11 comments in reply to "Flat Phil"

  1. smith says:

    What all economists (especially liberals) overlook is that full employment and restoration of labor bargaining power would lead to spiraling inflation. There is nothing to stop businesses from replaying that 70s show, when wage increases were accompanied by price increases. Businesses would rather plunge the country into stagflation than give up a larger share of revenue to wages at the expense of profit. They will blame labor and point to global competition and rising inflation to beat labor into submission again. While the party lasts, they actually raise prices beyond the wage increases in order to profit from the bout of inflation.

    If you don’t address the power of oligopolies and the weakness of labor, wages can never return to more equal distribution. The scary part is the tax system is much more tilted to reward the suppression of wages than it ever was in the 70s.

    see http://en.wikipedia.org/wiki/Economics_and_the_Public_Purpose, I disagree with socialist solution, but the data on oligopolies is relevant

    We don’t have to worry about inflation because as you write:
    “most workers these days have little bargaining power”

    Plan now for an economy with strong labor, and dangerously accelerating inflation.


  2. Jeff says:

    Jared,

    If you get a chance I’d love to read another Thanksgiving survival guide (Or how to deal with that crazy ol’ uncle during dinner). I don’t have a crazy uncle but it’s enjoyable nonetheless.


  3. Perplexed says:

    -“Phillip’s curve has flattened!”

    Labor is the “commodity” of the 99%. Isn’t it kind of strange that we don’t have a similarly extensive research effort into the “Phillips curve” for steel, soybeans, corn, wheat, gold, oil, lumber, natural gas, electricity, coal, cotton, plastics, or any other commodity that comes to mind. Do you think that the high (perfect) correlation with being subject to anti-trust laws might be playing a role in the need for a “Phillips curve” type explanations of how restricting access to a market affects “price stickiness?”

    Also, I do have multiple versions of “crazy uncles” so anything you can provide would be very much appreciated <:~)


    • Jared Bernstein says:

      OK–I’ll have you fully loaded well before the turkey comes out of the oven!


    • smith says:

      I guess the non-labor equivalent research of Phillips curve would be analysis of price trends, CPI, core inflation vs. including highly variable commodities (food and energy), rolling averages of prices, resilience to price shocks, etc.
      Especially factory capacity is somewhat analogous to employment levels, inventory levels too perhaps.

      The weirdness arises when rising wages are taken as a sign to slow the economy. Here’s the chairman of Harvard’s economics department worrying that a 2 percent nominal wage gain, representing a 1/2 percent increase over inflation is a sign to put the breaks on the economy. http://gregmankiw.blogspot.com/2013/11/the-feds-exit.html (He was Bush’s chief economic adviser) But his bigger worry is the perceived trend that wage rate gains would trend upward (why is that bad?). What would happen to the U.S. economy if wages increased in real terms by 2% for a few years. If that happened, would inflation rise as businesses fought to retain profit margins by raising prices. That would imply an inflation rate edging towards 4%, (2% core plus the 2% price surge to match real wage gains) double the Fed’s target. The savings rate has fallen from 10% to 5% so price increases could more easily capture wage gains. On top of this problem is the fact the Fed would vigorously fight a 4% rate, and financed purchases (cars, homes, and college) would rise in lockstep with inflation, as might rents. Debt overhang (mortgages) might benefit, but consumer credit, probably worsen. Let’s assume the 1% continues to take 20% of income, and a 2% raise also, and there’s 1% productivity growth for the working 80%. Unfortunately the 1% produce nothing, (they’re paid for managing stuff, consulting, making and reading powerpoint slides) so their outsized and increased income is highly inflationary. The fight then becomes one over the 3.6% non-productivity zero-sum revenue, over three years. 1.2% a year. Do you doubt prices could rise the 2% core inflation plus 1.2% and then some? Inflation hits 5%, Fed hits breaks, economy tanks, those still working keep half of the actual 2.4% productivity gain after three years (3% – .2 for the 1%) 1.2% in three years turns out to be large in comparison to the 2000 to 2010 college educated. Go figure.


      • Perplexed says:

        No argument here that there isn’t considerable research being done on the effects of all kinds of commodity prices on inflation. What I’m referring to is not so much the “weirdness” that “arises when rising wages are taken as a sign to slow the economy.” as when the weirdness that arises when the supply of the commodity (labor) is reduced by preventing the “sellers” of labor from having access to a “market” for their “product.” There is no “non-labor equivalent research of Phillips curve” because there is no “data” to research, the practice is illegal for every other commodity. Soybean sellers are never prevented from accessing the market with their product and, if they were, would sue and recover their losses. They would also be protected by the government’s actions in criminal prosecutions of the perpetrators of those that conspired to restrict access to the market.

        Surely a “science” and “scientists” wouldn’t just collectively “ignore” such a paradox would they?


        • smith says:

          I’m not sure I understand to which restrictions on selling labor you refer.

          I’ll number them:
          1) If a majority of laborers for a particular entity votes for union representation, the contract they negotiate governs the sale of your labor with that entity. This includes right-to-work states even. Union membership is 11 percent total, 36% of public workers, 6.5 percent private. The idea of the union is to redress the imbalance of power between capitalist owners of the means of production vs. individual laborers in bargaining while maintaining a private enterprise system.
          2) We restrict the number of immigrants from other countries who are allowed to enter and sell their labor, but also severely curtail the bargaining power of those who are employer sponsored (entry conditional on employment, termination also means deportation), which naturally affects all labor.
          3) For many businesses, the cost of entry is very high, either due to capital investment (utilities, auto, appliance, memory chip factories, hospitals) or training (medical and law school) or regulations and economies of scale (banks, insurance). Furthermore, oligopolies, control of wealth, limited number of professional schools, restrict the sale of labor through those controlling enterprises.
          4) Government employment, 8 percent for all levels, restricts labor (you can’t start your own police force, fire dept, though private security firms abound, private schools aren’t taxpayer supported)
          5) There are work rules governing hourly employees, insisting they are paid higher wages for working over 40 hours, there’s a minimum wage, restrictions on child labor, prison labor, but not overseas child labor or any foreign labor restrictions at all, though our government requests you forward information to them on such.
          Hourly vs. salaried 60% vs. 40%, I couldn’t find data on income broken down for that split in an hour of googling.


          • Perplexed says:

            Here is a link to the Clayton Anti-Trust Act of 1914. http://teachingamericanhistory.org/library/document/clayton-antitrust-act/

            If you read Section 6, you’ll see that “The labor of a human being is not a commodity or article of commerce…” No other “commodity” is listed except for the “commodity” of the 99%. This was ostensibly included to protect labor unions, but with the subsequent decline in the power of labor unions, its only practical significance now is to prevent those engaged in the “production” and sale of this “commodity” (labor) from the anti-trust protections that apply to all other commodities. This precludes those engaged in the sale of labor from the protections afforded under Section 2,3, 4, 15 or any other provision of the Act.

            It is the effect of this “market manipulation” that the Phillips curve is attempting to measure. No “soybean” producers are ever compelled to allow their product to “rot” in the field while other producers engage, totally unimpeded, in transactions at a higher price than he would sell his product for, while his soybeans “rot.” If they do, he can sue them and collect treble damages (section 4).

            Instead of discussing how unemployment is “created” by this exemption, economists treat it as some sort of “natural phenomenon” that is somehow “market based.” While they apply their sophisticated models and measurements to analyze the effects of this market manipulation, millions of victims suffer the consequences without recourse. And then these economists ask to be treated with the respect and deference that we give to real “scientists.” Go figure.


          • smith says:

            If I understand the analogy with soybeans, those selling their labor are prevented from offering a lower price. I naturally assume this is then an argument against the minimum wage.
            Our economy keeps a floor under wages, to counter the power of business in negotiating wage rates. We may sacrifice some employment in return for higher wages, but offer unemployment insurance, so the end effect is similar, except the unemployed don’t receive 100% of lost wages, but employers bear more of the burden, paying an unemployment tax. In a recession, the wage floor helps to prevent deflation, an important backstop to prevent a full blown depression.

            Something else that occurs, but is covered by anti-trust law is collusion of employers setting wage rates. Very hard to prove, but auto worker unions essentially negotiate on the assumption it’s a given. Sports teams (exempted from anti-trust) enshrine it in their operating rules (salary caps).

            As a side note, soy bean farmers are often at the mercy of grain storage facilities setting prices. They counter that by forming cooperatives. But big agri, commodity speculators and food processors are often the primary beneficiaries of the American farmers productivity and low prices.


          • Perplexed says:

            _”I naturally assume this is then an argument against the minimum wage.”

            Why would you assume that (except to defend the practice with a “straw man” argument)? Don’t price supports for agricultural products achieve the same goals while maintaining anti-trust protections?

            “We may sacrifice some employment in return for higher wages…”

            What “We” are sacrificing is peoples livelihoods & lives. Who is this proverbial “w
            We”? The Fed? Congress? The “majority” that rules? And from where does this power originate to impose these losses on a minority without fully compensating them? Does anything more directly contradict the Declaration of Independence clause that “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

            This practice makes a mockery of “unalienable Rights.” See http://en.wikipedia.org/wiki/United_States_Declaration_of_Independence

            -“…so the end effect is similar, except the unemployed don’t receive 100% of lost wages…”but employers bear more of the burden, paying an unemployment tax.”

            If suppliers of labor were protected from anti trust, as suppliers of every other commodity are, Under the Clayton Act they would be entitled to 3 times their actual losses (lost wages as well as lost future wages) as compensation. The pittance that they are given as “unemployment compensation” pales in comparison and covers little of the actual losses imposed on them by the majority. (There’s a reason its called compensation – its compensation for damages inflicted on powerless victims).

            -“but employers bear more of the burden, paying an unemployment tax.”

            Transferring money from customers to the government hardly constitutes much of a “burden” and is so miniscule relative the “burden” born by the unemployed victims of these practices that it is highly insulting to them to even suggest that employers share in any significant way in the damages. You also neglect to mention what employers get in return for these transfer payments: the power to coerce and the power to use other factors in their choice of who to “employ” than an objective standard of what is being “contracted” for. There are very few places where they can get this kind of “bang for the buck” as they do here.

            The entire process is “designed” to impose the full cost of the output gap on the unemployed who are powerless to defend themselves under the current laws and interpretation of the Constitution. Practices such as this are what gives “capitalism” a bad name and ultimately undermines it as workable system. Mostly due to the protestations of economic “scientists,” people believe this to be a function of “capitalism,” a “natural market phenomenon” of some kind and don’t understand that it really a function of “legalized” market manipulation, an aberration of what would occur in a “free market.” Ultimately its a transfer of powers of “We the People” under the Constitution to employers without going through the “hassle” of having to amend the Constitution. Its what would be expected from allowing money a prominent position of power in a democracy. The unexpected part, the paradox that’s difficult to resolve, is that economists would argue in support of such an interpretation and still expect economics to be treated as a “science.”


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