*Consider that line against something you’d never read in the Fed minutes. Something like: “Other members responded that their contacts amongst the unemployed and low-income workers saw no evidence of rising wage pressure at all.”
Fed officials understandably rely on their contacts throughout the world… [but] people who desperately need job growth to continue have no equivalent access to Fed officials’ ears.*
The Fed did the right thing with so-called “quantitative easing.” So I don’t want this to sound like Fed-bashing. But they could have done more of it more quickly, and they should have continued those efforts, instead of stopping.
There is nothing that exciting about the Fed. it’s as about as exciting as the municipal waste division. Oh sure, because they deal with massive amounts of money people assume there must be something exciting going on - I get that.
But really, when it comes down to it, they are just trying to keep money flowing without any clogs or disruptions, the same way that the municipal waste engineers try to keep shit form backing up into your toilet.
ETA: Yeah this analogy is less than perfect - but I think what it lacks in precision it more than makes up for in clarity.
While the last report was bad, job growth continued after quantitative easing ended. The Fed is probably going to delay raising interest rates because of it. And the Fed can’t do a lot about China.
The number of people looking for work over the number of job openings has decreased tremendously in the last few years - it is now well under 2 versus being 8. And the lack of wage growth has been a significant factor in the Fed’s decisions. So I’m not getting what you are complaining about. Is it that bankers and the very top economists get paid a lot?
Well, suppose all the wealth in the world was created by people who work. And then suppose all that wealth was distributed among those who work, and those who don’t.
If that were the case - and if the production of wealth was a goal - you’d want as many people working as productively as possible, in order to create the greatest amount of wealth.
On the other hand, if you’re the owner of something - say a company - your income is the difference between the wages you pay workers, and the market value of what they produce.
In that case, higher wages is a very bad thing, because it may squeeze profit margins. In fact, it may be better, in your particular case, to have fewer people working, so that you have more leverage - more bargaining power - over wages and salaries than your employees.
The Fed supposedly has a dual mandate: low inflation and high employment. But we still have millions of people not working, and no sign of higher inflation: yet the Fed has stopped expanding its balance sheet, and is looking for any excuse to raise interest rates. Why?
There has been another thread just recently on the reason to raise interest rates. Quantitative easing didn’t do much to raise wages while it was on, did it? And wages were stagnant before the recession. We can discuss the reasons why, but have any cites for reputable economists who think pushing more money into the money supply is going to increase real wages?
It is indicative of problems in the economy, though.
Around here there is serious upward pressure on wages for welders. While that’s great if you are a welder, what it demonstrates is that there simply are not enough people who can weld. Companies can’t find anyone to do welding, which means work does not get done, which means the supply chain is disrupted and other businesses suffer.
The market correction would be raising the wages for welders to bring more people into the business. Theoretically that’s great, but in practice it can be sticky. Canadians have developed a cultural aversion to blue collar jobs, and don’t want their kids doing them even if it’s objectively a lucrative career. So to substantially increase the number of welders requires either government intervention or would require all the companies that weld things to agree to jack welding salaries up a huge amount, disproportionately so against other jobs - which would increase the cost of basically everything, thereby hurting everyone in Canada.
I can provide any number of other examples; there are not nearly enough truck drivers, for instance, and that costs you money. Ontario has way too many schoolteachers, and that costs money. A disconnect between the supply of a given type of labour and demand will create either upwards pressure on wages, upon which you have all the difficulties I described with welders, or a downward pressure, as with teachers, which results in either massive labour unrest or ballooning government spending or a combination of both.
So looking at upward pressure in particular labour markets absolutely is a valid reason to sound alarm. It’s potentially indicative of inefficiencies in the economy, maybe serious ones. The lack of skilled trades in Canada is in fact a serious economic problem; it costs us billions of dollars and will cost many billions more in the years to come.
Note that the Fed concerned about upward pressure on wages. In other words, upward pressure on wages is something the Fed sees as a danger - something to avoid.
Perhaps because upward pressure on wages cuts into profit margins: profit is the difference between the amount an owner pays to produce a product (mainly labor), and the amount she sells it for.
When the government pumps money into the economy - as the US has done over the last several years - the result is not inflation (as some economists predicted), but lower unemployment. Unemployment in the US has fallen from approximately 10% to 5%.
Only when companies are forced to compete for workers - rather than workers competing for jobs - only then is the market power of employees likely to rise to the point where wages go up.
The minutes from the Fed are simply a confirmation that some members of the Fed think we’re already there.
as someone who is used to reading the statements of central banks, the statements of the american central bank seem like the ordinary statement of such institution that is mandated to oversee the issue of inflation.
It is well documented that the rising pressure of wages contributes to inflation, ceteris paribus… (of course things are never ceteris paribus in a simple way).
this is wrong in being extremely incomplete on many many levels… profit is more than cost of production subtr
No, the result is inflationary. That is indeed the purpose of the stimulus policies, both the monetary and the fiscal.
The effect of course must be analysed in a net basis, so if more money is being taken out of the economy by other means even the deflation is possible even if a government is injecting money but not enough to offset the destruction or the subtraction of money (as in a lower money velocity).
Your statement takes the recent specific cases and generalises without understanding the economic analysis framework.
The way to attract more people into skilled trades is to pay them more. If you pay them, they will come.
If there’s not enough people to do the work, that’s a sign of a growing economy.
You can fix the “problem” by slowing the economy so that the jobs disappear and wages don’t grow, or by allowing wages to grow so that the economy can keep growing.
Which one is the better option, for the country as a whole?
Your cite does not support that interpretation. The Fed has seen wage stagnation has an issue. Upward pressure on wages, and thus an increase, would provide support for raising the interest rates. It is true that this might cut into profits (or it might generate more demand and increase profits if it happens globally) but the Fed is in the business of GDP, etc., not to maximize the profits of industry.
Clearly the note says we might be there in some places - we actually are pretty much there in Silicon Valley now, but it is hardly true nationally.
And it is hardly a surprise to the Fed that Keynesian stimulus increases employment. I suppose the economists at the Fed predicted correctly that it would not increase inflation.
But this hardly happens immediately, does it? If there is a pool of skilled workers doing other things that pay more, having their trades pay more will draw them back. It might make more people go into training programs, but will not become skilled tradespeople for some years. Increased wages attracted more people to computer science, which was fine until the bubble burst.
I’m not bad at doing small plumbing jobs, but even if plumbers suddenly got $300K a year, I couldn’t hang up my keyboard and become a plumber.
Firstly, if the Fed could find contacts amongst unemployed and low-income workers who thought that printing money and giving access to near-free money to politically connected mega-banks would be the cure for their ills, I would lose all confidence in US workers.
Secondly, if you think the Fed is taking anything into account besides the ups and downs of the stock markets and the opinions of Goldman cronies, you are falling for their okie-doke.
The price of something goes to pay for labor, taxes, and profit. If everything else is equal, an increase in wages increases the cost of the good or service. Everything is not always equal, however. If a company is unable to raise prices (because of competition, for example), then the increase in labor compensation will come from profits, rather than increases in prices. Similarly, if a company increases efficiency (if productivity per worker increases), then it may be able to maintain profits without increasing prices.
In the presence of unemployment, companies can increase productivity per worker, without paying more to workers. In that case, profits go up. Earned income, on the other hand remains stagnant.
Some unemployment is good for owners, in other words. Although bad for workers, and the country as a whole.
It looks like this sentence is unfinished.
In the US, the government has increased base money by about $3 trillion over the last several years - approximately quadrupling it. During that time unemployment fell by half, and inflation has been historically low.
I agree with the first paragraph. I’m not sure what you mean by the second. Perhaps you could elaborate?