Thursday, November 12, 2015

Some good words about wages and inflation

Megan McArdle is a business writer for Bloomberg View; I liked her comments here about inflation and the "sticky wage" problem (with the recent Republican presidential primary debate as a backdrop):
...Inflation eases the sticky wage problem: You hold wages constant, and let inflation eat away the real value of the compensation until it’s in line with the company’s newly reduced expectations. It’s better for morale than an outright pay cut, and kinder than firing your least-productive workers. 
With inflation so low, this takes a long time, but over the last seven years, workers who got no raises will have seen an average 10 percent decrease in the buying power of their salaries. Many workers have gotten raises to keep up with inflation, of course, which is why real compensation is roughly flat. But some people, possibly many people, have seen a real and substantial decline. And since we had so much inflation in sectors that you really don’t have much choice about consuming, like food and gas, that hurts....
I think she hits on one of the reasons for general discontent about the economy. It's also relevant to the ChemCensus and how folks are feeling about their wages. 

8 comments:

  1. "Even as an empirical matter, however, this argument looks shaky. Inflation in grocery prices has been basically flat for more than a year. Fuel and utilities are lower than they were a year ago, while health care inflation has been a dainty 2.5 percent."
    "And since we had so much inflation in sectors that you really don’t have much choice about consuming, like food and gas, that hurts."

    Sort of refutes her own argument, no?

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    1. I think there may be regional variations in inflation - rents/housing prices are up a lot in some areas. And when you don't get a raise, you notice the prices that go up a lot more than the ones that stay the same or go down.

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    2. And compared to ten years ago? Oil was over $70/barrel in late 2005. It's a bit over $40/barrel today.

      Commodities in general peaked in the bubble era and have been flattish or on a downward trend since then. How does someone go about writing an opinion article in a major news magazine and not get basic, easily-confirmed facts straight?

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  2. Gasoline will be back up to 3 dollars before you know it(the previous decline was just a blip to keep the american people happy before raising the prices to well over 3 bucks a gallon again). Also the price of eggs are reaching all time highs.

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  3. Gasoline will be back up to 3 dollars before you know it(the previous decline was just a blip to keep the american people happy before raising the prices to well over 3 bucks a gallon again). Also the price of eggs are reaching all time highs.

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  4. Talking about inflation like it's some kind of measurable quantity is absurd. It's now just a politicized number that has no bearing on people's economic well-being. "I can't eat an iPad," as someone said last election cycle, but there it is in the CPI offsetting the ridiculous price of beef.

    The CPI has lost its mooring to the real world. That would explain both the populace's dissatisfaction and McArdle's waffling about whether inflation is high or not. The numbers no longer reflect reality, which is both confusing and infuriating.

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    1. If you want a better (or maybe just different) measure of inflation than the CPI, try the Billion Prices Index from MIT: http://bpp.mit.edu/usa/

      Either way, inflation is still pretty damn low.

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