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Economy
In reply to the discussion: STOCK MARKET WATCH -- Friday, 14 March 2014 [View all]Demeter
(85,373 posts)14. Fear of Wages PAUL KRUGMAN
http://www.nytimes.com/2014/03/14/opinion/krugman-fear-of-wages.html
...Suddenly, it seems as if all the serious people are telling each other that despite high unemployment theres hardly any slack in labor markets as evidenced by a supposed surge in wages and that the Federal Reserve needs to start raising interest rates very soon to head off the danger of inflation...O.K., where is this coming from? The starting point for this turn in elite opinion is the assertion that wages, after stagnating for years, have started to rise rapidly. And its true that one popular measure of wages has indeed picked up, with an especially large bump last month. But that bump is probably a snow-related statistical illusion. As economists at Goldman Sachs have pointed out, average wages normally jump in bad weather not because anyones wages actually rise, but because the workers idled by snow and storms tend to be less well-paid than those who arent affected. Beyond that, we have multiple measures of wages, and only one of them is showing a notable uptick. Its far from clear that the alleged wage acceleration is even happening. And whats wrong with rising wages, anyway? In the past, wage increases of around 4 percent a year more than twice the current rate have been consistent with low inflation. And theres a very good case for raising the Feds inflation target, which would mean seeking faster wage growth, say 5 percent or 6 percent per year. Why? Because even the International Monetary Fund now warns against the dangers of lowflation: too low an inflation rate puts the economy at risk of Japanification, of getting caught in a trap of economic stagnation and intractable debt.
Part of the answer, Id submit, is that for some people its always 1979. That is, theyre eternally vigilant against the danger of a runaway wage-price spiral, and somehow they havent noticed that nothing like that has happened for decades. Maybe its a generational thing. Maybe its because a 1970s-style crisis fits their ideological preconceptions, but the phantom menace of stagflation still has an outsized influence on economic debate.
Then theres sado-monetarism: the sense, all too common among in banking circles, that inflicting pain is ipso facto good. There are some people and institutions for example, the Basel-based Bank for International Settlements that always want to see interest rates go up. Their rationale is ever-changing its commodity prices; no, its financial stability; no, its wages but the recommended policy is always the same.
Finally, although the current monetary debate isnt as openly political as the previous fiscal debate, its hard to escape the suspicion that class interests are playing a role. A fair number of commentators seem oddly upset by the notion of workers getting raises, especially while returns to bondholders remain low. Its almost as if they identify with the investor class, and feel uncomfortable with anything that brings us close to full employment, and thereby gives workers more bargaining power...
...Suddenly, it seems as if all the serious people are telling each other that despite high unemployment theres hardly any slack in labor markets as evidenced by a supposed surge in wages and that the Federal Reserve needs to start raising interest rates very soon to head off the danger of inflation...O.K., where is this coming from? The starting point for this turn in elite opinion is the assertion that wages, after stagnating for years, have started to rise rapidly. And its true that one popular measure of wages has indeed picked up, with an especially large bump last month. But that bump is probably a snow-related statistical illusion. As economists at Goldman Sachs have pointed out, average wages normally jump in bad weather not because anyones wages actually rise, but because the workers idled by snow and storms tend to be less well-paid than those who arent affected. Beyond that, we have multiple measures of wages, and only one of them is showing a notable uptick. Its far from clear that the alleged wage acceleration is even happening. And whats wrong with rising wages, anyway? In the past, wage increases of around 4 percent a year more than twice the current rate have been consistent with low inflation. And theres a very good case for raising the Feds inflation target, which would mean seeking faster wage growth, say 5 percent or 6 percent per year. Why? Because even the International Monetary Fund now warns against the dangers of lowflation: too low an inflation rate puts the economy at risk of Japanification, of getting caught in a trap of economic stagnation and intractable debt.
Part of the answer, Id submit, is that for some people its always 1979. That is, theyre eternally vigilant against the danger of a runaway wage-price spiral, and somehow they havent noticed that nothing like that has happened for decades. Maybe its a generational thing. Maybe its because a 1970s-style crisis fits their ideological preconceptions, but the phantom menace of stagflation still has an outsized influence on economic debate.
Then theres sado-monetarism: the sense, all too common among in banking circles, that inflicting pain is ipso facto good. There are some people and institutions for example, the Basel-based Bank for International Settlements that always want to see interest rates go up. Their rationale is ever-changing its commodity prices; no, its financial stability; no, its wages but the recommended policy is always the same.
Finally, although the current monetary debate isnt as openly political as the previous fiscal debate, its hard to escape the suspicion that class interests are playing a role. A fair number of commentators seem oddly upset by the notion of workers getting raises, especially while returns to bondholders remain low. Its almost as if they identify with the investor class, and feel uncomfortable with anything that brings us close to full employment, and thereby gives workers more bargaining power...
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So where is the media and popular outrage that Detroit's bankruptcy was Made To Happen On Purpose?
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