The rich world needs higher real wage growth • Hacker News Board

Re: The rich world needs higher real wage growth

#31

Post by xapata » Sun, Jul 01, 2018, 4:03 PM UTC

mozumder wrote: post #16

xapata wrote: post #7

Earlier quoted context omitted.

Deflation causes problems. Better to inflate wages in correspondance with prices.

It only really causes a problem if you don't prepare your economy for it. Prices should really only drop for commodity products and basics, so that one can live for $100/month. You should still offer incentives for people to spend more, such as offering higher end real-estate and products, or just bringing in more people into your economy.

What mechanism causes this deflation for commodities and basics? How much of the economy is basics?

Re: The rich world needs higher real wage growth

#32

Post by temp-dude-87844 » Sun, Jul 01, 2018, 4:04 PM UTC

I don't disagree with this article. I think they lay out some concerning trends, and possible reasons why they might be occurring. The New York Times published a similar analysis in February [1], and I've played armchair economist with these points for a while.

But it's remarkable how different two pieces of reporting can be around the same basic metrics. For most of the past year, the story as read on mainstream outlets has been that unemployment in the US (the U-3 metric) is historically low, and outlets contextualized this as "the economy is strong", which people are left to interpret to their own devices. And the complicated interdependence of factors, like how tight labor markets drive wage growth, how we're simultaneously showing signs of a tight and slack labor market, and how wage growth drives price-inflation or the other way around, makes the impact of a "strong economy" difficult for the average person to conceptualize.

The reductionist view is that for large segments of the society in the US and Europe, rising cost of living are interacting adversely with their low gains in real wages. There's broad overlap between the people whose budgets are most crunched, and the people whose anxieties caused them to bring into power anti-globalization, domestically-focused administrations. It's ironic, then, when metrics whose correspondence to real workers' observed conditions are being touted as measures of success.

[1] https://www.nytimes.com/interactive/2018/02/01/business/econ...

Re: The rich world needs higher real wage growth

#33

Post by tfehring » Sun, Jul 01, 2018, 4:06 PM UTC

mozumder wrote: post #6

Or better yet, reduce prices all around. Think of all your expenses and look at ways to systematically reduce them for everyone. Start with food, get a meal down to less than a dollar. Rent is high because everyone wants to move to certain dense areas, while moving away from more spacious/rural areas. This is unsustainable. Offer incentives for people to move elsewhere, including jobs programs and subsidizing mass tr…

It's probably cheaper and certainly more environmentally friendly to keep building upward in urban centers than to build mass transit to exurban areas. Urban areas already provide significant subsidies to exurban ones via taxes and cross-subsidies - see, e.g., [0] and [1]. The comparatively high cost of living in high-density areas is driven by a combination of those transfers and pricing distortions created by local governments, not by the fact that high-density housing is inherently less cost-efficient (and I'd argue that the opposite is true).

[0] https://medium.com/by-the-bay/financing-suburbia-6076dae990f...

[1] https://johnhcochrane.blogspot.com/2018/06/cross-subsidies.h...

Re: The rich world needs higher real wage growth

#34

Post by madengr » Sun, Jul 01, 2018, 4:06 PM UTC

tfehring wrote: post #14

GatorD42 wrote: post #2

I think there are many reasons to be skeptical of inflation and productivity statistics because they don’t seem to capture the rate of innovation in consumer goods such as smartphones and related areas like wireless plans. I wrote a piece on inflation statistics showing how U.S. inflation statistics fail to account for the quality improvement in iPhones: https://medium.com/@vince.pavlish/using-iphone-prices-to-che...

Interesting take, but I'm not sure I buy it. I certainly don't feel like I get ~2.5x more utility from my current iPhone than I did from the smartphone I purchased in 2012, which was just as fast (on the software of the time) and had most of the same functionality. I'd also be curious as to how you were able to conclude that the so-called "fashion effect" is not supported by evidence.

Things have gotten worse in some respects. Computers get more and more locked down with corporate security bullshit, it becomes harder to get any work done.

Remember when you could quickly FTP a file, toss up a web page, email someone a zipped file. Can’t do any of that now without jumping through hoops.

Computers have become very slow for tasks that used to be fast. Everyone always seems to “waiting on the computer”; that’s screwed up. It should be the other way around.

Re: The rich world needs higher real wage growth

#35

Post by selectodude » Sun, Jul 01, 2018, 4:08 PM UTC

pknopf wrote: post #9

What exactly (as if anyone can know) caused the wage growth and productivity to split in the 1970s? Was Nixon's complete split from the gold standard a factor at all?

>Was Nixon's complete split from the gold standard a factor at all?

Caveat: I have a degree in Economics and learned about this stuff, but I am not a historian and could probably do well to be corrected at some points below.

Pre-1971, the only way to create more currency was for the president to issue a new gold peg, which caused chaos when people would be trying to exchange USD for gold before the new peg came on. FDR literally made holding gold illegal because of the issues this caused.

What you see pre-1971 to post 1971 is a large increase in the money supply, allowing more investment and higher inflation, along with easier exchange with foreign currency (easier for them to invest here, too). Other factors are the advent of technology making human labor less necessary and a transition to a knowledge economy (fewer employees earning more money). On the other end, due to the end of gold convertibility, foreign steel and the oil shocks were also caused by a move toward free trade (the embargo had as much to do with Israel as it did with a change in oil pricing from USD to gold coupled with a surge in inflation of the USD).

Re: The rich world needs higher real wage growth

#36

Post by mozumder » Sun, Jul 01, 2018, 4:09 PM UTC

rorykoehler wrote: post #30

mozumder wrote: post #6

Or better yet, reduce prices all around. Think of all your expenses and look at ways to systematically reduce them for everyone. Start with food, get a meal down to less than a dollar. Rent is high because everyone wants to move to certain dense areas, while moving away from more spacious/rural areas. This is unsustainable. Offer incentives for people to move elsewhere, including jobs programs and subsidizing mass tr…

>This is unsustainable On what basis do you make this claim? I would have thought the opposite to be true.

Because people need to be located where they are most efficiently utilized in the economy.

Everyone wants to live in New York or San Francisco, but the jobs are going to be distributed around the country.

How are people going to construct a bridge in Ohio if everyone is in New York City?

Jobs are still a local thing.

Re: The rich world needs higher real wage growth

#37

Post by temp-dude-87844 » Sun, Jul 01, 2018, 4:11 PM UTC

tfehring wrote: post #33

mozumder wrote: post #6

Or better yet, reduce prices all around. Think of all your expenses and look at ways to systematically reduce them for everyone. Start with food, get a meal down to less than a dollar. Rent is high because everyone wants to move to certain dense areas, while moving away from more spacious/rural areas. This is unsustainable. Offer incentives for people to move elsewhere, including jobs programs and subsidizing mass tr…

It's probably cheaper and certainly more environmentally friendly to keep building upward in urban centers than to build mass transit to exurban areas. Urban areas already provide significant subsidies to exurban ones via taxes and cross-subsidies - see, e.g., [0] and [1]. The comparatively high cost of living in high-density areas is driven by a combination of those transfers and pricing distortions created by local…

It's certainly not cheaper, for developers, to build highrise aparments in the city than upscale tract homes on tiny lots in an exurb. And environmental impacts and the responsibility for transportation are both externalities easily pushed to someone else. This is what actually happens.

Re: The rich world needs higher real wage growth

#38

Post by mozumder » Sun, Jul 01, 2018, 4:13 PM UTC

xapata wrote: post #31

mozumder wrote: post #16

Earlier quoted context omitted.

It only really causes a problem if you don't prepare your economy for it. Prices should really only drop for commodity products and basics, so that one can live for $100/month. You should still offer incentives for people to spend more, such as offering higher end real-estate and products, or just bringing in more people into your economy.

What mechanism causes this deflation for commodities and basics? How much of the economy is basics?

Efficiency and automation reduces commodity prices.

Just transporting food is a huge cost. Get transport costs down and you reduce food costs.

Re: The rich world needs higher real wage growth

#39

Post by bigmanwalter » Sun, Jul 01, 2018, 4:14 PM UTC

mlthoughts2018 wrote: post #28

mozumder wrote: post #6

Or better yet, reduce prices all around. Think of all your expenses and look at ways to systematically reduce them for everyone. Start with food, get a meal down to less than a dollar. Rent is high because everyone wants to move to certain dense areas, while moving away from more spacious/rural areas. This is unsustainable. Offer incentives for people to move elsewhere, including jobs programs and subsidizing mass tr…

But why does everyone want to move to dense urban areas? You assume that there’s some small, easy-to-offset group of factors, like public transit or “jobs programs,” and that if the government just did something with these things, it would equilibrate population dynamics appropriately. I’m not convinced. I think people are more driven by status symbols and glamor. Living in a city is considered relatively more “high…

We are social beings. We live in a society. Being close to others is not a status symbol, it is what makes us, us. I eat at nice restaurants because the food is delicious. I enjoy the culture. I enjoy a wide variety live music. These are not status symbols, these are the essence of a joie de vivre. I enjoy walking to my local shops and boutiques, not for the status but because it is genuinely enjoyable of its own merit.

Re: The rich world needs higher real wage growth

#40

Post by calimac » Sun, Jul 01, 2018, 4:15 PM UTC

The author framed the argument over the last 5 years without reference to the devastation in wages over the previous 5 years from 2008-2013. Their error is egregious. See the last ten years for the accurate depiction of our recent wage growth.

Second point. The demand in the labor force is predecessor to wage growth. In may we saw the demand increase to levels unprecedented since Nixon/pre Carter.

Looking forward toward 2019-2021 we are going to see wage growth unlike anything in recent history!

Wage growth is the only thing that will save the housing market to stave off economic downturn and support the massive iniatives rolled out across industry over 2017-2018.