Is there any way to roll back salaries and also prices?

In My Humble Opinion (IMHO)
#1

The economy seems to be on an endless upward creep. Even in my lifetime I’ve seen paperback books go from $3.25 up to $9.50. Every item we buy has gone up every few years. My starting salary in 1985 as a Programmer I was $14,900. I think they are starting now at $28,000. (that’s right out of school).

It’s already reached the point where a $20 represents what a $10 bill meant to me in 1985. If a $20 bill fell out of pocket it wouldn’t upset me all that much. One dinner at Outback plus tax is $22.

If you go further back to our parents and grandparents the sticker shock is even worse. Some of my older neighbors told me the newly built houses in my neighborhood sold for $10,500 in 1954. But, they only made about 8k a year salary. The standard of living was about the same. Everything was just proportionally cheaper.

Where does it end? Are we on a hopeless upward trend forever? Will our great-grandkids earn $150k as public schoolteachers and pay $14 for a loaf of bread? A gallon of milk costs $19. It just gets silly after awhile. I could see a cashier in a grocery store earning $300k in 2150 and paying $40 for a loaf of bread.

Is there some mechanism to roll everything back? Salaries, prices, property just roll it back 30%. It’s really not losing anything if everything in the economy gets rolled back.

Hasn’t that been done in other countries experiencing hyper inflation? I seem to recall hearing about that before in some countries.

#2

Just roll back all prices and wages? How would you enforce that?

There is no government office that sets prices and wages. Instead prices are set by the market. The reason a loaf of bread costs $1.00 in 1975 and $2.00 in 2013 is that the supply of money has grown faster than the supply of goods and services.

Money is just one type of good, and when the supply of money increases or the demand decreases the value of money decreases. When the supply of money decreases of the demand increases then the value of money increases.

There have been periods of time where the value of money has steadily increased, leading to falling prices across the board. This is known as “deflation”, the opposite of inflation. Deflation causes economic problems just as certainly as inflation. But even so, a modest 1-2% inflation rate is nothing to worry about, even though it will cause the value of a unit of money to halve in 70 years. This makes comparing prices over decades tricky.

And yes, countries do remonetize. But they don’t decree that all prices and wages are halved, or cut by 9/10ths, or whatever. Instead they issue new money, and demonetize the old money, and people set and accept whatever prices seem realistic based on the supply and demand for the new money.

We could issue new dollars worth 100 old dollars, and declare that for a month the banks will accept exchange of old money for new money and at the end the old dollar will be worthless. Except what do we gain from this? Candy bars now cost a (new) penny? What is gained by saying that the old dollar is worth a new penny?

Countries that have undergone long rounds of inflation do this to knock some decimal points off their currency. In Italy 1000 lira was worth about a dollar. But they solved their problem not with issuing a new lira but by adopting the Euro. But again, nobody went around demanding that all prices be denominated in some fraction of the old price, they issued new currency and let market values determine prices.

If we really wanted to cut prices and wages by 30% we simply decrease the money supply and get a decade or so of deflation. But deflation is bad because it punishes borrowing–people borrow a dollar today, and have to pay back a dollar next year, except next year’s dollar is worth more.

The opposite problem is inflation, where people borrow a dollar today and pay back a dollar next year, except next year the dollar is worth a lot less. But that is handled by charging high interest rates, the problem is misjudging the inflation rate and accidentally charging way to much or way to little.

This is why a stable currency is valuable, it allows borrowing and lending to occur in a more orderly fashion. And 1-2% inflation counts as “stable”, some currencies have inflated 100% in a year, or a month. After a while and the currency ceases to work as money because it can’t be used as a medium of exchange, a store of value, or a unit of account. People switch to barter, or key goods (like cigarettes in prison), or foreign currencies.

The key concept is that money is just a special type of good that follows the laws of supply and demand just like other goods. The number you paid for your house is meaningless, what matters is how that number compares to other numbers.

#3

It’s not really gaining anything either, so it’s not worth the hassle and risk of imposing a new standard. A lot of things could go really wrong in the process.

Inflation is weird like that, it just seems odd because we get anchored around the prices we grew up in, but our minds can’t really process inflation over long periods of time co-mingled with supply demand changes as well.

#4

I didn’t think it was very practical to roll back salaries and prices. Sticker shock is just part of aging in this country. It’s hard not to remember what something cost when I was a young adult. IIRC my first apartment during college was $90 and it was a single bedroom, single bath duplex. It had a really big kitchen/dining area for that price.

I’ve always suspected the low prices our great-grandparents and grandparents talked about were primarily because of the great depression. It took awhile for prices to rise again even after WWII.

#5

Nations have beaten hyperinflation before. I think one mechanism is to introduce a new currency though.

I have no idea about just deciding ‘lets take the last 0 off of everything’ so people who made 300k a year now make 30k, and a loaf of bread that was 20 is now 2.

I’m not sure how that would affect international trade or things like that.

#6

One of the few things almost universally agreed by economists is that deflation - i.e., what you are talking about - is economically disastrous. It discourages economic activity. Inflation, by contrast, provided it is not too fast, is harmless or even beneficial.

So, if there is a way, it is something we should avoid like the plague.

#7

My starting salary as a programmer was $35,000 in 1996. It wasn’t a particulary atypical salary for Boston, MA.
Other countries have revalued (devalued?) their currency in the past. I don’t see any particular reason why we should now.

They’re just numbers anyway. What does it matter if you pay $10 or $20 or 20,000 hyperbitcoincreds in 2150, so long as it is equivalent puchasing power?

#8

In WWII there was Executive Order 9328 - Stabilization of Wages, Prices, and Salaries. It only froze wages and prices, but it didn’t roll them back.

#9

Lemur866, that was a very well written and useful post. Thanks.

South Florida, 1995, also a programmer. $34,500 if I remember correctly.

#10

Well you could do what they did before the 30s–accept depressions as an inevitable form of life. The government and banks refused to reflate the money supply either by expanding credit or running budget deficits, which caused both salaries and consumer prices to plunge. Of course that meant accepting that every generation would see unemployment in the 15-20% range for a number of years and the mass destitution that followed. When the Great Depression lasted far longer and deeper than previous slumps (directly causing the rise of Hitler and thus WW2), governments abandoned this viewpoint and adopted inflationary policies that ensured prices would almost never fall. You really want to bring mass deprivation and a loss of support for democracy just because prices look funny to you?

#11

I think you’re suffering a bit from lack of perspective. You’ve been conditioned to think of the prices you got used to paying when you were younger as the “natural” prices. There are certainly downsides to inflation, especially if it happens too much too fast, but there’s nothing inherently silly about $19, or 19 cents or 19 drigblats, as the price for a gallon of milk.

#12

In general I’m in agreement with your post, but these two aspects don’t seem quite right. Deflation doesn’t punish borrowing anymore than interest rates punish borrowing. The problem with deflation is actually that it punishes consumption or even investment - if your money is going to be worth more tomorrow than it is today, you have more incentive to just put off whatever you want to do with it until tomorrow.

#13

Incidentally this why health insurance is so tied to employment in the United States. During WWII there was a severe labor shortage & employers were unable to compete by offering higher wages so they had to focus on fringe benefits like insurance.

#14

I started as a software engineer in 1985 right out of college at $30K. Looks like deflation to me. :slight_smile:

#15

In 2004 I made $20,800 doing Web programming while attending college… working 10 hours a week. I’d say it’s been inflated just a bit since '85. :slight_smile:

#16

Perhaps it’s perverse of me, but when “solutions” are proposed I often ask what “problem” we’re trying to solve.

It seems that OP, earning $70,000 and paying $7 for a paperback book, would rather earn $7000 and pay 70 cents for the book. Why stop there? Why not earn $700 and pay 7 cents for the book? What difference would it really make?

Many economists think that very mild inflation (e.g. 2%) is beneficial. For one thing, it allows Job Creators to impose across-the-board 2% annual wage cuts without doing anything! With 2% annual inflation, price levels double every 35 years. The U.S. has had only mild inflation except for the 1970’s inflation usually blamed on OPEC.

Oh my. Please Google “hyperinflation” and report back your conclusions about whether the U.S. is one of the countries suffering from it.

Why is it some people can’t write just “inflation”? Is there a nervous tic that requires a “hyper” prefix? I’d blame modern media (economics is now mostly learned by watching quacks or gold vendors on YouTube) but why the wasted characters for “hyper”? Twitter/Tweet still has a character limit on messages, no?

#17

Price increases have accelerated, especially in the early 1980s. SF magazines were 35 cents all through the 1950s, then went to 50 cents in the '60s, and started going up rapidly in the late '70s. My paperback copy of Dune cost 95 cents, about the most expensive paperback there was back then. That’s why it makes sense to speak in terms of hours worked to buy something. I know the feeling - it pains me to pay more than about $9 for a shirt. That was the price at Korvettes when I was in high school.

But we adjust our sense of value. In the early 1940s L. Ron Hubbard had a story in Unknown about a curse where a guy had to spend $100 a night in Manhattan on evanescent things. Drinks, dinner and clubs were okay, buying jewelry wasn’t.
It was very hard for him to pull off.

#18

The past, as they say, is a different country. And like other different countries, you have to change your currency when you get there.

#19

Thanks for making this post. I agree wholeheartedly.

#20

Solution: A massive government intervention into business, wages, and the economy.

Problem: Someone is bothered that the numbers on price tags and paychecks are somewhat larger than 50 years ago.

Yeah, this makes no sense at all.