evicted [1] https://www.fox5atlanta.com/news/more-americans-live-paycheck-to-paycheck-report-finds https://www.fox5atlanta.com/news/more-americans-live-paychec... [2] https://fortune.com/2023/01/30/more-high-earning-americans-stretching-paycheck-inflation/ https://fortune.com/2023/01/30/more-high-earning-americans-s...
- qualudeheart 4y ago
  That most Americans can live paycheck to paycheck makes me feel better about the post AGI full UBI era. I’ve been thinking about this a lot. Does it really matter if everyone is living paycheck to paycheck? They aren’t starving to death. They have access to bread and circuses. If we all go on a $1000/month UBI, we’ll still have a decent standard of living. We’re in for a phase transition in the global economy and the relation of the poor to the rich, but it won’t be as bad as the doomsayers on HN are claiming.
  - pibechorro 4y ago
    Extracting money violently from people to give it free to others creates a whole subculture of people who will do the very minimum and be totally dependent on the state. we saw it during the pandemic how many people refused to work. A bare bones safety net so people don't starve makes sense, but full lifestyle subcidies do not. It rots society and its theft from those who are productive.
    - spamizbad 4y ago
      There's no supporting evidence things like Superdole contributed to the COVID labor shortage. What actually happened was a ton of low-wage workers were laid-off, found jobs elsewhere, and their employers struggled to find people willing to work low-wage jobs when everyone else was paying more.
unity1001 4y ago
> One leads, of course, to price growth. The other will actually be very good for the economy A system that betters as more people hoard wealth instead of using it to generate economic activity is a system that is kaput.
- throwayyy479087 4y ago
  When your ideology calls fiscal responsibility "hoarding wealth," you should rethink your worldview. Is Japan a morally bankrupt country obsessed with hoarding wealth? South Korea? Ireland? They have extremely high savings rates.
  - unity1001 4y ago
    > When your ideology calls fiscal responsibility "hoarding wealth," you should rethink your worldview The US stock market and the under-the-pillow gold or in-the-bank life savings of the Japanese grannies are not the same. All of what is happening is happening for the sake of the former. None of those countries that you listed is waging a war on their working class to lower their wages to prop up the former. Leaving aside by openly declaring it. The 'fiscally responsible' country is. Even more, as its central bank moves to kill everyone's wages in general, its higher financial institutions and hedge funds are pushing the companies to go along with it to kill highly paid white collar wages too. And the tech giants who were supposedly going to 'change the world' are complying with it. Even as they post obscene profits. All of those is to prop up the stock prices. Nothing more. Nothing related to 'savings'. You may have some retirement funds in the stock market that skews your perception. But people like you don't make up the majority in the stock market. Less hold the power and call the shots. Those who make up the majority are people who dont have any relevance to any kind of 'saving', even less, the need to 'save'. And all of this without touching the fact that how that fiscally responsible country kills its people if they cant pay for healthcare or pushes them out of the cities in the winter if they cant pay rent even while working two jobs. Gotta have them plebs anxious about their livelihood, or they wont consent to working harder for less pay... Don't rationalize and justify delirious sociopathy that seeks obsessive-compulsive hoarding. There is nothing rational in the hoards of wealth that is sitting only to amass even more hoards of wealth. Its 20+ years into 21st century and instead of flying cars we have a system that thrives on making people overwork for ever less pay and even kills them if they cant pay for the hospital. Way past time for you to reconsider your ideology. Not others.
n8cpdx 4y ago
Household saving just slows down the inflation if you’re lucky; it gets spent eventually and reduces the immediate effectiveness at the fed in moderating things. But that assumes people will save, and that isn’t as likely in a situation where people have the opportunity to spend (e.g. restaurants and gyms and theaters are an option) I think 2020-era inflation is largely a story of stimulus going directly to households, which used that to either spend (chasing too few goods because people were out of work, constraining supply) or save, allowing them to stop working for longer. You will see lots of stories about people _choosing_ not to work because of COVID or health or whatever - that is a story of savings allowing people to stay out of the labor market. In an economy where supply-demand imbalance is driving up prices, savings may not be all that helpful. But realistically so much of this inflation happened because the money went to people who didn’t save - they turned around and spent it. This is the argument people used for student loan relief as economic stimulus: these people are poor, so they will turn around and spend what they would have used on their student loans. This is consistent with my personal experience, except now it is happening in an overheated economy. Giving more money to people living paycheck to paycheck and expecting saving to be the result is an example of missing all the major lessons of the last three years.
dangwhy 4y ago
> The other will actually be very good for the economy. why is saving money good for economy? seems counterintutive
- bubbleRefuge 4y ago
  You are right it is not. One persons spending is the other's income.
- tastyfreeze 4y ago
  Saving leads to more people having enough to risk entrepreneurship and investment. Both lead to real economic growth.
  - dangwhy 4y ago
    is this claim based on any research ?
    - tastyfreeze 4y ago
      How did the rich get rich? Saving and putting that money to work instead of their bodies.
time_to_smile 4y ago
> they can spend it, or they can save it. The trouble is they haven't been saving it. Savings rates is near the lowest it's been in years [0], debt is rapidly increasing [1] and we're seeing quickly increasing dipping into 401k savings [2]. I do agree with your general argument though, that this isn't about workers being paid to much. All evidence suggest that despite the increases in worker pay, more and more American's are stretching themselves to continue consuming and we've seen in plenty of places that consumption is dropping. 0. https://tradingeconomics.com/united-states/personal-savings https://tradingeconomics.com/united-states/personal-savings 1. https://www.cnbc.com/2022/11/15/household-debt-soars-at-fastest-pace-in-15-years-as-credit-card-use-surges-fed-report-says.html https://www.cnbc.com/2022/11/15/household-debt-soars-at-fast... 2. https://www.wsj.com/articles/short-on-cash-more-americans-tap-401-k-savings-for-emergencies-11675305976 https://www.wsj.com/articles/short-on-cash-more-americans-ta...
- cyberge99 4y ago
  In the last quarter I’ve seen high yield savings accounts go from 3% to 5% at doctorofcredit. This is just anecdotal but it’s the reality I see that isn’t reflected in the links you provided (and it’s more recent).
bitshiftfaced 4y ago
[strikeout]Powell said yesterday that the current issue is in services, and he named housing in particular. Interest rates must increase until they meaningfully lower housing prices. Otherwise, rent and housing will just keep sucking up the wage growth.[/strikeout] You can see here how, despite nominal wage growth, real disposable income hasn't improved since pre covid: https://fred.stlouisfed.org/series/DSPIC96 https://fred.stlouisfed.org/series/DSPIC96
- dragontamer 4y ago
  > Interest rates must increase until they meaningfully lower housing prices. https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20230201.pdf https://www.federalreserve.gov/mediacenter/files/FOMCprescon... > We are seeing the effects of our policy actions on demand in the most interest-sensitive sectors of the economy, particularly housing. Main speech, page 3. > and he named housing in particular. He named "X-housing", which means "ignoring housing". Housing is doing well. Its everything _EXCEPT_ housing that's doing poorly right now. Press Conference section, page 8. > The inflation in the core services X housing is still running at 4 percent on a 6- and 12-month basis. -------- So housing inflation has stopped (and anybody shopping for a house would realize that prices are no longer going up, but have begun to drop). Meanwhile, everything else in our economy seems to still be going up in price. That's bad, but Powell notes that these other sections of the economy take "longer" for the Fed Rate hikes to kick in. So they're going to slow down the rate hikes and see where the current trajectory takes us. IE: ~5%ish terminal rate in the near term. More data needed to evaluate the long term. ------ > Powell said yesterday While I'm being pedantic... Powell said it on Wednesday... which was two days ago :-)
  - bitshiftfaced 4y ago
    Thanks
qbasic_forever 4y ago
In reality it's the high incomes that are continuing to make money and spend it, i.e. the landlords and property companies making serious bank as rents jack up higher and higher. We need to tax these people and corporations--that will quickly stop inflation.

MichaelRazum 4y ago

It is just causal that higher wages are inflationary. Reasons: - People will spend more with higher wages - Companies will pass over the higher costs to the customers

SantalBlush 4y ago
Higher wages will definitely cause some inflation, I agree. My point is simply that household saving also has the potential to increase, which is a very good thing and often overlooked in this scenario. One problem is that real interest rates have been negative for some time, which is bad for inflation and for saving, but that is beyond the control of wage earners.
- ianai 4y ago
  You’re both missing a key point. The labor market likely priced labor below the market clearing rate. If people aren’t filling positions at a specific wage level then up the wage level. Laborers have a willingness to work for each level of wage and it’s going to increase with wage.
  - MichaelRazum 4y ago
    Nah, don't think so. With such low unemployment you basically have full employment, that is how economist would describe the situation since it can't got to 0%. Now the wages go up, since you have more competition for labor force and of course people want higher wages based on inflation. PS: Sure, more people retired and the labor participation rate is lower then before covid. BUT you will not get them back to work with an increase of 10% or let's say 20% in salary. They retired, that's it.
    - ianai 4y ago
      Yea the data support retirees being a stronger factor as discussed here: https://news.ycombinator.com/item?id=34554546 https://news.ycombinator.com/item?id=34554546 But raising pay does still increase the number of people willing to work across the market. It’s also basically the only direct way to increase the labor pool without exogenous or distant factors to the labor market. Raising interest rates would affect the labor market by diminishing financing to the point demand for labor falls. It’s a blunt/economy wide instrument. Labor did enjoy increased market demand and increased wages after the 1918 pandemic. Historically, not wanting to raise wages just reads as sour grapes.
- qualudeheart 4y ago
  You’ve given me an idea. If widespread automation drives down wages, it should also lead to deflation. That should make welfare programs cheaper as the State needs to pay out less money to welfare recipients.

shmatt 4y ago

According to surveys most Americans live paycheck to paycheck, including most making over $100k/year [1][2] So...yeah saving is a nice idea when rents don't increase in 40% in the past couple of year. Low income households also have a much harder time buying their own housing. People won't work if it won't pay their rent or food, thats the only reason wages have gone up. It's just impossible to pay minimum wage anymore because itll get your employees evicted [1] https://www.fox5atlanta.com/news/more-americans-live-paycheck-to-paycheck-report-finds https://www.fox5atlanta.com/news/more-americans-live-paychec... [2] https://fortune.com/2023/01/30/more-high-earning-americans-stretching-paycheck-inflation/ https://fortune.com/2023/01/30/more-high-earning-americans-s...

qualudeheart 4y ago
That most Americans can live paycheck to paycheck makes me feel better about the post AGI full UBI era. I’ve been thinking about this a lot. Does it really matter if everyone is living paycheck to paycheck? They aren’t starving to death. They have access to bread and circuses. If we all go on a $1000/month UBI, we’ll still have a decent standard of living. We’re in for a phase transition in the global economy and the relation of the poor to the rich, but it won’t be as bad as the doomsayers on HN are claiming.
- pibechorro 4y ago
  Extracting money violently from people to give it free to others creates a whole subculture of people who will do the very minimum and be totally dependent on the state. we saw it during the pandemic how many people refused to work. A bare bones safety net so people don't starve makes sense, but full lifestyle subcidies do not. It rots society and its theft from those who are productive.
  - spamizbad 4y ago
    There's no supporting evidence things like Superdole contributed to the COVID labor shortage. What actually happened was a ton of low-wage workers were laid-off, found jobs elsewhere, and their employers struggled to find people willing to work low-wage jobs when everyone else was paying more.

unity1001 4y ago

> One leads, of course, to price growth. The other will actually be very good for the economy A system that betters as more people hoard wealth instead of using it to generate economic activity is a system that is kaput.

throwayyy479087 4y ago
When your ideology calls fiscal responsibility "hoarding wealth," you should rethink your worldview. Is Japan a morally bankrupt country obsessed with hoarding wealth? South Korea? Ireland? They have extremely high savings rates.
- unity1001 4y ago
  > When your ideology calls fiscal responsibility "hoarding wealth," you should rethink your worldview The US stock market and the under-the-pillow gold or in-the-bank life savings of the Japanese grannies are not the same. All of what is happening is happening for the sake of the former. None of those countries that you listed is waging a war on their working class to lower their wages to prop up the former. Leaving aside by openly declaring it. The 'fiscally responsible' country is. Even more, as its central bank moves to kill everyone's wages in general, its higher financial institutions and hedge funds are pushing the companies to go along with it to kill highly paid white collar wages too. And the tech giants who were supposedly going to 'change the world' are complying with it. Even as they post obscene profits. All of those is to prop up the stock prices. Nothing more. Nothing related to 'savings'. You may have some retirement funds in the stock market that skews your perception. But people like you don't make up the majority in the stock market. Less hold the power and call the shots. Those who make up the majority are people who dont have any relevance to any kind of 'saving', even less, the need to 'save'. And all of this without touching the fact that how that fiscally responsible country kills its people if they cant pay for healthcare or pushes them out of the cities in the winter if they cant pay rent even while working two jobs. Gotta have them plebs anxious about their livelihood, or they wont consent to working harder for less pay... Don't rationalize and justify delirious sociopathy that seeks obsessive-compulsive hoarding. There is nothing rational in the hoards of wealth that is sitting only to amass even more hoards of wealth. Its 20+ years into 21st century and instead of flying cars we have a system that thrives on making people overwork for ever less pay and even kills them if they cant pay for the hospital. Way past time for you to reconsider your ideology. Not others.

n8cpdx 4y ago

Household saving just slows down the inflation if you’re lucky; it gets spent eventually and reduces the immediate effectiveness at the fed in moderating things. But that assumes people will save, and that isn’t as likely in a situation where people have the opportunity to spend (e.g. restaurants and gyms and theaters are an option) I think 2020-era inflation is largely a story of stimulus going directly to households, which used that to either spend (chasing too few goods because people were out of work, constraining supply) or save, allowing them to stop working for longer. You will see lots of stories about people _choosing_ not to work because of COVID or health or whatever - that is a story of savings allowing people to stay out of the labor market. In an economy where supply-demand imbalance is driving up prices, savings may not be all that helpful. But realistically so much of this inflation happened because the money went to people who didn’t save - they turned around and spent it. This is the argument people used for student loan relief as economic stimulus: these people are poor, so they will turn around and spend what they would have used on their student loans. This is consistent with my personal experience, except now it is happening in an overheated economy. Giving more money to people living paycheck to paycheck and expecting saving to be the result is an example of missing all the major lessons of the last three years.

dangwhy 4y ago

> The other will actually be very good for the economy. why is saving money good for economy? seems counterintutive

bubbleRefuge 4y ago
You are right it is not. One persons spending is the other's income.
tastyfreeze 4y ago
Saving leads to more people having enough to risk entrepreneurship and investment. Both lead to real economic growth.
- dangwhy 4y ago
  is this claim based on any research ?
  - tastyfreeze 4y ago
    How did the rich get rich? Saving and putting that money to work instead of their bodies.

time_to_smile 4y ago

> they can spend it, or they can save it. The trouble is they haven't been saving it. Savings rates is near the lowest it's been in years [0], debt is rapidly increasing [1] and we're seeing quickly increasing dipping into 401k savings [2]. I do agree with your general argument though, that this isn't about workers being paid to much. All evidence suggest that despite the increases in worker pay, more and more American's are stretching themselves to continue consuming and we've seen in plenty of places that consumption is dropping. 0. https://tradingeconomics.com/united-states/personal-savings https://tradingeconomics.com/united-states/personal-savings 1. https://www.cnbc.com/2022/11/15/household-debt-soars-at-fastest-pace-in-15-years-as-credit-card-use-surges-fed-report-says.html https://www.cnbc.com/2022/11/15/household-debt-soars-at-fast... 2. https://www.wsj.com/articles/short-on-cash-more-americans-tap-401-k-savings-for-emergencies-11675305976 https://www.wsj.com/articles/short-on-cash-more-americans-ta...

cyberge99 4y ago
In the last quarter I’ve seen high yield savings accounts go from 3% to 5% at doctorofcredit. This is just anecdotal but it’s the reality I see that isn’t reflected in the links you provided (and it’s more recent).

bitshiftfaced 4y ago

[strikeout]Powell said yesterday that the current issue is in services, and he named housing in particular. Interest rates must increase until they meaningfully lower housing prices. Otherwise, rent and housing will just keep sucking up the wage growth.[/strikeout] You can see here how, despite nominal wage growth, real disposable income hasn't improved since pre covid: https://fred.stlouisfed.org/series/DSPIC96 https://fred.stlouisfed.org/series/DSPIC96

dragontamer 4y ago
> Interest rates must increase until they meaningfully lower housing prices. https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20230201.pdf https://www.federalreserve.gov/mediacenter/files/FOMCprescon... > We are seeing the effects of our policy actions on demand in the most interest-sensitive sectors of the economy, particularly housing. Main speech, page 3. > and he named housing in particular. He named "X-housing", which means "ignoring housing". Housing is doing well. Its everything _EXCEPT_ housing that's doing poorly right now. Press Conference section, page 8. > The inflation in the core services X housing is still running at 4 percent on a 6- and 12-month basis. -------- So housing inflation has stopped (and anybody shopping for a house would realize that prices are no longer going up, but have begun to drop). Meanwhile, everything else in our economy seems to still be going up in price. That's bad, but Powell notes that these other sections of the economy take "longer" for the Fed Rate hikes to kick in. So they're going to slow down the rate hikes and see where the current trajectory takes us. IE: ~5%ish terminal rate in the near term. More data needed to evaluate the long term. ------ > Powell said yesterday While I'm being pedantic... Powell said it on Wednesday... which was two days ago :-)
- bitshiftfaced 4y ago
  Thanks

qbasic_forever 4y ago

In reality it's the high incomes that are continuing to make money and spend it, i.e. the landlords and property companies making serious bank as rents jack up higher and higher. We need to tax these people and corporations--that will quickly stop inflation.