3 ms·

>what central bankers are doing, not just by raising rates, suppressing demand, and lowering wages I'm not a finance expert by any stretch, but I thought infla

by rob74 4y ago

>what central bankers are doing, not just by raising rates, suppressing demand, and lowering wages I'm not a finance expert by any stretch, but I thought inflation was lowering wages, and raising the rates is done to combat inflation, i.e. reduce devaluation of wages (and savings, and other stuff)?

mschuster91 4y ago
That is if you follow the theory that wage costs are the dominant part of the cost of goods that make up the product baskets used to track inflation. Sounds like a good idea in theory, but completely ignores the real-world consequences of such shortsightedness: billionaires getting richer and richer without anyone caring is bad enough, but COVID and then the consequences of the Russian invasion forcibly exposed the worst issue that had been swept under the rug: low wages kill resiliency. When two thirds of the population barely keep up living paycheck to paycheck, even the tiniest disruption wipes them out financially and forces them into debt. And for what it's worth, we're seeing it right now where all the inflation ends up: in the pockets of the rich. Corporate profits are at record levels, even though economies just got out of the devastation that was COVID and we're having a full blown war at the European borders - one might expect the opposite, massive economical problems after all this chaos. It is high time that minimum wage rises and employee direct action (i.e. strikes) end up redistributing these indecent profits to the pockets of the people.
- ajmurmann 4y ago
  It also ignores that we have been having massive supply chain issues that had nothing to do with the cost of labor but a pandemic that even until recently saw lockdowns in some very major manufacturing locations. Thanks to three bull whip effect the effects will take a while after the incident to iron out.
fnordpiglet 4y ago
Inflation can reduce my purchasing power for things experiencing inflation. Unemployment can reduce my income by 100% making my purchasing power equal to zero. Further, underemployment and lagging wage growth will be far worse for workers than 5% inflation. The fed is a mechanical device designed to combat inflation by destroying productivity and growth and inducing economic contraction by spurring savings and making expansion more expensive and making businesses that operate on revolving credit lines impossible to run. Not everything is inflating, and even if inflation eats away wage growth, at least people have jobs. Over time inflation drives investment - as there are more dollars the ability to capture them increases if you can increase your productivity and reduce the prices you charge. It’s perhaps counter intuitive but inflation induces a decrease in prices over time so long as you don’t make borrowing more expensive. the typical response to inflation is to raise borrowing which inhibits price competition. Inflation is an excess of demand for supply. Supply increases to meet demand over time. It is true if you print money you see inflation. But when you stop printing money supply grows to meet demand. We stopped printing money already. If we left borrowing cheap, supply would meet demand and inflation would stop and we would probably see a growth based deflationary period.
dsign 4y ago
If you have savings in a current or savings bank account, then inflation erodes the value of those savings. But inflation was doing that before at a 2 % rate anyway, bank interest on savings is well below inflation rate. So most people actually have their savings in index funds or stocks, and as long as the economy is growing, so are their savings. On the other hand, debts are denominated on "the coin of the day", so inflation erodes the value of debts. Say, in the last year, I "paid" 10% of my mortgage because of inflation, even if my real income decreased 10%. I can go to my employer and threaten them with getting a new job if they don't increase my salary, or get a new job period. But the central bank doesn't want me to do that; instead they want those at the bottom to absorb the shock while those at the top adjust themselves for inflation freely. Time will tell. In some parts of Europe, workers are highly unionized, and collective bargaining is a thing. Then it's a matter of ideological warfare: workers need to believe they are being affected and press the unions to press their employers and ultimately the government.
- mantas 4y ago
  ... and in Europe employers leave for cheaper countries with less unionification. With governments happily supporting that with free trade agreements.
  - consp 4y ago
    That happens everywhere, America's (all of them), Europe, Afrika, Asia (yes even China) and is not just a European thing whatsoever.
    - mantas 4y ago
      OP tried to make an example of europe how supposedly it's different here. Just saying that it's not :)

by rob74 4y ago

mschuster91 4y ago

That is if you follow the theory that wage costs are the dominant part of the cost of goods that make up the product baskets used to track inflation. Sounds like a good idea in theory, but completely ignores the real-world consequences of such shortsightedness: billionaires getting richer and richer without anyone caring is bad enough, but COVID and then the consequences of the Russian invasion forcibly exposed the worst issue that had been swept under the rug: low wages kill resiliency. When two thirds of the population barely keep up living paycheck to paycheck, even the tiniest disruption wipes them out financially and forces them into debt. And for what it's worth, we're seeing it right now where all the inflation ends up: in the pockets of the rich. Corporate profits are at record levels, even though economies just got out of the devastation that was COVID and we're having a full blown war at the European borders - one might expect the opposite, massive economical problems after all this chaos. It is high time that minimum wage rises and employee direct action (i.e. strikes) end up redistributing these indecent profits to the pockets of the people.

ajmurmann 4y ago
It also ignores that we have been having massive supply chain issues that had nothing to do with the cost of labor but a pandemic that even until recently saw lockdowns in some very major manufacturing locations. Thanks to three bull whip effect the effects will take a while after the incident to iron out.

fnordpiglet 4y ago

Inflation can reduce my purchasing power for things experiencing inflation. Unemployment can reduce my income by 100% making my purchasing power equal to zero. Further, underemployment and lagging wage growth will be far worse for workers than 5% inflation. The fed is a mechanical device designed to combat inflation by destroying productivity and growth and inducing economic contraction by spurring savings and making expansion more expensive and making businesses that operate on revolving credit lines impossible to run. Not everything is inflating, and even if inflation eats away wage growth, at least people have jobs. Over time inflation drives investment - as there are more dollars the ability to capture them increases if you can increase your productivity and reduce the prices you charge. It’s perhaps counter intuitive but inflation induces a decrease in prices over time so long as you don’t make borrowing more expensive. the typical response to inflation is to raise borrowing which inhibits price competition. Inflation is an excess of demand for supply. Supply increases to meet demand over time. It is true if you print money you see inflation. But when you stop printing money supply grows to meet demand. We stopped printing money already. If we left borrowing cheap, supply would meet demand and inflation would stop and we would probably see a growth based deflationary period.

dsign 4y ago

If you have savings in a current or savings bank account, then inflation erodes the value of those savings. But inflation was doing that before at a 2 % rate anyway, bank interest on savings is well below inflation rate. So most people actually have their savings in index funds or stocks, and as long as the economy is growing, so are their savings. On the other hand, debts are denominated on "the coin of the day", so inflation erodes the value of debts. Say, in the last year, I "paid" 10% of my mortgage because of inflation, even if my real income decreased 10%. I can go to my employer and threaten them with getting a new job if they don't increase my salary, or get a new job period. But the central bank doesn't want me to do that; instead they want those at the bottom to absorb the shock while those at the top adjust themselves for inflation freely. Time will tell. In some parts of Europe, workers are highly unionized, and collective bargaining is a thing. Then it's a matter of ideological warfare: workers need to believe they are being affected and press the unions to press their employers and ultimately the government.

mantas 4y ago
... and in Europe employers leave for cheaper countries with less unionification. With governments happily supporting that with free trade agreements.
- consp 4y ago
  That happens everywhere, America's (all of them), Europe, Afrika, Asia (yes even China) and is not just a European thing whatsoever.
  - mantas 4y ago
    OP tried to make an example of europe how supposedly it's different here. Just saying that it's not :)