Bidenflation reaches 30 year record high

[Physics Guy]

If an employer isn't offering raises, despite taking in more dollars from selling products at higher prices, then why don't the employees all quit and go work for a rival who is prepared to pass on some of the extra dollars?

It could be that the labor market in some industry isn't really free. If so, that's the problem—not inflation.

Or it may be that an industry is changing, and the real value of its workers' work is falling, for example because robots or foreigners can do the same work more cheaply, or because people just don't want this industry's products as much any more. In a case like that the industry may only be able to stave off collapse by cutting workers' real wages. In a market economy it's one of the advantages of inflation that it lets companies do that without the legal and political trouble involved in cutting salary dollars.

During inflation a company can cut its labor costs, in real terms, just by not giving raises. So healthy industries offer raises in times of inflation, while troubled industries don't, and over a few years of inflation the relative wage scales of different industries adjust to new economic or technological conditions. In the long run that's a good thing. Higher wages attract more workers to the work that people most want. It's the free-market alternative to central planning, and modern history seems to show that it's a lot more efficient. Inflation is an important part of how it works.

If you're caught in a declining industry with a stagnant salary while prices are rising faster than you can re-train for a new career, though, you're in trouble, all right. Periodic moderate inflation might be good for us all in the long run, but for you right now inflation is bad.

In the long run we are all dead.

This is the great argument against pure free-rein capitalism and in favour of social safety nets and state regulations that try to keep people from being crushed when the pitiless market changes abruptly. Preventing inflation isn't the only tool in the box for doing that, though. Periodic moderate inflation has enough good effects that it's often worth letting it happen and finding ways to help people deal with it.

[ceeboo]

If an employer isn't offering raises, despite taking in more dollars from selling products at higher prices, then why don't the employees all quit and go work for a rival who is prepared to pass on some of the extra dollars?

It could be that the labor market in some industry isn't really free. If so, that's the problem—not inflation.

Or it may be that an industry is changing, and the real value of its workers' work is falling, for example because robots or foreigners can do the same work more cheaply, or because people just don't want this industry's products as much any more. In a case like that the industry may only be able to stave off collapse by cutting workers' real wages. In a market economy it's one of the advantages of inflation that it lets companies do that without the legal and political trouble involved in cutting salary dollars.

During inflation a company can cut its labor costs, in real terms, just by not giving raises. So healthy industries offer raises in times of inflation, while troubled industries don't, and over a few years of inflation the relative wage scales of different industries adjust to new economic or technological conditions. In the long run that's a good thing. Higher wages attract more workers to the work that people most want. It's the free-market alternative to central planning, and modern history seems to show that it's a lot more efficient. Inflation is an important part of how it works.

If you're caught in a declining industry with a stagnant salary while prices are rising faster than you can re-train for a new career, though, you're in trouble, all right. Periodic moderate inflation might be good for us all in the long run, but for you right now inflation is bad.

In the long run we are all dead.

This is the great argument against pure free-rein capitalism and in favour of social safety nets and state regulations that try to keep people from being crushed when the pitiless market changes abruptly. Preventing inflation isn't the only tool in the box for doing that, though. Periodic moderate inflation has enough good effects that it's often worth letting it happen and finding ways to help people deal with it.

Hey PG,

Just wanted to let you know, for what it's worth, that I really enjoy your posts on the board (this one included.) They usually force me to think and they are typically presented in an organized and meaningful fashion. Truth be told, much of what you write in this particular post is a bit over my head - but I still find it interesting and thought provoking.

[Hawkeye]

Your mortgage payment is falling in real terms, and that offsets the higher prices you're paying. And your house has appreciated substantially.

Offsets the higher prices? How do you figure that? My house has appreciated an enormous amount in my state. But unless you're moving out of state and plan to sell it, all this does is raise your property taxes. Hence my mortgage has gone up.

As for lower income people who rent; it's anything but a good situation.

I guess that's Joe Manchin's point. Inflation is also a tax on lower working class people.

[Hawkeye]

If an employer isn't offering raises, despite taking in more dollars from selling products at higher prices, then why don't the employees all quit and go work for a rival who is prepared to pass on some of the extra dollars?

It could be that the labor market in some industry isn't really free. If so, that's the problem—not inflation.

Or it may be that an industry is changing, and the real value of its workers' work is falling, for example because robots or foreigners can do the same work more cheaply, or because people just don't want this industry's products as much any more. In a case like that the industry may only be able to stave off collapse by cutting workers' real wages. In a market economy it's one of the advantages of inflation that it lets companies do that without the legal and political trouble involved in cutting salary dollars.

During inflation a company can cut its labor costs, in real terms, just by not giving raises. So healthy industries offer raises in times of inflation, while troubled industries don't, and over a few years of inflation the relative wage scales of different industries adjust to new economic or technological conditions. In the long run that's a good thing. Higher wages attract more workers to the work that people most want. It's the free-market alternative to central planning, and modern history seems to show that it's a lot more efficient. Inflation is an important part of how it works.

If you're caught in a declining industry with a stagnant salary while prices are rising faster than you can re-train for a new career, though, you're in trouble, all right. Periodic moderate inflation might be good for us all in the long run, but for you right now inflation is bad.

In the long run we are all dead.

This is the great argument against pure free-rein capitalism and in favour of social safety nets and state regulations that try to keep people from being crushed when the pitiless market changes abruptly. Preventing inflation isn't the only tool in the box for doing that, though. Periodic moderate inflation has enough good effects that it's often worth letting it happen and finding ways to help people deal with it.

Interesting points. I think trying to go back to school to retrain for a different career would kill me pretty quickly at this point in my life. But that is life and that's the market. So I can't call it unfair.

[honorentheos]

The degree of agility a company has to respond to rapid increases in costs isn't so simple as, healthy industries will be ok and stagnant or declining ones may struggle. As you noted, Physics Guy, most of the market price shocks ripple through and take time to address. You mentioned years and I'd say that is a fair scale.

My industry had been steadily absorbing and recalibrating through the recovery years of the Obama administration. There wasn't noticable effects from the Trump years in either direction other than people watched their 401k a bit more eagerly. Those recovery price increases we saw didn't reflect in the broader inflation indexes and overall it seemed similar to what you describe.

Right now, supply chains are broken and lead times unprecedented. Material costs are in flux, often spiking, while labor has evaporated. I've had two raises and been given three bonuses in the last 12 months...largely because I think everyone knows everyone is trying to scalp people away from competitors. But it has effects the company has to absorb. Project budgets aren't able to be renegotiated in good faith so we eat the pay increases in project profit. Construction costs aren't so forgiving and clients want help making their budgets work which isn't easy. New staff have to be trained, schedules have to be met, clients have to be shown they are getting value for their dollars...and we do it but I work for a company with the size and resources to do that.

There is a lot of change being driven by the current economy that certainly benefits some people. But the rate of change is too disruptive to be seen as largely benefitial.

Anyway, back to yard work. Replacing a fence and digging holes kinda sucks. The price of society...

[Cultellus]

Gorilla

[Gadianton]

Hey PG,

Just wanted to let you know, for what it's worth, that I really enjoy your posts on the board (this one included.) They usually force me to think and they are typically presented in an organized and meaningful fashion. Truth be told, much of what you write in this particular post is a bit over my head - but I still find it interesting and thought provoking.

------

While we all have a lot of respect for Physics Guy, I just need to let everyone know that what Ceeboo really means to say is that he appreciates Physics Guy's congenial manner of posting, while he doesn't appreciate invective-laced posting styles such as mine. As self-badged tone police for the board, Physics Guy makes his life much easier.

Notice that Physics Guy's depth and clarity of thinking coupled with his kind manner is not enough to elicit a conversation with Ceeboo. It's "over his head" and so, goodbye. I mean, Ceeboo could ask questions about the parts that were over his head to try to understand them, if he were really so interested in the material. Just as he could continue with Canpakes and his information-only non-political discussion on climate change.

(don't worry Ceeboo, this is a one-time mention so that you're aware that I'm aware of your career here as tone patrol. I'm not going to follow you around and keep bringing it up)

[Doctor CamNC4Me]

Anyway, back to yard work. Replacing a fence and digging holes kinda sucks. The price of society...

Excellent post again, Honor. How much more have you paid for materials, in your estimation, this year than, say, last year? I had a fence built by a local, and prices were in such flux he asked me to hold off for a month or so because he thought lumber prices would drop a bit. So I did and he was right. I actually saved ~ $1500.

- Doc

[Cultellus]

Gorilla

[Gadianton]

Last year I had a backyard project going on. When I started, a 2x4 was like, $3.50. Nearly 6$ by the end.