One comment in reply to "Fear not wage growth!"

  1. Smith says:

    1) Not a perfect storm, but you’re guaranteed higher inflation next year, plus the underlying economy is weaker than it appears due to the oil price drop. One question everyone should be able to answer is how much of our current economic strength is due to fracking. The drop in oil prices has provided a tremendous boost to the economy. Somewhat counterintuitively the large sudden fall in price from last winter provides a one-time drop in inflation, but remains a continuing source of strength. However, when last year’s decline times out of the 12 month average inflation measurement, inflation will appear to rise. Granted that will be headline inflation, not core inflation, but political opposition to progressive policy will not make the distinction, and neither will the public at large. The public won’t really complain unless gas prices rise again. If that should happen (years down the road), the record number of SUV and light truck sales will go into reverse, and American auto again will reel.
    http://oilprice.com/Energy/Oil-Prices/Heres-What-Will-Send-Oil-Prices-Back-Up-Again.html

    2) There seems to be an assumption that labor can claw back it’s share of the economy. There is a scenario in which business fights to retain the share of profits by raising prices to keep pace or ahead of rising wages, and inflation rises and/or spirals. That is what happened in the 1970s before the strength of labor (and inflation) was completely broken. The alternative is deny business the monopolistic power to dictate prices through regulation that encourages competition and anti-trust enforcement, and remove incentives to garner the outsized share by increasing taxes on the rich and corporations a la Piketty. President Sanders would likely approve.


Leave a Reply

Your email address will not be published.