Wednesday, September 09, 2015

Witness Me!

If I'm going to die, I'm going to die economic on the Fury Road.

I have an interesting observation about wages and the attention we pay to different types of inflation:

An interesting reaction to prices: we would be terribly concerned about 6% wage growth, yet find 6% energy price growth (or growth in any other volatile price) perfectly acceptable, because we have found a lot of volatility in the latter and less in the former in recent decades. Following decades of increases in worker productivity coupled with an absence of wage growth, we could have 30 years worth of catch up growth in median worker wages before we really need to worry about runaway inflation. Yes, automatic labor price increases embedded into contracts in the 60's and 70's contributed to high inflation in the 70's; however, those automatic increases leading to wage spirals are gone for most workers. Yet, members of the Federal Reserve Board of Governors are having conniption fits over a tight(er) labor market, worried about "inflation" which has not appeared yet.

More than that, there remain substantial pools of workers who have passed in the opposite direction from "employment" to "unemployment" to the invisible category of "discouraged worker" who must be employed before we need to start worrying about labor costs increasing very much. Until then, the Fed should not raise its rates.

Witness me! 


Refute me!

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