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Yellen supposedly told Greenspan & co in the mid 90s that 2% was a good way for companies to be able to adjust labor costs down if needed (if you don't give som

• jcarrano 2y ago
  Those monetary tricks only work for a short time, in this case until workers realize that not getting a rise roughly matching inflation is effectively the same as a getting paid less (i.e. Rational Expectations).
• jmyeet 2y ago
  That's not new or controversial (in economics circles). This really took off in the Reagan years where real wages stagnated [1]. It was from the 1980s where you started to hear statements like "wage incresaes should be tied to productivity increases" [2]. If you parse that statement, it means no cost-of-living increases ie a decrease in real wages. All of this is wealth transfer to the very rich and entirely intentional. [1]: https://www.epi.org/publication/charting-wage-stagnation/ https://www.epi.org/publication/charting-wage-stagnation/ [2]: https://www.epi.org/productivity-pay-gap/ https://www.epi.org/productivity-pay-gap/
  • adam_arthur 2y ago
    "Real" wages are driven by the "real" supply and demand of labor, not by nominal numbers. If the number of qualified workers increases significantly, you will end up with lower real wages. There were three major factors increasing labor supply around this time in the US. Immigration from Mexico, women continuing to enter the labor force, and reduction in demand/increase in (global) supply for lower skill labor via globalization of manufacturing Not casting any judgment on whether these things are good, but they are far more likely to be the primary factor than inflation.
    • nicoburns 2y ago
      > women continuing to enter the labor force. One thing that's occurred to me recently is that demands for a 4 day working week seem entirely reasonable in the context that the labour force has, if not quite doubled, dramatically increased (due to more women participating) over the last few decades (and that time has been taken away from time that was previously available for the completion of domestic chores).
      • lupire 2y ago
        This is the solution to the "two-income trap".
        • mrkstu 2y ago
          That only works if it is a global change in work practices.
          • nicoburns 2y ago
            I don't think that's true. We already have significantly varied working hours between countries. China has 996. The US has a 40 hour standard work week and the culture is such that people often work longer hours. Whereas in Europe 35 or 37.5 hours or even less is common. Different countries have different numbers of public holidays, etc.
        • from-nibly 2y ago
          Wouldn't a 2.5 day work week actually be the solution to the "two-income-trap"?
          • chii 2y ago
            but you would be out-competed by people who work 5 days. The reason things like housing is expensive is because there are lots of people willing to pay higher. This implies that those people _have_ become wealthier. You would not hear them complain about being poorer (or it's an insincere form of complaint).
  • smegger001 2y ago
    and we didn't even get the productivity increase, if we had the computer revolution should have massively increased everyone wages due to increased efficiency.
    • apelapan 2y ago
      Did the computer revolution really make things that much more efficient? Great savings and new possibilities on many fronts, but also enormous expenses and a whole lot of lost flexibility and individual agency. I'm sure it is an efficiency win on the total, but perhaps not as gigantic as often assumed.
      • smegger001 2y ago
        Do you see typing pools in every large office anymore? Nope, word processors replaced all of them. Do accountants spend several weeks calculating desk sized spreadsheet by hand anymore? no because excel and other digital spreadsheets are able to tabulate data automatically. that's all major efficacy savings
        • apelapan 2y ago
          Yep, major savings from those two things. But then someone in this efficient office decides to automate a few more workflows and spend 200k building a digital paper form that is used four times per year and misses a crucial field so that is not "supposed to be needed", so that every use of the form requires a phone call or five. This would not have happened with a paper form and human first recipient. There is an efficiency gain in total, but a lot of losses that eat at the actual wins.
      • lebean 2y ago
        I mean, how much we talking here? We're not in Atlantis with flying cars, but there's immense efficiency gains in logistics.
        • throwaway14356 2y ago
• alfalfasprout 2y ago
  This is key. Due to hedonics/replacements inflation hasn't reflected what people actually feel for a while now.
  • throw0101d 2y ago
    > Due to hedonics/replacements inflation hasn't reflected what people actually feel for a while now. The hedonics/replacements occur in the data because what is looked is taken from surveys of what people buy: * https://www.bls.gov/respondents/cpi/ https://www.bls.gov/respondents/cpi/ I just happened to answer a question on the CPI in Canada in another forum: The CPI you see in the headlines is made of of various components (Shelter, Food, Transportation, etc), the proportions of which are determined by spending surveys: * https://www.statcan.gc.ca/en/survey/household/3508 https://www.statcan.gc.ca/en/survey/household/3508 As people change their buying habits the items that are tracked also change to reflect what consumers are spending. Here are the items in each category: * https://www.statcan.gc.ca/en/statistical-programs/document/2301_D68_V1 https://www.statcan.gc.ca/en/statistical-programs/document/2... * https://www.statcan.gc.ca/en/statistical-programs/document/2301_D59_V4 https://www.statcan.gc.ca/en/statistical-programs/document/2... You can see the list of changes going back to 1913 at (coal and lard were removed/replaced in 1956): * https://www.statcan.gc.ca/en/statistical-programs/document/2301_D70_V1 https://www.statcan.gc.ca/en/statistical-programs/document/2... It should also be noted that the number reported in the headlines is the national average, while the prices can vary widely depending on your location. So in the report for February 2024, the national number was 2.8%, but Alberta had 4.2% while Manitoba had 0.9%: * https://www150.statcan.gc.ca/n1/daily-quotidien/240319/dq240319a-eng.htm https://www150.statcan.gc.ca/n1/daily-quotidien/240319/dq240... (Chart 5) * https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc-eng.htm https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc... * https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1810000413 https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181000... (searchable by province) StatCan has a "Personal Inflation Calculator" where you can enter your own numbers/budget and find a number that may be closer to what's happening around you: * https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015-eng.htm https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015... Remember: the CPI is a model of reality, and not reality itself. It is used as a guide, and to use the words of [Alfred Korzybski](https://en.wikipedia.org/wiki/Alfred_Korzybski https://en.wikipedia.org/wiki/Alfred_Korzybski): * [The map is not the territory.](https://en.wikipedia.org/wiki/Map–territory_relation https://en.wikipedia.org/wiki/Map–territory_relation) * https://fs.blog/map-and-territory/ https://fs.blog/map-and-territory/ Or those of statistician George Box: * [All models are wrong but some are useful.](https://en.wikipedia.org/wiki/All_models_are_wrong https://en.wikipedia.org/wiki/All_models_are_wrong)
• jokethrowaway 2y ago
  I don't believe leading economists didn't see this coming. Even if they didn't originally, it's been clear now, for decades. This is the system working as intended, making government spending easy and gradually worsening poor's people lives.
  • theteapot 2y ago
    Pretty sure they have a steady poor people target rate as well (unemployment rate roughly) so no need to worry.
  • rootusrootus 2y ago
    Are poor people's lives objectively worse now than they were, say, 40 years ago?
    • cjbgkagh 2y ago
      Technology and innovation has made people’s lives better at the same time that politicians and bankers have made them worse. Just because the politicians and bankers failed to totally eclipse technology does not mean they are not a severe detriment.
      • wolverine876 2y ago
        > Technology and innovation has made people’s lives better at the same time that politicians and bankers have made them worse. That's the SV fantasy!: I'm awesome and a super-genius, everyone else is useless, dumb and annoying, and therefore I should be all-powerful!. It's like they're all still 13 year olds hacking on their computers, where they finally feel really powerful. It's almost as if they've never learned anything more about the world - humanities are just entertainment for the wealthy - leaving themselves vulnerable to the most obvious self-deception. One might say that technology and innovation have turned our world into a hellscape, with massive social and political breakdown, massive mis/disinformation, and climate change. Maybe some innovation can build us new supersonic jets, better oil extraction, more effective automated online persuasion, or some snazzy financial tech - like CDOs, crypto, and private equity. On the other hand, our political institutions did an amazing job of getting the US through a global pandemic without even a recession. There are serious problems, such as housing and education prices, but I don't think anyone could have predicted how well things went economically.
• throw0101d 2y ago
  > Another interesting thing that happened under Greenspan is how inflation is computed (hedonics, replacements, etc... conceptually, think "if I can't buy a porterhouse steak anymore, I'll get the lesser hanger", meaning inflation is underreported). Inflation calculations (in the US) did not happen under Greenspan, or under any other Federal Reserve chair, because the calculations are not done by the Fed, but by the Bureau of Labour Statistics (BLS: https://www.bls.gov/cpi/ https://www.bls.gov/cpi/). The 1990s change to the CPI were done under the auspices of the US Senate Boskin Commission: * https://en.wikipedia.org/wiki/Boskin_Commission https://en.wikipedia.org/wiki/Boskin_Commission * https://www.ssa.gov/history/reports/boskinrpt.html https://www.ssa.gov/history/reports/boskinrpt.html One of the conclusions was (AIUI) that the CPI then-methodology actually resulted in numbers too high. This is true in many (most?) countries: e.g., in Canada CPI is calculated by StatCan and various types are used by the Bank of Canada (BoC): * https://www.statcan.gc.ca/en/statistical-programs/document/2301_D64_T9_V2 https://www.statcan.gc.ca/en/statistical-programs/document/2... * https://www.bankofcanada.ca/rates/indicators/key-variables/key-inflation-indicators-and-the-target-range/ https://www.bankofcanada.ca/rates/indicators/key-variables/k... * https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1810025601 https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181002...
  • OnlineGladiator 2y ago
    > One of the conclusions was (AIUI) that the CPI then-methodology actually resulted in numbers too high. How is this any different from saying they changed the methodology to make the numbers look better? In my opinion the old methodology was better, but I realize this is a complex issue and there is no "correct" answer.
    • baronswindle 2y ago
      The way I read it, it’s actually the opposite of what you wrote. You suggested that the Fed relied on inflation numbers that it knew to be too low — i.e. that inflation was understated due to failure to account for substitution effects and the like. In fact, the Boskin commission concluded the opposite — i.e. that inflation figures were overstated in aggregate due to failure to account for things like quality changes and the substitution effect.
• spaceman_2020 2y ago
  This is why I think CPI numbers are all hogwash All the younger people I know in less than stellar jobs are really hurting. These people were never well off but were comfortable before the pandemic. But now they’re making hard decisions for basic necessities and grinding down the quality of their lives.
  • wolverine876 2y ago
    So what do you use that's better? Your personal experiences don't tell us much about the other 320+ million people.
    • pdonis 2y ago
      > So what do you use that's better? If the government would stop trying to micromanage the economy, then it wouldn't need to find some aggregate statistic to use, no matter how misleading or counterproductive it was.
      • pixl97 2y ago
        We've done that before... the boom bust cycles were far worse.
        • bsdpufferfish 2y ago
          Yep, societies just don't function until you establish a central bank with fiat currency and fractional reserve banking. It's a law of human nature.
        • pdonis 2y ago
          > the boom bust cycles were far worse. No, they weren't. The worst depression in history, the Great Depression of the 1930s, occurred after the Federal Reserve was in place in the US, and similar central banks were in place in other developed countries.
      • NikolaNovak 2y ago
• esoterica 2y ago
  Why are inflation truthers so resistant to spending even the tiniest amount of time learning how inflation is computed instead of repeating nonsensical conspiracy theories that match their ideological priors? Replacing porterhouse with hanger steaks in the basket simply means giving the change in price of hanger steaks a higher weight than the change in price of porterhouse steaks in the basket. It does not mean recording the difference in price between a porterhouse and hanger steak as a decrease in the price index. If porterhouse and hanger steaks both go up by 5% then switching from porterhouse to hanger steaks will not lower inflation, even if hanger steaks are cheaper. And of course that’s the correct way to compute inflation, if people stop using typewriters and start using computers why would you still include typewriters in the consumer basket. It’s not even true in general that the trend has been switching towards lower quality products. Despite all the ahistoric whining about how much better the old days were, Americans have gotten richer over the past several decades and have been buying bigger cars, dining out instead of eating at home, spending more on travel etc.
  • testacpwoek 2y ago
    > nonsensical conspiracy theories that match their ideological priors People's lived experiences in many parts of the country don't match what they're being told. If macro trends go one way but microtrends all over the country go the other way, then the macrotrend analysis is functionally meaningless for millions of people. That's not a conspiracy theory, and hand-waving so many people's lived experiences away because it doesn't match YOUR ideological prior is not taking the discussion seriously and fundamentally and possibly wilfully misunderstanding the issue. Insisting that people everywhere saying life is harder than it was pre-pandemic or 10 years ago or whatever are wrong "because the charts say so" is silly.
    • esoterica 2y ago
      The official inflation numbers have shown high inflation over the past few years. If you feel like prices have gone up a lot the CPI does not contradict your lived experience in any way.
    • itsdrewmiller 2y ago
• FactKnower69 2y ago
  >2% was a good way for companies to be able to adjust labor costs down if needed (if you don't give someone a raise when inflation is 2%, you're effectively lowering their salary) This is EXACTLY the issue. The economy is rigged such that in the absence of any positive action, workers' purchasing power goes down over time by default. This obviously isn't a problem for the rich, whose money is stored almost entirely in assets which by definition rise in value with inflation. Meanwhile, everyone else whose income comes primarily from a wage must constantly struggle for more concessions just to earn the same real amount they did last year.
  • throwaway14356 2y ago
    I have this picture burned on my retina with the union reps toasting champagne after successfully negotiating 2% this while my rent went up by 5% using the same arguments.
  • graeme 2y ago
    You haven't understood the issue. If a firm needs to lower costs, the alternatives to mild inflation are: * Negotiating actual salary cuts, or * Job losses Ideally in a market, prices adjust up and down freely. Obviously this is not a sensible approach to salaries. Given the bias towards loss aversion, having mild inflation make mild losses is preferable to having, say: 5% deflation, 7% salary cut. This concept is from Econ 101. And it doesn't mean everyone's wage drops. It means struggling firms can adjust wages less painfully. Your alternatives to 2% are: * active deflation, with actual wage cuts * higher inflation, where you have active salary negotiations each year to predict inflation and negotiate higher or lower than inflation, like in the 70s
    • dxbydt 2y ago
      Econ 101: index to 2% inflation, tolerate mild losses. Elon 101: hire aggressively until product finds PMF, then fire aggressively.
      • killjoywashere 2y ago
• rhelz 2y ago
  Well, no matter how the 2% figure was arrived at as a matter of historical happenstance, 2% is actually a very good number to shoot for. First of all, a rate of zero would be ideal, but, lets face it, like any measurement, this is going to have some error. So, if you are going to err, on which side do you want to err? In favor of a little bit of inflation, or a little bit of deflation? Well, inflation is painful, sure, but it's not nearly as bad as deflation. Let's exaggerate the numbers to make this point: if we had 50% deflation, your paycheck--the dollar amount you brought home--would be cut in half. However, your car payment, your mortgage, and your credit card bills would stay at the same nominal value. So all of a sudden, you'd be financing twice as much debt, in real terms. A Calamity. You'd lose your car, your house, your credit. Cf with 50% inflation. You'd be paying back your debts with inflated dollars, which is hard for banks--but remember, they are also paying back their creditors with inflated dollars too... So, given that inflation is bad but deflation is worse, and given that the Fed probably can't measure and-or even control the inflation rate to a sub 1% precision, shooting to keep inflation at 2% is a good strategy.
  • ncivkcndixbdbx 2y ago
    > if we had 50% deflation, your paycheck--the dollar amount you brought home--would be cut in half. However, your car payment, your mortgage, and your credit card bills would stay at the same nominal value. Society doesn’t need to operate with so much debt. Usury is a financial tool that benefits the rich.
    • rhelz 2y ago
      We do have way too much debt---and when we have too much debt, the inevitable result is inflation. Thank you, President Trump, for adding $8.4 trillion to the national debt and for financing the deficit by printing money. But that doesn't mean that debt is intrinsically bad, or must always benefit the rich at the expense of the poor. Like any other tool, it depends on how you use it.
  • diego_sandoval 2y ago
    > your paycheck--the dollar amount you brought home--would be cut in half. However, your car payment, your mortgage, and your credit card bills would stay at the same nominal value. Not necessarily. If the transition to a deflationary economy is slow and planned, then expected deflation would start to be considered in the interest rates of your car payment, mortgage, etc. i.e. interest rates would become negative not long after inflation becomes negative. If employers are capable of negotiating deflation adjusted salaries, then market pressure is capable of forcing companies to adjust their prices and interest rates to deflation.
• analog31 2y ago
  Ah, but if inflation is underreported with a 2% target, it's also likely to be underreported with a 0% target. On the other side, fiscal hawks have an incentive to overreport inflation.
  • bsdpufferfish 2y ago
    fiscal hawks, like who? and with what power?
• RustyRussell 2y ago
  This argument goes back to Keynes IIRC: inflation was good to keep wages reduced. It's hard to imagine a deflationary world where bosses had to negotiate with workers to reduce their salary annually, which kind of shows how powerful this idea is...
• rufus_foreman 2y ago
  The word supposedly is doing a lot of work there. Did that actually happen? What's the evidence that Yellen told Greenspan that?
• ludwigislaugh 2y ago
  Ludwig Von Mises is laughing, he was so right. It's not even funny.
• brikym 2y ago
  Exactly. By changing the composition all the time of the CPI you're underreporting inflation. We all know about shrinkflation being common as well but shitflation is the worst one of them all because now you can't even spend a few more cents for the quality your favourite products have been turned into shit by means of substituting ingredients, worse customer service, tricks like subscription seat-heaters and so on. One of example of many is dairy products. The common yoghurt brands in my locale have started taking all the fat out of their so-called yoghurt, adding thickening agents and in a very small font labelling it 'low-fat'. Well that's not really yoghurt which is milk+culture is it? I can see why Germany has their beer purity law maybe a yoghurt purity law is in order too.
• wodenokoto 2y ago
  Inflation is meaningless if you don’t include substitutes as part of defining your basket. The price of typewriters, film or rotary phones are completely irrelevant to the cost of living today and would be meaningless to include. You don’t substitute beef with beef. You substitute elk with beef, if elk used to be a stable but now isn’t.