It is like you just wait for the other posters to post something so you can pounce on it.
It's like some people want mcmanus to show up and quote Stirling Newberry.
Can ben program the server to block all posts for 2 hours after the previous one? Because Becks is incorrigible and also hates Chinese people.
It depends. Most private pensions (and annuities) are not inflation indexed so inflation is very bad for people collecting private pensions (like me soon). More generally there would be winners and losers. It would be bad for the people who own mortgages. Inflation was a big part of the cause of the S&L problems circa 1980.
IANAEconomist by any wild stretch, but my retirement plant, IIRC, is set up so that when I retire I'll get it paid out at a rate that depends on the total in there when I start.* So, it seems to my uneducated thinking, wouldn't my payout increase in line with inflation if my donations also increase, assuming inflation caused my income to go up and/or otherwise freed up income for donation to retirement? I guess I'm answering in order to ask, as I don't really know. Gods, I can't even believe I'm replying given how little I know about this.
Tangentially, I marvel at how history repeats itself. Reading this made me think of the farmers I was taught advocated for the silver standard on pretty much exactly the same grounds.
---
* Actually, the voluntary is set up this way and the pension plan is a defined benefit based on the average of my final five years' salary, which would also go up if inflation caused my salary to increase, which is actually kind of unlikely but whevs.
At your service:
The Short Unhappy Life of a Keynesian Moment ...FDL, Sunday Night
The good news is that corporate profits are back, and the public is happy. It might seem a contradiction, but it is not. In this economy the pain has fallen disproportionately on a small percentage of the workforce, but their prospects are virtually wiped out. The debt to pay off the bank bail out largely falls on the future, in the form of lower health care access and no pensions. The people who are doing well in the present see much lower prices and their jobs are basically secure. They think...SN
It would be bad for the people who own mortgages.
I was there, at the very Texan heart of it. As long as house prices were rising and people were buyin nobody minded the 15%+ rates.
Free Silver? It was common knowledge for maybe a thousand years that inflation was good for the wage-labour class. It was even good for a large percentage of urban Germans in the 20s.
Sure, that might be true, but wouldn't inflation be more damaging in today's economy, where more people have defined contribution plans for retirement, than in the 70's, when most retirement plans were defined benefit?
Isn't this exactly backwards? Aren't most defined benefit plans essentially fixed-income, i.e. you're-screwed-if-there's-inflation plans. Or are they typically inflation-indexed?
Regardless, the rate of return on a defined contribution plan stands a reasonable chance of picking up in line with inflation (depending on what it's invested in, of course.)
I'll repeat:those horrible double digit inflations years 77-82 or whatever were not all bad. What were horrible were gas shortages and Volcker's cramdowns. Volcker ruined millions, especially in the developing world, and killed a lot of what the 60s helped build. Not a nice guy, and I am not all comforted that he is on Obama's team.
When the general price-level is rising, manufacturers have a pretty solid hope that they will able to cover the costs of inputs with sales. But they have to move fast, to generate the cash to cover next month's inputs, so they hire and pay good wages. Those wage-earners can buy product! Yeah!
Deflation, when the manufacturer is pretty certain he will not have sales to pay last month's costs, really really sucks. Just plain bad. Disinflation or stagnation is scarey.
Wasn't it really all about the farmers getting played by the silver miners?
Three to six percent inflation is probably a good thing. We are a long way away from that now. Inflation that goes too high and triggers an inflationary spiral is bad, potentially disastrous. Deflation is very bad. Inflation fears right now are misplaced.
Inflation fears right now are misplaced.
Except for, you know, all the money we've been printing. On the other hand, how the hell else are we supposed to pay back the Chinese?
As far as your specific question about fixed incomes, well, I can point to the 60s-70s, those decades Christy Romer calls "the failed experiment."
There were politicians that deserve credit, but the fact that a vast proportion of the country felt prosperous, secure & hopeful, and generous and felt they could afford it is I believe a large reason for Medicare, COLA increases for Social Security, Medicaid etc.
IOW, give me sustained high wages and I feel comfortable that the marginal elderly and the poor will be taken care of.
13:I can trace this shit back to Elizabeth trying to limit Feast Days and Medieval Kings being asked to cut more gold coins.
I am not comfortable wth predictions right now, even my own.
Here is Tyler Cowen who thinks The Fed will stomp hard enough to prevent inflation. The price will be horrible.
That's is down the line. Calculated Risk thinks unemployment will continue to rise for at least two more years. We hit 20% U-6 and bets are off.
Here's tristero with The Most Frightening Blog Post Evah linking to Eichengreen & O'Rourke at VoxEu.
Except for, you know, all the money we've been printing. On the other hand, how the hell else are we supposed to pay back the Chinese?
Exactly wrong. We're borrowing less now than we were a year ago, and gov't+private borrowing is lower than it's been in years. As long as there's (essentially) no private investment, there's (essentially) no inflation risk.
High inflation will impede growth, meaning that marginally skilled but clever young will do poorly paid boring work instead of well-paid web design.
If there is population and technology stasis, then inflation is good, but people now vote with their feet to move to countries where growth is high. The US will be less appealing than it had been, which is a net loss. On the other had, China, Europe, and Japan are all issuing debt and printing currency nearly as fast as the US.
14
... Inflation fears right now are misplaced.
Depends on your situation. Since a big part of my net worth is in a fixed pension I worry about inflation.
19: marginally skilled but clever young [people] will do poorly paid boring work FML
11
Isn't this exactly backwards? Aren't most defined benefit plans essentially fixed-income, i.e. you're-screwed-if-there's-inflation plans. Or are they typically inflation-indexed?
Typically the amount of a defined benefit pension is set by your average wage for your last few years of work but once you retire does not change. So inflation is ok while you are still working if your salary keeps pace but inflation after you retire is very bad.
20.last: But the point, James, is that there's little reason to think that inflation on any significant scale will happen, not that inflation of a significant scale is nothing to worry about (for some people this is certainly true, but I don't think that's what 14 was saying; it's certainly not what I'm saying).
It's probably that the years of 1% annual inflation are over, but those were always anomalous. ~3% is nothing to sweat, even on a fixed pension (SSI will still have COLA to pick up some slack). 6% is problematic, but that's the point at which the gov't will snap into action (if it doesn't beforehand, which I'm pretty sure it will - all of this inflation talk is essentially preemptive, laying the groundwork for anti-inflationary policies the moment the curve tilts upwards).
Niall Ferguson has been making the case that inflation is likely. Krugman's response has been, as far as I can tell, "not in the next two years or so." Basically all governments in the world are creating mountains of debt and issuing new money very quickly. Historically, when one country does this, inflation follows.
I think there is no way out but insolvency or paying out for the many individuals who overpaid for housing.
Except for, you know, all the money we've been printing.
we're not printing that much money. It's a complicated question, much misrepresentation. The total amount of "money" creation right now -- when you sum up private and public money creation -- is almost certainly less than it was a few years ago.
23
It's probably that the years of 1% annual inflation are over, but those were always anomalous. ~3% is nothing to sweat, even on a fixed pension (SSI will still have COLA to pick up some slack). 6% is problematic, but that's the point at which the gov't will snap into action (if it doesn't beforehand, which I'm pretty sure it will - all of this inflation talk is essentially preemptive, laying the groundwork for anti-inflationary policies the moment the curve tilts upwards).
According to this annual inflation rates under Carter went 5.75% (1976), 6.50% (1977), 7.62% (1978), 11.22% (1979), 13.58% (1980). A similar period of inflation under Obama would put a major dent in my pension. Maybe it won't happen but I don't see any reason not to worry about it.
Either Ferguson or Krugman is right here, but we won't know for a while. Krugman says that all this borrowing won't drive up interest rates... and yet, interest rates do seem to be going up. So the bond markets seem to be agreeing with Ferguson. Of course, the bond markets got us into this mess, so when the hell do the bond markets know.
I'm a little concerned that Krugman's argument fits a little to neatly into his overall worldview that prefers high government spending overall, and especially at a time when Keynesian stimulus is needed. While I am sympathetic to the need for Keynesian stimulus, that doesn't mean we won't eventually have to pay the piper for such a high level of deficit spending.
I don't see any reason not to worry about it
Because your worrying won't have any effect on the inflation rate, but lots on your blood pressure rate?
28
Because your worrying won't have any effect on the inflation rate, but lots on your blood pressure rate?
If lots of people worry about it this will encourage less inflationary policy.
And I personally can think about inflation hedges.
Without getting into a long debate on the pronunciation of the word I'm about to use, can someone direct me to a primer on the case that inflation is good for the working class? It's an idea I've long been exposed to in QED form but never in proof.
The argument is that inflation reduces the value of financial assets in relation to real assets. The working class is likely to have negative financial assets -- debt rather than capital -- and so sees its debts shrink and its income keep up with inflation, for a net profit. Capitalists are likely to hold the debts of the working class as assets; when those debts shrink, capitalists (and middle class people with financial investments) lose out.
This is oversimplified, and I don't have a source, but that's the argument as I understand it.
(Hyper-inflation, OTOH, where your paycheck loses perceptible value during a pay period, is another thing and hurts everyone.)
If lots of people worry about it this will encourage less inflationary policy.
The Power of Positive Perturbed Thinking.
31: Come to think of it, that argument's pretty much in the post. So, Becks-pwned.
30: Good for barn doors and bad for reindeers, good for barn doors and bad for reindeers....
I'm a little concerned that Krugman's argument fits a little to neatly into his overall worldview that prefers high government spending overall, and especially at a time when Keynesian stimulus is needed. While I am sympathetic to the need for Keynesian stimulus, that doesn't mean we won't eventually have to pay the piper for such a high level of deficit spending.
But it's not just a world-view or aesthetic thing. Keynes actually had models explaining why his theories should work, and, in the current downturn, his models are looking a lot better than those of the people who tried to debunk Keynes. We've come to an agreement that gov'ts should fine-tune economic output through continuous Keynesian means, but there's been no credible debunking of the basic concept of Keynesian stimulus. PK and other modern Keynesians can explain, in mathematical terms, exactly why things will go more or less as they predict.
Now, obviously, that's putting a lot of faith in economics models (where is Emerson?), but it's not as if PK is just spouting off - or as if Ferguson et al have some store of credibility created by foreseeing the current mess we're in.
23: My point is that we're in a different time/place, esp. wrt inflationary expectations. One big benefit of the last 30 years of generally low inflation is that central bankers have much much more credibility on this issue than they did then - a fair amount of that inflation came from markets not believing that the Fed or the gov't would do what it took (other sources were wage/price spirals, no longer an issue in the post-union era and the second Oil Crisis. That last one is an issue again, although we're a much less energy-dependent economy now than we were).
Anyway, if you want to expend your precious worrying on inflation, don't let me stop you....
I think people make too much fuss about the dangers of moderate inflation (4 to 6 percent). There are issues there, especially because if it gets written into too many contracts it can help lead to an inflation spiral, but there are also lots of advantages in terms of greasing the wheels of economic growth. Also, freaking out about the possibility of 4-6 percent inflation leads the Fed to be too contractionary.
If asset inflation was counted correctly the notion that we licked inflation post-1982 would be seen as somewhat illusory.
If we don't come up with some way of reducing the burden of overpriced debt hanging around homeowners necks then it will really continue to hinder the economy. Ideally this would happen through outright loan restructuring and not inflation. But it's been almost a year now and we haven't made much progress on that.
Thanks, LB, that makes it clearer to me, which could be a problem with my reading comprehension of the original post. I think what trips me up (and still does) is the assumption that wages keep up with inflation.
Daniel Gross on Krugman, Ferguson, and the "Bond Wars" 10 and 30 year rates rising, does this portend inflation. But this mostly a short to intermediate term argument.
Intermediate to Long term
1)What will commodity prices do? Are we running out of oil, metals, rubber, whatever?
2) My solid impression, FWIW, is that China, the Oil producers, the developing and newly developed nations are very much committed to Bretton Woods II. They will buy the bonds of the US/UK and EU in order to finance our consumption and develop their domestic economies. A lesson has been learned, and re-learned recently with the "Flight to Quality" Treasury bubble. If Brazil doesn't buy Treasuries, or the equivalent, Brazilians will. The world doesn't want inflation in the US.
There is a lot of history here, a lot of lesson learned, and probably more democracy and good economics abroad. Globalization is for real, and here to stay.
This could last decades.
Here is a Brazilian Keynesian
Then there are the Black Swans.
that doesn't mean we won't eventually have to pay the piper for such a high level of deficit spending.
economics as instinctive moralizing based on experience with your personal checkbook. Well, it's probably just as good as economics as fake social physics.
One of the biggest gaps in economics as a discipline is that there is no understanding at all of the long term effects of large government deficits.
we're not printing that much money.
Not compared to Germany 1923 (hyperinflation) or France 1923 (regular inflation), but rates comparable to the 70s.
Roubini, Taleb, and Setser all seem more worried about inflation than deflation, and they did predict this mess. Keeping basic facts straight takes work. IMO it is a mistake to cast likely economic outcome as a left v right political debate, at least for people not in government and not self-serving. Certainly central bank holdings have both increased sharply and changed composition a lot recently. I don't know what that means looking forward, but this is not a typical business cycle.
I think what trips me up (and still does) is the assumption that wages keep up with inflation.
one of the ways inflation may help grease the economic gears is by making it easier to give real wage cuts to workers without actually having to actually cut their nominal wage.
I think what trips me up (and still does) is the assumption that wages keep up with inflation.
Well, for the bottom end of the wage distribution, they loosely have to, don't they?
42: like I said, lots of misrepresentation. We're not printing that much money. Increases in bank reserves at the Fed aren't money if they aren't circulating. It's very hard to measure the money supply, which is why central banks stopped targeting it.
44: On looking at this, it's overstated. But there's a real limit to how far real wages can fall before people simply won't take the jobs, I'd think -- middleclass wages can fall a lot in real terms, but working class wages seems likely to be about as low as they can functionally go.
36: I've lately come around to Taleb's view that models are so frequently wrong in ways we don't expect that nobody can accurately forecast future events with any sort of consistency. So, while its nice that Krugman's been right in the recent past, I'm hesitant to put too much stock in predictive models.
Five years from now we will know if his models were correct, but I think that right now its unwise to bet the farm on an assumption that they are.
Think Global, like Newberry. There is, and can only be, one economy anymore.
You really have to look at Spain, Greece, and Romania to understand French unemployment anymore.
You have to watch India, Brazil, and China to understand American wage deflation.
46: Um, huh? Billions of third-worlders would beg to differ.
46:LB, wages can fall to the floor and workers will still work. That workers will stay home is the bad Neo-Classical analysis.
The problem is that at a nickel an hour the worker can't buy anything, and the manufacturer can't cut prices low enough and stay in business.
Both Calculated Risk and James Hamilton are catching a lot of flack because they say cars are falling apart, getting old, and people must buy new cars. Their readers ask:"What if there is no money" and CR and JDH just say:"But the cars must be replaced." It's pretty funny.
49: I don't think the bottom end of the wage scale is that far off the point where riots would start in the US. We've got a lot of people in this country with non-Third World expectations.
(There's an old Bob&Ray routine that cracks me up; a reporter is interviewing a paper-clip factory manager, and asks where all the machinery is. The manager explains that the paper clips are handmade, and that they stay competitive by keeping labor costs down: due to a sweetheart deal with the union, workers are paid ten cents a day, and aren't allowed to quit. "But how can they live on that?" "We don't like interfering in our workers' personal lives. But we understand most of them live in caves on the edge of town. And they forage for food.")
51: I think this countries best labor rioting days are behind it.
I don't think the bottom end of the wage scale is that far off the point where riots would start in the US.
Riots or no, people still have to eat.
52: Partially because real wages are higher than they were back then. If the working class were broadly, e.g., hungry, I think rioting could come back quick.
aren't money if they aren't circulating.
I found Krugman's book educational, especially the chapter explaining how bond issues have become a shadow banking system. Businesses need credit to expand or to make payroll; that market in borrowing is the coupling between central banks and the retail economy. High real interest affects ordinary people, and not only when they need to borrow to buy a car or house.
If the working class were broadly, e.g., hungry, Chinese engineers would flee the US instead of coming here voluntarily.
53
Riots or no, people still have to eat.
So things like health insurance would go first. Isn't food, especially meat, actually very cheap in the US?
38
I think people make too much fuss about the dangers of moderate inflation (4 to 6 percent). ...
6% inflation cuts a fixed rate pension in half in 12 years, by 75% in 24 years.
Compared to other necessities, yes -- it's a much smaller part of a basket of expenditures than it is in other countries, or than it was in the past. You'd get widespread homelessness among working people before widespread hunger, probably.
59
... You'd get widespread homelessness among working people before widespread hunger, probably.
Seems like there is a lot of spare housing capacity at the moment too. Especially when you consider the potential for doubling up.
lot of spare housing capacity
Not if wages don't keep up with inflation, to the extent that people can afford to buy or rent the housing. If they don't, I'd expect to start seeing a lot of squatting, which is the next thing to riots.
Isn't food, especially meat, actually very cheap in the US?
Extremely cheap. Partially by industrialization and economies of scale, partially by (fuel, corn, etc.) subsidies.
squatting
Isn't this just downward pressure on housing codes? A few miles from my house, the local debate is about code enforcement on single family residences used as boarding houses; both occupancy and parking habits of crowded houses are objectionable to comfortable neighbors.
"But the cars must be replaced."
This really isn't true though. Or at least there is a lot of elasticity in it, particularly in states without very tight emissions rules.
Or at least there is a lot of elasticity in it,
Again, that's a failure point at which if wages get too low, people won't work. Someone who can't keep a car running is unemployable in large parts of the US, and the lower-income people I know aren't too far from that line.
Again, that's a failure point at which if wages get too low, people won't work.
Why do we need minimum wage laws again?
67: Because we don't like the riots and so forth when wages dip below sustainable levels? And we think people are better off when the minimum legal wage is somewhat higher than the point at which workers will give up because they can't make it to work?
66: LB, I agree, but all I was saying is that it is perfectly practical for the US car 'fleet' to be used for much longer than it typically is. New car sales are not actually driven by necessity, in recent history.
You're right that there are certainly people near that line now though.
LB, what you're describing seem to me as more likely effects of cataclysmic drops in wages. But the question you were responding to was about the slow erosion of real wages through inflation (without pay raises matching the inflation rate). I can see that sort of thing pushing real wages down quite a bit further without riots breaking out. It's a slow process, and over years and decades people have a chance both to adapt to changes forced by lower wages (even to something like not being able to afford to keep a car running) and to become acclimated to the lower standards of living.
Last time an increase in the minimum wage was being batted around, I remember hearing that the real minimum wage had fallen substantially (>30%) over the previous ten years. I don't recall any riots for higher wages. It was then raised over three years from $5.15 an hour to $7.25 an hour. This leads me to believe that working class wages are not currently near the point where a decrease will lead to rioting and people not working.
Indeed; I have friends who have had their pay cut and friends who have been laid off. The ones who had their pay cut universally say "at least I still have a job"; the ones who got laid off have no such consolation.
I can see that sort of thing pushing real wages down quite a bit further without riots breaking out.
Maybe -- I'm working from a subjective impression. I think there are a lot of people now working full time in the above-ground economy for whom it's barely worthwhile/practical for them to do so, and they don't have room for much more adjustment. If wages fell to any significant extent, they'd do something other than work for on-the-books pay. I don't know what, really -- riots are an offhanded guess.
But I could be wrong -- I'm not working from broad data, but from people I know.
72: Culturally in the US, there is a lot of support for the idea that if things get crappy enough if you above-ground job you take on an additional 1/2 time job and make do. I don't know how much this social pressure will effect a current cohort skimming those waters now....
71: This leads me to believe that working class wages are not currently near the point where a decrease will lead to rioting and people not working.
We're talking about a decrease through inflation, so real wages dropping below the current real value of the minimum wage would be perfectly possible without a change in the law.
they don't have room for much more adjustment
Again, international comparisons suggest this is complete nonsense. I understand we have a lot of people in this country "with non-Third World expectations" (to quote you from upthread), but expections can change. And if we're talking about a process of wage erosion that's slow enough--moderate inflation, not hyperinflation--it's almost hard to imagine them doing anything but changing.
75 makes sense. Cutting your wages in half overnight is catastrophic. Cutting them in half over a decade is the sort of thing you might adjust to.
How much have US working class wage expectations changed in the last 40 years? Was the expectation 40 years ago that many households would barely be scraping by with two adults working in the labor force full-time?
77: But what counts as scraping by has changed, too.
so real wages dropping below the current real value of the minimum wage would be perfectly possible
And this still seems to me a more likely scenario under inflation than wages inflating along with everything else.
I understand that inflation makes debt a better deal for the debtor and a worse deal for the creditor. What I don't understand is how the rise in price of a gallon of milk isn't going to hurt more and more immediately.
Again, international comparisons suggest this is complete nonsense.
Think about the car thing -- unless society changes a great deal, people who can't pay for a car are unemployable in most of the country. That's not about subjective expectations, that's about being able to show up for work.
If things change slowly enough, practical alternative means of transport calculated to serve impoverished workers might emerge. But counting on that as a certainty seems overstated.
(And again, I'm talking about cutting wages at the bottom end of the income distribution. At the middle and top, there's lots of room for readjustment.)
We're talking about a decrease through inflation, so real wages dropping below the current real value of the minimum wage would be perfectly possible without a change in the law.
Yes. Minimum wages were increased 40% in the last two years. Given that there was not rioting by people with minimum wage jobs in 2007, there's no reason to expect rioting if real minimum wages fall back to 2007 levels via inflation. Graph here.
Think about the car thing -- unless society changes a great deal, people who can't pay for a car are unemployable in most of the country. That's not about subjective expectations, that's about being able to show up for work.
There's a lot of room for adjustment here, even at the bottom. Driving older vehicles longer. Carpooling with family or coworkers (which might be very inconvenient, but better than not having money for food). Walking, biking, city bus. At the extreme, if walking/biking/city bus isn't an option, scrapping the home in the suburbs and moving to a (likely much smaller) place where it is an option. Etc. None of these are pleasant, but they all beat starving.
pay for a car
Old cars are routinely exported from the US to much poorer countries because there is no economic incentive to fix them up here. Expect more repair and parts shops of the kind you see in poor counties or the wrong side of the tracks in cities. 10-year old cars that still run pretty reliably cost under $2k. If there's one employer in town and only a few low-rent neighborhoods or trailer parks, ridesharing for gas+beer money start to appear. For transport, there's a tradeoff between price and reliability in general. Again, downward pressure on current notions of comfort and environmental safety seems pretty likely.
61
Not if wages don't keep up with inflation, to the extent that people can afford to buy or rent the housing. If they don't, I'd expect to start seeing a lot of squatting, which is the next thing to riots.
Housing supply is not very elastic so if demand drops so will prices and rents.
Thing is, if housing prices drop, that's a large component of inflation, isn't it? I suppose housing prices could drop while everything else went way up, so you'd have net inflation despite a drop in housing prices.
None of these are pleasant, but they all beat starving.
I honestly don't know what's likely to happen -- I'm talking about a subjective impression, based on a few people in a depressed area of NYS, that there's not much room at the bottom of the wage structure to practically cut expenditures. My point, though, is that the options aren't 'quietly adjust your lifestyle to Third World levels' or starve. Starting to break windows is an option in there.
Third World lifestyles are mostly illegal here -- squatting, informal building, and so on. We'd need to change a lot of regulations, or stop enforcing them, for that to change.
85
Thing is, if housing prices drop, that's a large component of inflation, isn't it? I suppose housing prices could drop while everything else went way up, so you'd have net inflation despite a drop in housing prices.
They don't have to drop, just hold steady while other things rise.
86
Third World lifestyles are mostly illegal here -- squatting, informal building, and so on. We'd need to change a lot of regulations, or stop enforcing them, for that to change.
Lots of regulations are not currently enforced when it comes to illegal immigrants.
Not enforced perfectly. But we'd need to stop enforcing them at all.
LB, the NYC picture is a bit skewed too. It's a very expensive city. If things get bad enough there, one of the simplest options is to leave, and live somewhere that cost of living is more aligned with your earning potential. Enough of that happens and you'll see rents drop precipitously too. I'm not saying this will happen, I'm just saying the NYC has a pretty unusual standard for minimum to get by, and that introduces some elasticity, much like keeping old cars running here does.
Not that any of this is good stuff exactly, but I suspect the typical US lifestyle has a lot of give in it before people take to the streets, particularly if the shift is slow.
90: It's funny about that -- NYC is wildly expensive if you compare prices for exactly the same basket of goods, but the density makes some aspects of living here cheaper at the bottom end. Cars are really unnecessary, for example.
typical US lifestyle
Yeah, I've been talking about only the working poor. The rest of us can get our wages cut a whole lot without much happening as a result.
If things get bad enough there, one of the simplest options is to leave, and live somewhere that cost of living is more aligned with your earning potential.
Similar here, but more complicated now because the economy of Las Vegas (aka the ninth Hawaiian island) is now deeper in the shitter than ours is (yet).
I don't understand. How does the LV-Hawaii link work?
live somewhere that cost of living is more aligned with your earning potential.
There's also the problem that jobs tend not to be located in areas with rock-bottom cost of living. The people I'm thinking of when I'm thinking of a drop in real wages causing them to leave the legit economy aren't NYC people, and I think there's a fair chance they'd be better off trying to get by here. They're rural poor, in areas with few jobs, and those with low wages.
91.1 is true. density helps some things.
As for the working poor thing, I remember in the height of the dot-com boom in the bay area, nearly every service industry place you went buy had help wanted ads out. People would bus/carpool/BART for miles for crappy jobs or, like the farm workers, be picked up in econoline vans. They couldn't afford to live near these (crappy) jobs. It pushes people to the outskirts, and then self corrects to a degree. So long as you have a region of abnormally high rents you'll form a boundary of cheap housing further out, I expect. If it gets too bad though, things fall apart.
There's also the problem that jobs tend not to be located in areas with rock-bottom cost of living.
This is almost tautological, I suspect. I was thinking more of moving from high cost to middling cost, but yes, it's a problem.
nearly every service industry place you went buy had help wanted ads out. People would bus/carpool/BART for miles for crappy jobs or, like the farm workers, be picked up in econoline vans. They couldn't afford to live near these (crappy) jobs. It pushes people to the outskirts, and then self corrects to a degree. So long as you have a region of abnormally high rents you'll form a boundary of cheap housing further out, I expect. If it gets too bad though, things fall apart.
This, exactly, is what I was saying. I'm not sure precisely what 'fall apart' is likely to entail, but something more than just tightening belts and getting by.
This, exactly, is what I was saying. I'm not sure precisely what 'fall apart' is likely to entail, but something more than just tightening belts and getting by.
Fair enough, but I don't see signs that we're all that close yet and I think there are regional shifts to be made to even this stuff out a bit yet, before there is any different recourse considered. As far as I can see demographically the shit is really hitting the fan in subsets of working class & middle class families at the moment, more that the "working poor". And to a large extent the damage is if future expectations. The sort of long term grind James was talking about earlier where your earning potential (or savings) gets eaten takes much longer. It's the localized catastrophic lose all your savings type scenarios that are hurting people right now, which is different in kind.
93: It's pretty much the default vacation/relocation destination for a lot of local people.
Fair enough, but I don't see signs that we're all that close yet
No, no. I was talking about a scenario where inflation without wage increases led to significant cuts in real wages at the bottom of the wage structure. We're not in an inflationary period now, and my guess is that if we were, wages at the bottom probably would keep up with inflation, because otherwise it'd be hard to fill crappy jobs.
I was arguing (I think) with people believing that there's room at the bottom for significant cuts in real wages that people would peacefully and successfully adjust to.
I'm not sure I understand that. If someone who lives in an island paradise wants vacation, the default choice is a soulkilling ugly city in the ruined desert? It is an opportunity for them to experience hotel lobbies in ways they can't in Hawaii? Worse than that, Hawaiians move there?
I thought you were going to tell me that people used LV winnings to visit Hawaii and the effect on Hawaii's economy was bigger than I'd guess.
The simplest "fall apart" would be to weaken property rights to make short sales easier and allow housing prices to drop fast rather than having a bunch of properties in limbo while years go by figuring out who owns them. Many just-built exurban developments which don't make economic sense will be abandoned.
Some rural marginal single-employer towns will die when that employer closes. Garrison Keillor will finally be seen to be unbearably bleak rather than lovable or whatever it is that people think about him now. As the US starts to look more like Mexico or Slovakia, our pop music and belles lettres will get better, and our television will get even worse. The hot grocery store clerk from the Ivory Coast will finally confess her feelings for me, and I will master the perfect soft-boiled egg. Rosy clouds of sunset.
The goofy bike jerseys really do feel better for hot weather, by the way.
101: I'm sure I don't understand it, but that's how it is. I've never been there myself, although last I knew I had a cousin in gswift's line of work there.
I would think that going from that much daily beauty in Hawaii to the ugliness of LV would be very painful.
(The mountains around the city are pretty in the far view and I love deserts, but that's not what you see at the street level in LV.)
(The mountains around the city are pretty in the far view and I love deserts, but that's not what you see at the street level in LV.)
But do most people in Hawaii live in the beautiful outlying areas, or in the built-up cities that are the same as anywhere else in the US?
Many just-built exurban developments which don't make economic sense will be abandoned
Long term win probably, but short term pretty nasty.
105: Small mountainous islands--->the urban stuff and the beautiful stuff are pretty well stirred together.
water moccasin, your link in 81 is broken.
97
... I'm not sure precisely what 'fall apart' is likely to entail, ...
See here .
101: perhaps they get tired of the rain. And macadamia nuts.
Lots of regulations are not currently enforced when it comes to illegal immigrants.
Labor stuff maybe, but if there's been some spike in shantytowns and squatting I sure haven't seen it.
I was arguing (I think) with people believing that there's room at the bottom for significant cuts in real wages that people would peacefully and successfully adjust to.
Peacefully, I think. I introduced the term "third-world" in part to make clear that I wouldn't dare label the required adjustments "successful", even if people by and large manage to muddle through.
There's a tent city under the highway in my fair city. Depressing.
112
Labor stuff maybe, but if there's been some spike in shantytowns and squatting I sure haven't seen it.
See here :
We've had periodic stories in The Journal News about day laborer encampments in the woods around Brewster and Southeast -- immigrant men living outdoors with campfires, tents, food and toiletry supplies. ...
It was common knowledge for maybe a thousand years that inflation was good for the wage-labour class.
Certainly Fernand Braudel argues this in his Civilisation and Capitalism series.
Going back to the early parts of this thread, I once read a paper explaining that hyperinflation in Weimar Germany was bad but better than the alternative - towering interest rates choking livelihoods. Apparently, the Reichsbank did in fact pursue that policy in the early thirties, telling a pleading government that it was for the greater good - and then reversing abruptly after Hitler came to power.
For some reason, people think of hyperinflation as the tragic flaw that led to the Weimar Republic's downfall, when in fact it seems to have been the reverse.
In fact in fact in fact. Everybody out.
We've had periodic stories in The Journal News about day laborer encampments in the woods around Brewster and Southeast -- immigrant men living outdoors with campfires, tents, food and toiletry supplies. ...
The article you link in support of your claim that regulations aren't being enforced when it comes to immigrants contains the following graf.
Shortly thereafter, the men were arrested by the Putnam County Sheriff's Office, charged with trespass and questioned by ICE.
Was the expectation 40 years ago that many households would barely be scraping by with two adults working in the labor force full-time?
Here in the Netherlands feminists have been worrying for decades that Dutch women just do not seem to want to become fulltime workers and as career orientated as their male counterparts. Fulltime employement for women in Holland is significantly lower than that of similar countries like Sweden or the UK, partially explained by external pressures like the woeful state of child care, but partially because so many women just don't want it.
A cynical part of me thinks this is largely because it is still possible to live comfortably on just one middleclass income here, whereas in the UK and US you do need two full incomes and can still barely keep up. A large part of the drop in real wages has been counteracted this way by women joining the workforce.
119
Occasionally an example is made of some unlucky illegals in this case as the result of a political publicity stunt. In general enforcement is not sufficient to deter the behavior (illegal encampments).
Many of the solutions discussed here are predicated on the idea that if things get bad you can take an extra job, or move somewhere cheaper and get a job there, etc., which I understand is an approach in a fine and praiseworthy American tradition, but depends on unemployment being low enough that people who are employable can find work.
Headline unemployment in Spain at the moment is 17.5%. That suggests to me that there must be a lot of people there who are perfectly willing and able to work for whatever wages, but probably can't. I mean one in six of the working population out of work is more than the sick, lame and lazy.
And I don't see why such conditions shouldn't arrive in the US in the foreseeable future, given the present trajectory of American industry. In which case, the game changes quite a lot, because inflation isn't going to do much for those people, and forcing down wages when the normal ways of adjusting are down the pan looks increasingly unrealistic.
re; 122
Yes, I have family members actively seeking work at the moment who just can't find it. And that's in the UK, where unemployment isn't at those kinds of levels.
122/123: Depending on how you count, we're already there (9.4% official rate, 9.8% counting "discouraged" workers (seems closer to 9.4% than I'd expect), and 16.4% including people who consider themselves underemployed).
122: of course that could happen in the US (and 124 is right), it's just not what we were discussing, which was just the expected effects of inflation on wages. All sorts of other bad things could happen that change the game completely.
You were also arguing whether the labour market could absorb "peacefully and successfully" the impact of large scale wage cuts. To which I contend that global indicators suggest that conditions are unlikely to permit this.
You were also arguing whether the labour market could absorb "peacefully and successfully" the impact of large scale wage cuts. To which I contend that global indicators suggest that conditions are unlikely to permit this through the usual mechanisms. Never mind.
Sure, where "large scale wage cuts" means wage growth rates that are lower than the rate of inflation. If 122 was an argument for why "conditions are unlikely to permit this", I don't get it.
wage growth rates that are lower than the rate of inflation.
At the bottom end of the wage structure. What I've been arguing (with no great certainty) is that if low-end wages dropped much in real terms, jobs would go empty. That would either lead to wages going up to match inflation, or to something really bad happening, although I'm not sure exactly what.
What I've been arguing (with no great certainty) is that if low-end wages dropped much in real terms, jobs would go empty.
Understood. I don't think it's likely, but we've been over that. As far as I can tell, 122 was arguing the opposite--that there would be no jobs even for people who wanted them? Which seems to be an unrelated problem.
Real wages at the low end dropped a huge amount from the late 70s through the mid 90s. The rate of "idleness" (people with no job, but not in school) went way up, crime increased, and the prison population soared. But society did not collapse.
Someone looking at retirement, like James, should of course be worried about inflation. For everyone else, unless you're a major bond holder or get paid right near minimum wage, inflation is just not that big of a deal.
Let's suppose the worst case unfolds, and the Fed has actually increased the money supply by a great deal. The economy picks up, prices start zooming up, and rather than do anything, Bernanke says "fuck it" and heads to the Caymans. What happens then? We say a large one-time inflation, and that's it. The money supply stops growing, and then inflation goes away. The chronic inflation of the 70s was unusual, and requires something resembling deliberate government policy.
Anyway, the period in American history that everyone likes to point to as the golden age of rising real wages occuring during a time of chronic inflation. The period in which that chronic inflation ended coincides with the period in which real wages stopped rising. So the historical evidence is not that inflation causes real wages to fall, but almost the opposite.
Also, isn't Niall Ferguson is wrong about everything? Isn't he the historian who argued that the British should have stayed out of World War II so that they could have held onto the Empire?
133
... The chronic inflation of the 70s was unusual, and requires something resembling deliberate government policy.
The political environment that caused Carter to consider inflation the lesser evil could recur.
Anyway, the period in American history that everyone likes to point to as the golden age of rising real wages occuring during a time of chronic inflation. ...
Chronic inflation is not that unusual apparently.
if low-end wages dropped much in real terms, jobs would go empty. That would either lead to wages going up to match inflation, or to something really bad happening, although I'm not sure exactly what.
Illegal immigrants!