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Sadly, even the chairmen of central banks ignore the most important contribution to inflation: wages. The reason why we have deflation in Japan and Europe desp

by sprash 12y ago

Sadly, even the chairmen of central banks ignore the most important contribution to inflation: wages. The reason why we have deflation in Japan and Europe despite almost zero rates and even additional quantitative easing is because nominal median wages there are actually falling. It is very easy to make sure to have an inflation of 2%: Just raise the minimum wage 2% each year. Thats it. Example that inflation correlates strongly with wages for the EWU: http://www.flassbeck-economics.de/wp-content/uploads/2013/03/HF-4-3-2013.jpg http://www.flassbeck-economics.de/wp-content/uploads/2013/03...

roymurdock 12y ago
This is wrong. 3.3m workers work for the minimum wage in the US. This represents 2.6% of all wage and salary workers in the economy [0]. Raising the minimum wage would simply make 2.6% of the working population better off at the expense of their employers. It's a redistribution of wealth and it has nothing to do with inflation. You have your causation backwards. Employers being forced to pay a higher wage to 2.6% of the working force does not cause the money supply to increase. Central bank monetary policy causes the money supply to increase, creating inflation. Wages increase in order to preserve purchasing power in an inflationary economy. This is why the markets hang on the Fed's every word - the Fed has the power to change interest rates and inflation which, in turn, effects the labor market. To address your point about deflation: QE was designed to support bank balance sheets by removing risky and opaque assets and replacing them with liquidity. Banks now have a ton of liquidity [1], but no investment-worthy projects. Thus they choose to hold their reserves with central banks, choosing a negative interest rate over the risk of lending in the economy. Wages are falling because there is less money in the economy chasing an increasing amount of goods. Therefore money is appreciating in value. Once banks resume lending out the liquidity they have been injected with we will see wages rise. [0] http://www.pewresearch.org/fact-tank/2014/09/08/who-makes-minimum-wage/ http://www.pewresearch.org/fact-tank/2014/09/08/who-makes-mi... [1] http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=15Y1 http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1...
- sprash 12y ago
  > Raising the minimum wage would simply make 2.6% of the working population better off at the expense of their employers. But never the less those 2.6% percent will be directly responsible for the inflation since they barely get by now and if you increase their wages the prices will adjust accordingly so that they barely get by in the future. Also it has been shown that if you increase minimum wage all wages across the board will increase, even the highest ones. > Central bank monetary policy causes the money supply to increase, creating inflation. There is no evidence for that. The money supply has been expanded vastly in the last years but still there was almost no inflation. Why? because all the money arrived in the financial market where it "inflated" the value of financial products causing one bubble after the other. There is a very easy way to make absolutely sure that the money arrives in the real economy (which will be the driver of "investment-worthy" projects in the future): raise wages.

by sprash 12y ago

roymurdock 12y ago

This is wrong. 3.3m workers work for the minimum wage in the US. This represents 2.6% of all wage and salary workers in the economy [0]. Raising the minimum wage would simply make 2.6% of the working population better off at the expense of their employers. It's a redistribution of wealth and it has nothing to do with inflation. You have your causation backwards. Employers being forced to pay a higher wage to 2.6% of the working force does not cause the money supply to increase. Central bank monetary policy causes the money supply to increase, creating inflation. Wages increase in order to preserve purchasing power in an inflationary economy. This is why the markets hang on the Fed's every word - the Fed has the power to change interest rates and inflation which, in turn, effects the labor market. To address your point about deflation: QE was designed to support bank balance sheets by removing risky and opaque assets and replacing them with liquidity. Banks now have a ton of liquidity [1], but no investment-worthy projects. Thus they choose to hold their reserves with central banks, choosing a negative interest rate over the risk of lending in the economy. Wages are falling because there is less money in the economy chasing an increasing amount of goods. Therefore money is appreciating in value. Once banks resume lending out the liquidity they have been injected with we will see wages rise. [0] http://www.pewresearch.org/fact-tank/2014/09/08/who-makes-minimum-wage/ http://www.pewresearch.org/fact-tank/2014/09/08/who-makes-mi... [1] http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=15Y1 http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1...

sprash 12y ago
> Raising the minimum wage would simply make 2.6% of the working population better off at the expense of their employers. But never the less those 2.6% percent will be directly responsible for the inflation since they barely get by now and if you increase their wages the prices will adjust accordingly so that they barely get by in the future. Also it has been shown that if you increase minimum wage all wages across the board will increase, even the highest ones. > Central bank monetary policy causes the money supply to increase, creating inflation. There is no evidence for that. The money supply has been expanded vastly in the last years but still there was almost no inflation. Why? because all the money arrived in the financial market where it "inflated" the value of financial products causing one bubble after the other. There is a very easy way to make absolutely sure that the money arrives in the real economy (which will be the driver of "investment-worthy" projects in the future): raise wages.