> Governments etc. argue that employees should not demand higher pay to match inflation to avoid a "spiral" out of the goodness of their hearts.
Meanwhile, my government mandates that ALL employees automatically get a raise matching inflation. No negotiation possible/needed; employers cannot refuse. Belgium.
Sounds great in theory; in practice Belgium competitiveness index and innovation index is lower than all its neighbouring countries; including France and post Brexit UK.
Broadly speaking, competitiveness is the source of quality of life improvements, through its effect of expanding capital and thereby raising productivity.
If economic productivity is proportional to quality of life, why aren't most people doing everything they possibly can to maximize their productivity. E.g., working 20 hour days, foregoing children in order to produce more, trading vacation days for more work...
I'd argue it's because economic productivity is not the only input into well-being and quality of life.
Lack of recreation and reproduction harms economic productivity in the long run. Everything valuable or good in life can ultimately be measured as contributing to productivity.
That assumes is a goal in its own sake. I’m making an argument that productivity is a means to an end, not an end itself. It’s similar to the alignment problem of AI.
Put differently, do you think a lower quality of life is a worthwhile tradeoff if it raises productivity? What about the inverse?
Some laws, like those against theft and violence, increase competitiveness. The ideal state has such laws - that establish a free market based on voluntary interaction - and little else. And indeed, states that get closest to this ideal have the best economic growth rates and trends in QoL improvements.
If fact, if you want competitiveness you need to prevent a fully free market.
No matter how many times this is explained, people still continue to make this incredibly simple and enormously consequential mistake.
If we're taking the reductionist view that economic output is the only important measure of society, then people need to understand that means maximizing competition not maximizing a free market.
> And indeed, states that get closest to this ideal have the best economic growth rates and trends in QoL improvements.
Isn't this just a cleverly worded tautology? It's like saying healthy people tend to live longer and happier lives. But is it actionable information? Not really.
Again, I don't see the tautology in my statement, and I know I'm asking for elaboration in good faith, so there's no way I could see it from your perspective.
In what world does competition increase quality of life? Competition results in more misery and less free time as people spend their time and energy trying to out compete one another.
You are conflating lack of regulations with lawlessness. If literal anarchy was the alternative, then you'd have a point.
Anyways, the device in question would simply not have existed if there wasn't for competition. His comment is thus evidence of its content being false.
>>Plenty of nation that are not lawless but are effectively unregulated in the matters being discussed.
I think you have basic misunderstandings of economic concepts and the state of the world economy. Can you provide an example of poorly performing economies which "are not lawless but are effectively unregulated in the matters being discussed"?
You're moving the goalposts, while launching a torrent of insults without provocation.
You wrote:
>>>>How are the citizens in the least regulated doing on that front?
Now you're noting that some countries don't have specific workplace condition mandates. Not having said law doesn't mean they meet the ideals noted, of having laws establishing a free market, while lacking regulations that restrict voluntary exchange. To elaborate: in order to prove classical economists' and libertarians' claims about the free market being optimal are wrong, you'd have to show far more than these cherry-picked examples.
Your argument is sloppy, and when I request for more vigor, you lash out to create a flame war. This is not intellectual or scientific.
I'm absolutely justified in demanding you support your claims with evidence, and your belligerent responses are not justified, no matter how morally superior you believe yourself to be.
Now you're being disingenuous, framing an answer to your explicit query as anything other than that.
You said "Can you provide an example of poorly performing economies which "are not lawless but are effectively unregulated in the matters being discussed"?" And that's what I was replying to.
I provided an entire class of people who are harmed in such nations, of which too many exist.
Just because they don't share your preferences doesn't change the fact they meet the criteria you set forth.
> Meanwhile, my government mandates that ALL employees automatically get a raise matching inflation
How does this work in practice? It is your wage is reviewed annually and adjusted, or more frequently? Do employers give raises for good performance or do you expect to just get a raise based on inflation?
Every Jan 1st the government produces an "inflation index" and all gross salaries are multiplied by that number. Employers are free to give more; but if your January gross salaries is lower than your dec salary * the index you have a legal case.
Employers typically take this into account and reduce the performance based raise they give by the amount. It's great for the low performer or easily replaceable people who get a raise they otherwise would not have gotten and bad for the top performer / more sought after profiles because employer look at the total costs and thus have less legroom for individual increases. It acts as an equaliser in that sense; but the best and brightest are getting way more few kilometres away (it's not like Belgium is a huge country; almost every lives less than 1.5 hour away from the border).
For the companies that are less able to pay that automatic inflation; it can be pretty hard/expensive to fire, because the employment laws are quite protective. So the usual solution is to just not hire. Big companies are also finding ways to reduce their headcount and transfer the risk on smaller structure; such as using sub companies and franchising models. Thos inherently reduce employee job security and stability. Unions are fighting this as much as they can; without any success.
Companies that need local workforce (retail, ...) adjust their prices accordingly. As an example the same pack of pasta costs ~40% more in Belgium than in France. Many people take their car and drive significant distances to cross the border buy food.
Governments have a cynical knack of identifying every possible cause of inflation, no matter how tenuous, except the obvious one - government policy.
Governments will blame businesses, consumers, employees, foreigners and bad weather. The only option ruled out is all the money printing going on and a good decade of regulators encouraging that and high-risk financial behaviour.
If inflation is high, it is a bad time to listen to governments.
If anyone is still claiming the main or only reason for inflation is "money printing", they really haven't being paying attention to the world for the past 3 years and it's a terrible idea to listen to them.
Why are you ignoring a pandemic with associated measures such as lockdowns (although funnily, Sweden is very useful - they didn't lock down, they didn't print a ton of money, yet they're experiencing similar inflation to their neighbours), war in continental Europe, and the impact those had on global markets (higher costs of critical raw materials such as oil and gas, various metals, disrupted supply chains and bottlenecks, etc.)? Do you really think none of this matters, or do your political leanings tell you it's always the government's fault?
All those issues will be resolved and the effects will disappear in time. The war will end. Supply chains will realign. And if those things matter, then at that point we would expect prices to come down. You'd have to be naive to believe prices will come down. They aren't going to. This is not the first crisis in the last century and yet inflation is almost uniformly positive year after year. Governments are explicit in their policy-making.
Those things don't matter when identifying why prices tend to go up over time.
He labelled the cause as government policy, which clearly includes pandemic measures.
Sweden didn't lock down but they did print a ton of money. Compare money supply growth for UK vs Sweden. It's the same and occurred at the same time. Lockdowns weren't the only pandemic spending measures unfortunately. All governments everywhere massively pumped the money supply to pay for "whatever it takes" and now the bill has come due:
> Do you really think none of this matters, or do your political leanings tell you it's always the government's fault?
Inflation is always and everywhere a monetary phenomenon, however, this basic insight is easy to get confused about because there's a large gap between theory and practice when it comes to this metric.
In theory inflation cannot occur without money printing, because a rise in prices of something like oil or food must be compensated by a fall in prices elsewhere as demand for that less essential thing disappears. People re-allocate their financial decisions towards the thing increasing in prices, businesses compensate by lowering prices to try and increase demand, it balances out.
Several things complicate this simple picture in practice.
One is that government inflation metrics don't include all prices. Indeed they cannot because it's too difficult to collect that data and prices constantly change. Also, governments like to play games with inflation statistics because if you can confuse people about inflation you get to pay for election pledges with money printing and then blame inflation on external factors, and because people tend to vote for whoever promises to spend more without raising taxes it's a quick way to hack democracy. So they usually define inflation only in terms of a small subset of all prices. If you do that then you can obviously have inflation even in the absence of money printing because you're ignoring the prices that fall.
Another problem is that in a sufficiently damaging period of price instability, some goods and services may simply cease being available. Everyone is spending all their money on heating their homes and other businesses go bankrupt as a consequence. At this point the price of the thing effectively goes to infinity, it just can't be obtained at any price, but that ruins the calculations and so governments do substitutions within the basket of prices, asserting that X is a substitute for Y even if in reality X is quite different (e.g. different kinds of meat). There are lots of hacks like these in how the stats are calculated.
Yet another problem is that money printing is somewhat circular in a fractional reserve system with very low reserve ratios and there are lots of feedback loops. If the government prints lots of money, then gives it to people whilst simultaneously banning the spending of it then it will appear they printed lots of money without causing inflation. When they stop banning the spending of it, that will show up as inflation even if the money printing has stopped. This is what's happening now, as governments shovelled money into people's pockets during lockdowns but there was nothing open to spend it on.
Nonetheless, we usually think of inflation has being caused by money printing because most of the time prices aren't being affected by wars or oil cartels and when that does occur, the prices which rise are being compensated by other prices that are falling or disappearing (which is a loss of wealth). It may just not be obvious.
> In theory inflation cannot occur without money printing, because a rise in prices of something like oil or food must be compensated by a fall in prices elsewhere as demand for that less essential thing disappears.
This is silly, inflation existed before "money printing" existed as a concept. We had inflation when we had gold standard. Inflation existed even when we used physical gold coins to pay.
More plainly, the most important factor in the economy is velocity of money and you completely ignore that it exists. Higher velocity of money can allow inflation to rise, with a fixed supply.
1. Debasement of the currency (reducing the gold content of coins)
2. Gold mining
3. Stealing gold from abroad
That's why the Spanish Empire suffered hyperinflation after Cortez, because so much gold was brought back to Spain from the conquered South American tribes.
Yes, money velocity has an impact too but the main thing which can affect that is government intervention (like by printing lots of money and giving it to people who then save it - low velocity - and later start spending it - higher velocity).
Agreed, it is silly to say inflation "only" occurs due to money printing. I'd like to point out though that gold is printed. More precisely it is mined.
If governments sell bonds to domestic buyers then indeed that doesn't create money, but in practice most bonds are bought by the central bank using printed money.
What do the funds used to buy bonds do until repaid?
They back the newly printed currency.
You see, nothing is ever actually created.
Money is created from Commodities like wheat, corn, and metals, all of which are obtained in manners where the input cost is less than the output value with the additional value coming from a process in nature (sun and photosynthesis, or geologic actions for example).
You've clearly never actually done the flow chart, huh?
You're talking about wealth, not money. Wealth indeed cannot be created out of thin air and is based on converting inputs into higher value outputs. Money in contrast can be created at will, and is, all the time.
Aren't you talking about bond issuance? Yes, no money is printed then. It's printed when the central bank buys the bond back from the open market using new money.
>How are bonds repaid?
They aren't, the central bank indefinitely rolls them over.
No, bonds held by the federal reserve are rolled over. The debt is paid back but it is immediately replaced with new debt of equivalent value, off of the open market. The process is described here: https://www.newyorkfed.org/markets/treasury-rollover-faq
>On the auction settlement date, the maturing Treasury securities are exchanged for the newly issued Treasury securities.
In net, the debt is only paid back when the central bank is actively reducing its treasury holdings, by rolling over less than the total amount of maturing debt. That is basically the reverse process of 'printing money', it takes the money back out of the wider economy.
>Why do you think people buy them?
Certainly 'people' buy them because they intend to get paid back, yes, but the central bank doesn't have the same motives. It increases and decreases the amount of treasuries it holds in order to control the money supply. That's the whole purpose of it holding treasuries.
The level of disingenuous is absurd at this point.
Do investors get paid in exchange for returning the bonds?
Yes.
The fact that the government repeats the process is irrelevant to the simple fact that the Cash printed is done so by first securing an equal amount of funds to back them which is then returned with interest to the bond holder, inherently meaning that the Cash is not printed out of nothing but rather printed explicitly to represent real world value.
The amount of wealth in circulation and the amount of cash in circulation are not equal.
Wealth is constantly changing as new commodities and services are produced which create new wealth "out of nothing". You're engaged ina complete misattribution of cause and effect
At this point it seems intentionally deceptive...
Poe's law is in effect and I will begin treating you as a troll until proven otherwise.
Governments can argue whatever they want, workers still demand more pay and (more often) change jobs to where they get paid more. The last years has been massive for worker movements, atleast here in my region.
It's difficult in Europe. Most companies aren't paying more, I've been interviewing for 3 months, so there's nowhere to go to for more money. If they can collectively jack up prices to bump the inflation, they can also collectively put a ceiling on wages.
What government is arguing that employee wages should be lower/stagnant in order to fight inflation?
EDIT: I mean advocating not just that we should avoid a wage/price spiral through other means, but specifically that individual workers should accept/volunteer for lower wages than they could otherwise get?
Edit 2: seeing several cases of "$Reserve_Bank_Person says wage increases are too high and need to come down", not a lot of "Please turn down your pay increase so we can fight inflation." The reason no one would actually say the second is it is a ridiculous collective action problem that is obviously unsolvable on the employee side. The Australia governor warned against a 5.75% pay raise for govt employees (I think), but he was addressing the employer in that case, not individual workers.
The UK government has done this various times in the last couple of years to argue against (high) pay rises for the National Health Service and other government institutions.
So the one exception that I considered putting in would be cases where the government is the employer and is negotiating with their employees. And yes of course, they will use whatever arguments they can to come out ahead in labor negotiations, like any employer.
I didn't see any mention of calls for workers to accept lower wages in the first article. In the second article, such calls were mentioned but not explicitly referenced or quoted. (Maybe they would be familiar to a British audience.)
But I would say that is different than asking for private sector workers to accept lower wages as an inflation fighting strategy. And note that the actual fiscal policy that the UK has pursued is wage subsidies, as much as 650£ - 1000£ annually it seems. (As described in the second article, not something I'm familiar with beyond that.)
UK govt spokespeople have regularly argued that employers and employees, both public and private, should limit wage rises or accept lower rises to avoid inflation. It’s mad, but that’s actually what they say.
Ironically, they are most vehement when claiming wage rises in the public sector cause inflation, despite ethe evidence there being much weaker (or non existent according to many economists).
What he should be calling for is for private sector leaders to show restraint when raising prices. But he doesn't. That just tells you whose side he is on.
Sure but that's an appeal to the employer setting the wages, not the worker. (Or is he talking about executive pay for themselves? I couldn't read the article.)
Ok, you are pushing your definitions into unreasonable territory.
A central bank saying inflation is caused by high wages is exactly the same as the government telling people they should get a lower wage. There is no practical difference.
It is in fact worse, because the central bank tends to act on that phrase. So the government not only tells people they should earn less, but forces their hands into that.
Right, but the central bank knows that IT is the one forcing the lower wages. They're not standing up there asking employees to shred part of their paycheck, because that is obviously dumb. The original person was talking about what workers should do "out of the goodness of their own heart." But no central bank is asking workers to take action, they are forcing workers' hands, explicitly.
You may think that is better or worse, but it is not appealing directly to workers to throw away their pay check.
The U.S. Federal Reserve hasn’t advocated people voluntarily take a lower wage, but they have explicitly stated that their goal for raising rates is to put people out of work so that they’re forced to accept lower wages. You can see Powell’s FOMC transcripts from late last year for many examples of this.
Can't read the full article but the headline seems to say that the fed is hoping for wage increases to slow, but that would be because they have tightened monetary policy. That's different from the fed chair getting up and saying "Workers, please ask your boss to pay you less so we can fight inflation."
Note that the main transmission mechanism of monetary policy in fighting inflation is basically putting people out of work, to the extent of provoking a recession if need be. So yes the fed is looking for some pain in the labor market to see that things are working, though they would love for inflation to come down without a recession too.
But high inflation is also bad for workers, because wages in general don't keep up in real terms (re-negotiated infrequently, leverage imbalance between company and worker, status quo bias, etc.). The higher inflation is the larger you can expect companies profit shares to be (case in point, the original article). Also really high inflation seems bad in general for the economy, both workers and companies.
"no, they're not expecting people to just take less money because wages are sticky and that wouldn't happen anyway, they're just trying to put everyone out of work so you have to renegotiate at your next job"
ok so you agree with the general thesis but not the exact mechanism? why quibble then?
In before someone argues that RBA isn’t part of the Australian capital-G Government, the organisation certainly is part of the governing institutions of Australia.
Now, of course, he's not saying to any particular workers "Hey, stop asking for much higher wages," but he says plainly in the final paragraph of the article:
> “The labor market … shows only tentative signs of rebalancing, and wage growth remains well above levels that would be consistent with 2 percent inflation over time,” he said. “Despite some promising developments, we have a long way to go in restoring price stability.”
How would you suppose workers are supposed to have wage growth "consistent with 2 percent inflation" if said wage growth were to greatly exceed that magical 2% number? This is the Fed literally saying "Please turn down your pay increase so we can fight inflation," except that there's also the implicit thread of "... or else we're gonna have to make sure a bunch of you lose your jobs so it all balances out. It'd be a shame if that happened, wouldn't it?"
One point is that they “argue” through their policies. It seems like there is much more government tolerance for “stimulating” the economy when it most benefits corporations (lower rates and/or bailouts) than it does when it disproportionately goes straight to citizens (stimulus checks)
Governments argue both, that’s what this article shows. They can shout from the hilltops to “stop asking for more everyone!”, but it’s not going to help without actual action to force it.
This may be the case, however somehow it seems it is usually wages which stagnate while profits skyrocket.
Either the government is unable or unwilling to enforce this equally. If unable, they are incompetent, if unwilling, than they are corrupt. In either case we live in a corporatocracy not democracy.
As they should. that's how it works and they are correct. Employees should argue against that and demand more if they dare.
The job of Central bank is to increase interest rates until unemployment rate increases to the level where employees don't dare ask more. Unemployment reduces both demand and wage growth. That will slow down inflation but it also baits recession.
They didn't say government. They said Central Banks, which in most places are semi-disconnected from elected government since you don't really want anyone playing politics with Central Bank policy.
Central Banks are generally tasked with setting one single, but very powerful, variable: interest rates. There's thought to be a pretty strong causal relationship between interest rates and unemployment.
The central bank absolutely knows that jacking up interest rates will, in the short term, drive down living standards. The trade-off is that it will also drive down inflation, which causes much bigger drops in living standards in the long term.
In practice central bankers are unelected politicians. Their mandates are set by politicians, they aren't actually bankers in the normal sense of the term, and what they do is attempt to plan the economy in service of politically set goals. If central bankers were really independent of politics then they would of course have refused to print any money to fund COVID measures like lockdowns on the grounds that they are responsible solely for inflation and employment, so if governments wanted to do that they'd have to pass emergency taxes. Obviously no central banker said that. They were all immediately on board with letting politicians do whatever they wanted.
I didn't intend for it to be read as either good or bad. Actually I think it's a good thing. Government employees should not see themselves as independent of politicians.
I think the OP was referring to how governments tend to be conciliatory to actors just responding to market forces in one side of the debate and not the other. Jon Stewart had a good interview with Larry Summers on this (although I realize he’s no longer in the government). Stewart’s point was that the govt/central bank tends to make excuses for letting corporations benefit from “market forces” but do more to actively thwart workers for using those same forces to their own benefit.
> job of Central bank is to increase interest rates until unemployment rate increases
This is incorrect. The job of the Fed is to maximise price stability (which it defines as 2% inflation) and minimise unemployment (which it defines as the natural unemployment rate, to which we are close). There has basically never been a time when the Fed wanted unemployment to go up. (Keep in mind: unemployment != wage increases, though the two are related as are prices.)
The BoE has been banging the wage restraint drum for a while. Bailey on the Today Program in February:
“I’m not saying nobody gets a pay rise, don’t get me wrong. But what I am saying is, we do need to see restraint in pay bargaining, otherwise it will get out of control.”
Back in May, his Chief Economist Huw Pill got in trouble for expressing the sentiment thusly:
“Somehow in the UK, someone needs to accept that they're worse off and stop trying to maintain their real spending power by bidding up prices, whether higher wages or passing energy costs through on to customers,” which Bailey had to walk back.
Last week on Sky News, he was pitching a version of that same position, though, that balanced calls for wage restraint with calls for companies to exercises restraint on profit margins also:
“We've got to get and we will get inflation back to its target. To do that … we cannot continue to have the current level of wage increases, and we can't have companies seeking to rebuild profit margins which mean prices continue to go up at their current rates.”
This is probably the closest example, and he is toeing the line there on a direct appeal to workers. But it also seems like broad expectation setting to both workers and employers that high inflation will not continue, so you don't need to price that in. It is a bluff on his part, but one that (in theory) works out if everyone believes it.
>… when he suggested workers shouldn’t ask for big wage increases…
How is that not directly telling workers to not ask for wage increases? I’d also say adding the word “chastising” is changing the tone of what the original commentor and I were referencing when talking about governments asking workers to not ask for wage increases.
The author is doing a lot of heavy lifting with the word "suggesting". I can't find any quote that suggests he is actually saying workers shouldn't ask for raises. Here's the closest I could find:
"To do that I have to be clear – and we expect inflation to come down this year – to do that we cannot continue to have the current level of wage increases ... And we can't have companies seeking to rebuild profit margins which mean prices continue to go up at their current rates...But what I would say to people is we expect inflation to come down, and it is important then that price setting and wage setting reflects that."
Again, nothing "suggests" that he thinks workers are supposed to be blamed for wage increases being unsustainable. If anything he is blaming corporations!
Is wage setting not an activity taken on by the labor force? I can see how a reasonable person might interpret it that way, but I also see how it’s interpreted as a message to labor. Otherwise you might be suggesting that capital has all the negotiating power and there isn’t any market for labor and that sounds rather communistic which I’m sure these fellows wouldn’t ever imply
Worker wages have been stagnant for a decade plus. Even the recent increases have been vastly outpaced by increases in prices AS EVIDENCED BY INCREASING PROFIT at companies that are increasing wages.
The problem is there is no price competition because most sectors of the economy are oligopolistic and have no interest in competing with each other one price at the moment.
Governments etc. argue that employees should not demand higher pay to match inflation to avoid a "spiral" out of the goodness of their hearts.
If employers catch the absolute currency value increase of inflation the employee employer balance is shifting.