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Member since: Mon Feb 7, 2005, 02:14 AM
Number of posts: 65,035

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I am interested in politics & history, and social justice.

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Now It's Explicit: Fighting Inflation Is A War To Ensure That Real Wages For The Vast Majority Never

Now It's Explicit: Fighting Inflation Is A War To Ensure That Real Wages For The Vast Majority Never Grow

by Josh Bivens at the Economic Policy Institute



Remember that episode of The West Wing when Josh Lyman announced a secret plan to fight inflation? That was great. Turns out that Dallas Federal Reserve Bank President Richard Fisher has a secret paper telling us how to fight inflation: stop progress in reducing unemployment so that nominal wages never grow fast enough to actually boost living standards (or, never grow fast enough to boost real wages).

Last week, Fisher argued that a so-far unpublished (i.e. secret) paper by his staff showed that “declines in the unemployment rate below 6.1 percent exert significantly higher wage pressures than if the rate is above 6.1 percent.”

In the interview, Fisher mostly characterized this as a Phillips curve that is flat at unemployment rates higher than 6.1 percent, but which starts to have a negative slope below this rate, meaning that future declines in unemployment should be associated with higher rates of wage-growth. However, if you’re really thinking in terms of a stable Phillips Curve, this means that we can simply choose what unemployment/wage-inflation combination we’d like without worrying about accelerating inflation. Currently, nominal wage-growth is running around 2-2.5 percent. But as we’ve shown before, even the Fed’s too-conservative 2 percent inflation target is consistent with nominal wage growth of closer to 4 percent. So we have plenty of room to move “up” Fisher’s Phillips Curve before hitting even conservative inflation targets.

Also, the 6.1 percent threshold, beside being funnily precise, jogged my memory about something related—and relevant. In 2000, Larry Katz and Alan Krueger wrote a long paper on wages and unemployment. Among lots of other stuff, they estimated the lowest unemployment rate consistent with zero real (inflation-adjusted) wage growth for different parts of the wage distribution (which they label URZERCG in the table below). See the circled bits below, and focus in particular on the 10th percentile. This says that between 1974 and 1988, the 10th percentile had to see unemployment below 6.2 percent to not have their real wages fall. In the 1990s, wage headwinds were worse, and unemployment rates below 5.7 percent were needed. The deterioration of structural wage growth was even worse for the median. In the 1974-1988 period, they could see real wage gains with unemployment as high as 6.8 percent, but by the 1990s they needed unemployment to reach 5.4 percent to see any inflation-adjusted wage gains.


Boehner is saying the unemployed are just sitting around when in fact they are fighting inflation

by being unemployed and making it an employers market in the last 6 years. Wages go down. The middle class struggles. There is less pressure on the economy. Inflations goes down. And the rich don't do anything to fight it themselves (the US economy on the whole used to fight inflation with tight money policies, now just the unemployed do). What Boehner is really saying is he wants all the people who have given up back in the market, back trying for jobs, back being desperate, back lowering wages, back to making it an employers market. In fact, he wants them all back fighting inflation more than they are, which the rich do not fight themselves. Who is the lazy***? As usual with the GOP, it is projection and scapegoating all around.


value driven, stories with images and feelings, sounds like being

a human being to me. I guess that is the enemy of the NRA...being human.

I just don‘t think we should be weakening

what we have that is wonderful. That is the GOP‘s job. To take thing apart. We need the DU to be a safe place.

You did say “It seems odd to me“.... Which implies

a negative when in fact the anonymity of the DU allows for passion and honesty and really makes this site what it is... open to democrats to discuss authentically what they want in political leadership with no possible threat of retribution.

In Canada, I would say there is more respect for government itself than politicians.

Our motto is peace, order and good government. So we see government as good. Then again someone who has been a provincial premier is unlikely to want to be prime minister. Maybe governors in the USA often want to be seen as presidential? Maybe it is by design? Would the GOP up the prestige of executives and lower the prestige of the government relatively speaking? Yup. Would they try and institute fielty for the 'big man' psychology to change the way people vote/relate to 'big men' (CEOs, tv & radio pundits, politicians, the individual not the group)? Yup. Have they? I don't know.

When you are persecuted or bullied

as Obama constantly is then things physically start to happen. Your working menory tanks. You get insomnia that builds. Back pain or other psycho somatic things happen. Then you add the stress of all hell breaking out in the world and you end up where Obama is. If he were a much younger man I would tell him to start smoking again to relieve the pressure till the crisi pass. I‘m sure he has the best doctors. I wish the Saudi Arabians would get off their asses and step up and take responsibility where they can for their part in creating ISIS and send in their military to help. I hope Putin tires of economic mayhem at home and not getting the payoff of Republican praise and attention he was getting earlier this year. So that he retreats. Mostly I hope those in the GOP who have some humanity left start to have their President‘s back on foreign policy. As is their role in government.

I mostly agree with you. So why do you complain that

I don't listen or hear your complaints. I believe in a big tent. And so do you according to your post, where not everyone wants or needs exactly the same thing from government. I have always been for all the policies you describe, with the exception with trade. I‘n for universal childcare too. I am for higher taxrs on corporations around the world and penalties for inversion. I do worry that because the left has been so antitrade that all liberals have not had an adequate seat at the free trade talks. That benefits the GOP and corporations in the end. But getting back to the article, do you think Obama should push to implement the solutions to poverty that both parties can agree on, which he is starting to do, or should we wait until the Democrats have a supermajority to start fighting poverty. What do we do with what the congress we have (will have)?

Democrats are a big tent. For sure the

GOP would love it if we copied their worst practices and had constant purity tests. Plus it may scare off some independants. That too would please the GOP. Here‘s my purity test for the DU: don‘t do things that please the GOP.

So you want the people of the USA all

dreaming one dream? That is a cult. Reality has multiple realities and dreams. And in a democracy people pursue these varied plans. And at times they bump up against each other. And maybe learn something (or not if they are gop). And you reach compromises in the democratic party like promote trade but have adequate taxes on that corporate profit so that social programs and education can be kick ass good. And everybody then wins because it is a great democracy.
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