If wages go up 20%, and prices go up 15%, everyone is better off and got a 5% raise, right?
Go poll people that experienced that and they won't tell you they're celebrating being 5% richer, they'll tell you they're outraged about the 15% inflation.
Psychologically they'll believe they earned that 20% raise through hard work. Putting in extra hours to get that promotion. But then the inflation robbed them of their 20% raise, and turned it into a measly 5% raise. They'll be outraged.
Politicians get this. No one will credit politicians for raising average wages, people will believe they earned their raise themselves. But there's lots of votes available for lowering prices.
I think this is part of the article's point. Raising incomes to combat affordability problems is far better for everyone involved than lowering prices artificially.
But like you said politicians get less credit for the the former than they do the latter, and thus we have the current situation of continued bad policy decisions.
The article isn't denying that lowering prices is politically effective--I think that's undeniable at this point--just that doing so is probably the wrong call.
Having lived through hyper-inflation the only thing that got that under control was price controls. Wages going up can't stop inflation - they fuel inflation. Inflation psychology is that your money is going to become worthless so you don't save it, you spend it, which keeps prices going up. It wrecks havoc on loans and debt as well. If you lent money with a fixed rate hyperinflation erases your returns. If you borrowed with a fixed rate your debt is effectively erased.
Not to mention that governments in general don't control incomes. They can lower taxes (which is good IMO). They can pay government employees higher wages (which is hard to do when you lower taxes).
At the end of the day governments make things better by making smart investments (or policies that enable smart investments) and make things worse by making bad investments (or policies that lead to bad investments). Everything else is second order effect.
There is no 'wages go up 20%'. That's not how the economy works. Wages are renegotiated on an annual basis and most people have to job hop to get anything close to a 20% raise.
Inflation affects everyone rapidly. But to get the claimed wage increase people have to do work to find new jobs.
That falsely turns your experience into an imagined generality.
There was one year I received 3 promotions at Travelocity and nearly doubled my compensation. I was hired as a web designer and after 3 months was involuntarily reassigned to a developer role and told to “figure it out”. I got a negative annual review that year and then ended up in Afghanistan on a military deployment. When I came back to Travelocity I was still classified as a developer but was reassigned from marketing to product development where to wages are higher, but I was earning as a junior designer. After eagerly looking for other internal jobs they gave me a raise to catch me up. Several months later I was promoted to a senior developer position and became the company A/B test engineer, which also came with a raise. A little after that another company gave me a better offer and Travelocity countered. This was like a million years ago.
Because most of my career is in writing JavaScript if I want to continue to increase my wages I would have to do the most beginner level shit work because that is common expectation for JavaScript developers.
yeah but it's not a great example, because actually wages aren't going up. maybe people would be able to psychologically handle inflation if it wasn't out-pacing wages. actually, now i think about it, that's not psychological at all, so the whole premise is kind of out the window, isn't it?
I don't work in tech, and hopping jobs will get you 5% at most, usually. Maybe it's because I'm in the public sector and wages are public information? Either way, it always comes across as VERY out of touch when people here talk about massive increases just by changing jobs.
Don't forget about taxes. Things cost 15% more, wages go up 20%, but the government takes a chunk of that 20%. Do you net even 15%? Depends on your tax bracket.
i don't think this is really true. people don't complain about an abstract concept of inflation, they complain that they can no longer afford things they once could. if wages really did practically increase by 5%, they could afford more things and have more money left over at the end of the month, and that is what they would notice.
politicians can't really affect wages the same way they can temporarily and artificially lower prices. but they also understand they need inflation to get elected, since you generally win elections by what you promise, not what you don't promise.
A group of people unaffected by a problem will rarely correctly handle the problem. And the further they are away from it, the further from 'correctly handle' will be their handling.
Most of the people responsible for Government decisions are fairly well insulated from most crises, hence the crises will continue and grow.
The difference being that the Dutch Government isn't meant to be responsible for the civilised behaviour of other countries.
Governments, however, are responsible for responding to crises occurring in the areas they are elected and paid to govern. But increasingly they behave like lords over subjects rather than representatives of the group.
> Most of the people responsible for Government decisions are fairly well separated from most crises
A lot of the time it is actually even worse than this in that they are often in a position to benefit from the crises.
The real major economic problem of our day is the extent to which labor's share of productivity gains have plummeted and continue to plummet.
If your wealth comes from capital everything is going gangbusters and nothing needs to be fixed. Just listen to Trump talk about the economy and how blind he is to how normal people experience it.
the affordability crisis is downstream of inflation. governments should stop inflating the money supply, but of course they won't ever do this because they would then need to generate revenue another way, which would be to raise taxes. inflation is really just a hidden tax and it's easier for them to "tax" without pissing off citizens.
and so really the solution is to reduce spending. which, to some extent, is so obvious it kind of hurts.
Well, a little bit of inflation is actually good for the economy long term, and we have to balance that with the opportunity of cost of not spending.
Yes, the amount of government spending currently is likely too much, but by not spending the opportunity cost is sometimes greater. As the article contends, the solution to the affordability problem is to raise wages. If you can use the levers of government to induce growth that naturally raises wages, more deficit spending might be worth it.
This is the most impactful economic discovery of the century. You can raise taxes as much as you want if you add a layer of seperation to it and print currency.
The buck stops nowhere any more and I hear it's approaching the speed of light. The government is the ultimate legal power though, and whenever bad stuff is legal we all know who made it legal.
It is not "mishandling" the affordability crisis - it created it and actively maintains it. Most recently and least subtly by bombing and blockading all the places that we get oil from, in an economy that was deliberately designed so it can't do anything without oil.
NYC, and a handful of neighborhoods from the other top 5 cities, are the only places in the entire country that have semi-functioning urban design. The entire population of America who wants human centered urban design only have a few square miles to pick from. So of course the cost of living will be high.
> They should lift incomes, not suppress prices
I think this misses the psychology of inflation.
If wages go up 20%, and prices go up 15%, everyone is better off and got a 5% raise, right?
Go poll people that experienced that and they won't tell you they're celebrating being 5% richer, they'll tell you they're outraged about the 15% inflation.
Psychologically they'll believe they earned that 20% raise through hard work. Putting in extra hours to get that promotion. But then the inflation robbed them of their 20% raise, and turned it into a measly 5% raise. They'll be outraged.
Politicians get this. No one will credit politicians for raising average wages, people will believe they earned their raise themselves. But there's lots of votes available for lowering prices.
I think this is part of the article's point. Raising incomes to combat affordability problems is far better for everyone involved than lowering prices artificially.
But like you said politicians get less credit for the the former than they do the latter, and thus we have the current situation of continued bad policy decisions.
The article isn't denying that lowering prices is politically effective--I think that's undeniable at this point--just that doing so is probably the wrong call.
The article is behind a paywall :(
Having lived through hyper-inflation the only thing that got that under control was price controls. Wages going up can't stop inflation - they fuel inflation. Inflation psychology is that your money is going to become worthless so you don't save it, you spend it, which keeps prices going up. It wrecks havoc on loans and debt as well. If you lent money with a fixed rate hyperinflation erases your returns. If you borrowed with a fixed rate your debt is effectively erased.
Not to mention that governments in general don't control incomes. They can lower taxes (which is good IMO). They can pay government employees higher wages (which is hard to do when you lower taxes).
At the end of the day governments make things better by making smart investments (or policies that enable smart investments) and make things worse by making bad investments (or policies that lead to bad investments). Everything else is second order effect.
There is no 'wages go up 20%'. That's not how the economy works. Wages are renegotiated on an annual basis and most people have to job hop to get anything close to a 20% raise.
Inflation affects everyone rapidly. But to get the claimed wage increase people have to do work to find new jobs.
That falsely turns your experience into an imagined generality.
There was one year I received 3 promotions at Travelocity and nearly doubled my compensation. I was hired as a web designer and after 3 months was involuntarily reassigned to a developer role and told to “figure it out”. I got a negative annual review that year and then ended up in Afghanistan on a military deployment. When I came back to Travelocity I was still classified as a developer but was reassigned from marketing to product development where to wages are higher, but I was earning as a junior designer. After eagerly looking for other internal jobs they gave me a raise to catch me up. Several months later I was promoted to a senior developer position and became the company A/B test engineer, which also came with a raise. A little after that another company gave me a better offer and Travelocity countered. This was like a million years ago.
Because most of my career is in writing JavaScript if I want to continue to increase my wages I would have to do the most beginner level shit work because that is common expectation for JavaScript developers.
It was only an example though, not a claim.
I think you're being overly critical here.
yeah but it's not a great example, because actually wages aren't going up. maybe people would be able to psychologically handle inflation if it wasn't out-pacing wages. actually, now i think about it, that's not psychological at all, so the whole premise is kind of out the window, isn't it?
Outside of tech, seeking a 20% increase would be relatively uncommon.
I don't work in tech, and hopping jobs will get you 5% at most, usually. Maybe it's because I'm in the public sector and wages are public information? Either way, it always comes across as VERY out of touch when people here talk about massive increases just by changing jobs.
Don't forget about taxes. Things cost 15% more, wages go up 20%, but the government takes a chunk of that 20%. Do you net even 15%? Depends on your tax bracket.
i don't think this is really true. people don't complain about an abstract concept of inflation, they complain that they can no longer afford things they once could. if wages really did practically increase by 5%, they could afford more things and have more money left over at the end of the month, and that is what they would notice.
politicians can't really affect wages the same way they can temporarily and artificially lower prices. but they also understand they need inflation to get elected, since you generally win elections by what you promise, not what you don't promise.
A group of people unaffected by a problem will rarely correctly handle the problem. And the further they are away from it, the further from 'correctly handle' will be their handling.
Most of the people responsible for Government decisions are fairly well insulated from most crises, hence the crises will continue and grow.
The Dutch government doesn't have the power to make America, Russia, Israel behave civilised. They would if they could.
As it is we have to live with it. Enduring the barbarians.
The difference being that the Dutch Government isn't meant to be responsible for the civilised behaviour of other countries.
Governments, however, are responsible for responding to crises occurring in the areas they are elected and paid to govern. But increasingly they behave like lords over subjects rather than representatives of the group.
> Most of the people responsible for Government decisions are fairly well separated from most crises
A lot of the time it is actually even worse than this in that they are often in a position to benefit from the crises.
The real major economic problem of our day is the extent to which labor's share of productivity gains have plummeted and continue to plummet.
If your wealth comes from capital everything is going gangbusters and nothing needs to be fixed. Just listen to Trump talk about the economy and how blind he is to how normal people experience it.
And AI is just going to supercharge this problem.
https://archive.ph/Xr9fz
I appreciate this. I regularly catch hostility from TE when I visit; today it was the unsatisfiable captcha.
the affordability crisis is downstream of inflation. governments should stop inflating the money supply, but of course they won't ever do this because they would then need to generate revenue another way, which would be to raise taxes. inflation is really just a hidden tax and it's easier for them to "tax" without pissing off citizens.
and so really the solution is to reduce spending. which, to some extent, is so obvious it kind of hurts.
Well, a little bit of inflation is actually good for the economy long term, and we have to balance that with the opportunity of cost of not spending.
Yes, the amount of government spending currently is likely too much, but by not spending the opportunity cost is sometimes greater. As the article contends, the solution to the affordability problem is to raise wages. If you can use the levers of government to induce growth that naturally raises wages, more deficit spending might be worth it.
What's wrong with taxing the rich to maintain current spending?
Goldbug thinking.
Inflation is useful, actually. So is deficit spending in a growing economy.
The consequences of reducing spending are also obvious, I won’t call it a ‘solution’ given how bad they hurts.
This is the most impactful economic discovery of the century. You can raise taxes as much as you want if you add a layer of seperation to it and print currency.
It's almost like they are run for the benefit of the ultra rich...
Let them eat cake.
The buck stops nowhere any more and I hear it's approaching the speed of light. The government is the ultimate legal power though, and whenever bad stuff is legal we all know who made it legal.
It is not "mishandling" the affordability crisis - it created it and actively maintains it. Most recently and least subtly by bombing and blockading all the places that we get oil from, in an economy that was deliberately designed so it can't do anything without oil.
The majority of the affordability crisis stems from car dependency and excessive need for infrastructure due to bad zoning policy.
> The majority of the affordability crisis stems from car dependency and excessive need for infrastructure due to bad zoning policy.
New York City is one of the most expensive places in the world. Housing is more expensive than SF.
No cars needed in NYC, yet expensive as hell.
NYC, and a handful of neighborhoods from the other top 5 cities, are the only places in the entire country that have semi-functioning urban design. The entire population of America who wants human centered urban design only have a few square miles to pick from. So of course the cost of living will be high.