[xapata]

> distract from the actual issues at hand.

On the contrary, noticing that real wages increased for the poorest 40% may motivate policies like a universal income / citizen dividend. Perhaps a higher steady state inflation is necessary, 4% instead of 2%, to keep unemployment low and real wages rising for the poorest.

Have you considered what happened to the wealthiest 1% as inflation fears led to increased interest rates? I'm guessing the nominal wealth declines affected the wealthiest most of all. I haven't seen measurements of that, yet, but I have seen some headlines about Musk and Adani.

[jujugoboom]

> On the contrary, noticing that real wages increased for the poorest 40% may motivate policies like a universal income / citizen dividend.

Its an interesting argument but it has already been seen in America where neo-libs and the GOP have shifted most of the blame for inflation to the stimulus checks, so I doubt it.

> Perhaps a higher steady state inflation is necessary, 4% instead of 2%, to keep unemployment low and real wages rising for the poorest.

The only way I could see higher inflation leading to higher wages is worse material conditions leading to more workers fighting for higher wages. Unless there's some weird economics at play, I don't see any other reason why inflation would increase wages, and if that is the reason, I'm not going to support any platform that only works because it increases misery.

> Have you considered what happened to the wealthiest 1% as inflation fears led to increased interest rates?

Yes, they saw a small adjustment in net worth down 7% at the beginning of 2022, although that seems to have flattened out since then, and real wages have only increased since early 2021, when they fell ~1% in Q1 2021. I'm not sure what you'd do with this, because increasing interest rates reduces inflation, which works against your (since you don't like the word argument) idea that we should keep inflation higher.

[xapata]

Nominal wages are a part of inflation, so there's nothing about the inflation rate that inherently changes real wages. If all components of inflation increased uniformly, purchasing power would stay constant. Inflation is only a drag to the extent that it's surprising.

However, there seems to be a relationship between inflation and unemployment. It's been cloudy, but the hypothesis is that low unemployment causes higher inflation. I further conjecture that sustained low unemployment flattens the income curve, leading to higher real wages at the low end.

Regardless, low unemployment is a good thing in its own right.

[jujugoboom]

> Nominal wages are a part of inflation, so there's nothing about the inflation rate that inherently changes real wages

Again, no they aren't, the only link would be that inflation worsens material conditions, which could lead to more people seeking higher wages, which overall improves wage conditions. The only "link" we've seen is recently, and even looking just behind the 2020s you can find inflation causing real wage decreases [1].

> If all components of inflation increased uniformly, purchasing power would stay constant

"If" is doing a lot of heavy lifting here.

> Inflation is only a drag to the extent that it's surprising.

Tell that to people who are un-banked, working minimum wage, or really any average person and see what their response is.

> However, there seems to be a relationship between inflation and unemployment.

Not sure where you're seeing this, and its hard to try and claim, as we are just now reaching pre-2020 levels of unemployment, not some mythical low level of unemployment. I could see an argument for lowering unemployment leading to higher inflation, but a stable low unemployment has shown no bearing on inflation.

> I further conjecture that sustained low unemployment flattens the income curve, leading to higher real wages at the low end.

Thats a nice conjecture, but again, just look right before 2020 to find the perfect counter argument, and data coming out from the end of 2022 is showing the opposite[2], that as U6 has reached an all time low (which I will say is not too shabby), real wages have started to slow their growth.

> low unemployment is a good thing in its own right

I know I'm probably starting to seem combative here, but again, this just isn't always true. For the overall state of our economy and the safety of the wealth of the richest, maybe, but on one end of the unemployment chart it speaks to less people being able to make it by without jobs. Employment among people with disabilities is at its lowest[2], which speaks to our societies inability to care for those who need it. People with disabilities are not going out and finding jobs because bagging at a grocery store is fulfilling, they're doing it because they can't afford not to.

On a different note, I'm really not trying to seem combative, and I hope you're enjoying our fake online discussion as much as I am.

[1] https://positivemoney.org/wp-content/uploads/2018/02/CPI-inf... [2] https://cepr.net/jobs-2023-1/

[xapata]

The discussion is real enough for me. However, lacking knowledge of the interlocutor brings a few problems. It's hard to know what shared knowledge and context we have.

One difference in terms that we're having trouble with is "inflation". When I spoke of "inflation" previously, I meant it in the general sense, not specifically consumer goods prices, or some other subset of prices. By definition, that means that nominal wages are included. The price of labor is just another price that inflates along with everything else. Note that the chart you linked [1] says "CPI inflation" rather than simply "inflation".

As for the relationship between unemployment and inflation, it's in a standard economics textbook. Unfortunately, the evidence for the theory has been somewhat mixed.

[jujugoboom]

When I say "fake", I hope it comes off in the sense of "not having a bearing on the real world", not trying to diminish anything.

> Note that the chart you linked [1] says "CPI inflation" rather than simply "inflation"

https://www.brookings.edu/blog/up-front/2021/06/28/how-does-...

When I'm speaking of inflation, I use the generally accepted definition of "a general increase in prices and fall in the purchasing value of money." This is why in the US we use CPI (and sometimes PCE) to measure inflation, it allows us to track how the prices of goods change, and through that we are (theoretically) able to track what the actual inflation rate over time is. Inflation in the macro sense can come from many places, but in general it is accepted that while wages _should_ keep up with normal inflation of 2% or so in America, that inflation eats away at stagnant wages, and has little direct effect on its own over wages, as evidenced by looking at average wages vs inflation, even in 2022 where the bottom 50% experienced their real wage growth[1]. "Price of labor" is much more theoretical in modern america, as there are many regulations that affect it, along with the much decreased bargaining power of the average worker since the decline in union membership, along with the fact that the average person anywhere in the world is not going to ever "buy labor", its a price that corporations set themselves and pay exclusively, and is therefore already fairly detached from any inflation (yes, I understand that corporate spending is still spending, but that argument starts getting a little trickle-down). As I said before, I can see there being a link between inflation and wage rise, but I still don't see where the root cause could be other than material conditions worsening leading to people fighting for higher wages. I guess in a "we need to fight more for ourselves" sense this isn't terrible, but I think we need to move away from a system where the way to progress is through misery.

I will say I was incorrect about the standard view of the relationship of unemployment and inflation, and that historically there has been (and it makes sense for there to be) a link between high inflation and low unemployment. Again, though, there are several ways to look at this, and it depends on where you think the driver of inflation is. If you (informally) believe that inflation comes from supply-side, then its pretty easy to explain the current inflation as we have consistently seen breakdowns in supply chains that have consistently led to lower supply. For demand-side inflation I think an argument could be made there, as with direct-to-consumer stimulus there is more money (along with the same amount of money going into PPP loans for buisness-owners), but looking at real disposable income[2], we are just reaching pre-2020 levels (aside from some very obvious spikes where stimulus checks were). Without extra disposable income across the board, I'm not sure where the extra discretionary spending would come from to increase prices. According to the NY Fed, the inflation was mostly caused by the demand shock (specifically) when recovering from early 2020, and supply-side issues[3].

For more context, I do fancy myself a bit of a work-abolitionist and am horribly left, so it is definitely coloring my takes, but I hope I'm providing enough data for my claims to counteract my inherent bias.

[1] https://fred.stlouisfed.org/graph/?g=SCYD [2] https://fred.stlouisfed.org/series/DSPIC96 [3] https://libertystreeteconomics.newyorkfed.org/2022/08/how-mu...

[xapata]

That Brookings article starts with, "Inflation refers to changes over time in the overall level of prices of goods and services throughout the economy." Services includes labor. The Bureau of Labor Statistics publishes the Employment Cost Index (ECI), which may be even more influential on the Federal Reserve Board's interest rate decisions than the Consumer Price Index (CPI).

The general public are consumers, so it's plausible that the "generally accepted" definition of inflation considers mostly the CPI. However, many generally accepted things are incorrect. If we're having a more technical discussion, it's reasonable to use a more technical definition. Perhaps best to be specific, saying "consumer price inflation" and "employment cost inflation" rather than simply "inflation" with no modifiers.

Notice that recent news about inflation has been deceleration of consumer prices. Most importantly, of rent, the largest component of the CPI. If the FRB were only concerned with that, they'd probably not have voted to increase the interest rate on Feb 1st. I'm guessing they had access to unemployment rate numbers from the BLS, which published a surprising job growth report today.

> people fighting for higher wages

My "fight" has been quite easy. I simply ask for it, or go get a different job that pays more. Of course it's not so easy for some people, but over the last couple years I've heard anecdotes from many business owners moaning over their employees' demands. "I just can't find any [qualified people that accept the wage I paid last year]." A friend of mine, an hourly worker, got an 18% raise in January!

The idea one might believe in either supply-side or demand-side causes of inflation and not both is strange to me. First, the primary driver of inflation in the long run is monetary policy. That's not controversial (among economists). Whether to consider price changes due to supply and demand as inflation is trickier, especially because those causes are so difficult to disentangle from monetary causes. Second, in considering short-term price changes due to the balance of supply and demand, they're clearly both important for almost all goods and services.

[jujugoboom]

> Services includes labor

No. "In classical economics, labor is one of the three factors of production, along with land and capital. Labor is often defined as the physical or mental effort exerted by human beings in the production of goods and services. In neoclassical economics, labor is a broader concept that incorporates all human activity that adds value to a product or service"[1]. And while the ECI does exist, and is used by the fed to inform inflationary policy, it includes all costs of employing someone, indicating inflation in the health care market just as much as in wages. Labor is known to be much more of a reactive market[2], and also much more affected by things like the labor participation rate than inflation on its own. Even your original source for real wage increases uses the CPI. It also makes sense to use a measure of consumer inflation when talking about wages, as again, most consumers aren't buying labor.

> If the FRB were only concerned with that, they'd probably not have voted to increase the interest rate on Feb 1st.

Yes because the FRB is concerned with large scale monetary policy, and only have a few strings to pull. Interest rate hikes are intended to slow monetary velocity, effectively decreasing money supply, and has nothing to do with the housing market.

> Of course it's not so easy for some people

Bit of an understatement

>but over the last couple years I've heard anecdotes from many business owners moaning over their employees' demands

And? Anecdotes aren't sources, so I don't know what to do for ya here.

> A friend of mine, an hourly worker, got an 18% raise in January

That's awesome for them! It doesn't change that its anecdotal, and doesn't change any of the previous data that I've included to show that at best the lowest 50% are just starting to reach and surpass where they were in 2000.

> The idea one might believe in either supply-side or demand-side causes of inflation and not both is strange to me

I never said it was one or the other, and even linked to sources that included a breakdown of the share of each. I was more speculating on the driver of the higher than average inflation since 2020, and included fed breakdowns that gave evidence for a good amount of supply-side inflation, whereas most American pundits tend to cast it in a demand-side only light (people have more money so they spend more kinds of arguments). I even pointed out where it was demand-side in the fed report, although they show that it is not more people with more money, but an effective contraction (from reduced monetary velocity) and subsequent rapid inflation of monetary supply following COVID.

>First, the primary driver of inflation in the long run is monetary policy

I really need you to pick a time frame. I thought we were arguing inflation for 2020s. Yes obviously monetary policy tends to have the most influence in the long run. I also don't think anyone would say that inflation in the 2020s has been driven by monetary policy, and in general it isn't in times where its higher than what is wanted from monetary policy, like what we've been experiencing.

[1] https://study.com/academy/lesson/labor-types-importance-exam... [2] https://www.forbes.com/sites/qai/2022/10/01/us-wage-growth-f...