4 ms·

Probably because decoupling the dollar from gold meant that it was possible for nominal wages to continue to rise, but more slowly than prices. Until then if y

Probably because decoupling the dollar from gold meant that it was possible for nominal wages to continue to rise, but more slowly than prices. Until then if you wanted to pay people less money you had to somehow literally cut their pay. You had to make them accept a smaller number on their paycheck. After that, through the miracle of inflation, the numbers on their paychecks could continue to go up, up up! Just as long as those numbers are going up more slowly than inflation, you as a business owner are giving people a pay cut and they're not noticing it. Life is good! Me personally, I think that's the cause of a lot of the inequality.

pjc50 12y ago
http://en.wikipedia.org/wiki/File:US-Inflation-by-year.png http://en.wikipedia.org/wiki/File:US-Inflation-by-year.png Inflation existed before the decoupling, and has been low in the US since the early 80s. Nominal wage rigidity is important but the gold standard does not guarantee price levels or wage levels.
- msandford 12y ago
  You'll notice that up through the 40s it was possible for inflation to go negative and for there to be deflation. That means that while prices would rise for a time, they would then fall for a time. That made borrowing less attractive since there wasn't an implicit guarantee that you'll pay back the loan with money worth less than what was loaned to you. In other words, get $X buying power now, pay back $0.8X buying power over time. It's a slam dunk. After the 40s (and the war) there was a brief flirtation with deflation and then by the 60s inflation was in full force. Eventually people realized this was happening and a few years later Nixon nixed (HA!) the gold standard here in the US. Once that happened it became incredibly obvious that inflation, borrowing and not really paying for it was the new standard move if you had half a brain. Businesses got it very quickly. Most of the population in the US has yet to realize it, otherwise it would have been changed by now. EDIT: Given the regular changes to the way CPI is calculated I'm not sure I entirely agree with the reported numbers. I suspect that they're actually a few percent higher, so inflation has probably averaged not 4% for the last 30 years, but more like 6-7% 1.04 ^ 30 = 3.24 1.07 ^ 30 = 7.61 If that were the case it would explain a lot of the inequality. If inflation is 6-7% and returns have been averaging 8% (this is what most pensions assume they can get and shoot for) then your real rate of return is a pittance, almost not worth mentioning. Might that also cause some hard to detect but definitely real inequality as well?

pjc50 12y ago

http://en.wikipedia.org/wiki/File:US-Inflation-by-year.png http://en.wikipedia.org/wiki/File:US-Inflation-by-year.png Inflation existed before the decoupling, and has been low in the US since the early 80s. Nominal wage rigidity is important but the gold standard does not guarantee price levels or wage levels.

msandford 12y ago
You'll notice that up through the 40s it was possible for inflation to go negative and for there to be deflation. That means that while prices would rise for a time, they would then fall for a time. That made borrowing less attractive since there wasn't an implicit guarantee that you'll pay back the loan with money worth less than what was loaned to you. In other words, get $X buying power now, pay back $0.8X buying power over time. It's a slam dunk. After the 40s (and the war) there was a brief flirtation with deflation and then by the 60s inflation was in full force. Eventually people realized this was happening and a few years later Nixon nixed (HA!) the gold standard here in the US. Once that happened it became incredibly obvious that inflation, borrowing and not really paying for it was the new standard move if you had half a brain. Businesses got it very quickly. Most of the population in the US has yet to realize it, otherwise it would have been changed by now. EDIT: Given the regular changes to the way CPI is calculated I'm not sure I entirely agree with the reported numbers. I suspect that they're actually a few percent higher, so inflation has probably averaged not 4% for the last 30 years, but more like 6-7% 1.04 ^ 30 = 3.24 1.07 ^ 30 = 7.61 If that were the case it would explain a lot of the inequality. If inflation is 6-7% and returns have been averaging 8% (this is what most pensions assume they can get and shoot for) then your real rate of return is a pittance, almost not worth mentioning. Might that also cause some hard to detect but definitely real inequality as well?