Topic: An interesting case of a widespread misconception (Read 525 times)

A lot of posters on the forum love to come up with figures showing how much the dollar (the American dollar, obviously) has depreciated over time, like 1 dollar in 1913 was worth 1000 dollars today (or whatever), with the general idea being that "the grass was greener and the light brighter back in the day"
However, what these forum members forget to account for is the rise in wages during the same time span. And the irony is that wages in the US have been outperforming inflation since WWII, barring a few rather short periods. It basically means that people become wealthier over years despite a declining dollar
So much for dollar inflation

Agree, and they getting richer not only because of their increasing wages but due to their acquired (for their salary) possessions and services which they could not afford before. Even the same Bitcoin they get for bucks being paid to them. Welfare of U.S. citizens , on average, is steadily increasing and, largely speaking, that is true.

Exactly, if we look at any us walfare annual chart we'll see how much it grows over the years
surely it grows more than depreciation

so98nn

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It's not just dollar but many other currencies which are compared like this all the time. But it's not wrong either. I know you have a made point with increasing wage formula but dollar was proportional to many other factors back in time and today as well. There was time when you could actually buy couple of candies for penny but today it is not the case. Over the time wages increased but costs per unit increased as well. The whole thing is connected with market demand and supply. It was lesser back in time considering the country was less populated back then. This is pretty simple thought and I guess one can easily agree upon this.

arowana33

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Quote from: o_e_l_e_o on June 29, 2020, 03:31:35 PM

A lot of posters on the forum love to come up with figures showing how much the dollar (the American dollar, obviously) has depreciated over time, like 1 dollar in 1913 was worth 1000 dollars today (or whatever), with the general idea being that "the grass was greener and the light brighter back in the day"
However, what these forum members forget to account for is the rise in wages during the same time span. And the irony is that wages in the US have been outperforming inflation since WWII, barring a few rather short periods. It basically means that people become wealthier over years despite a declining dollar
So much for dollar inflation

That is a big fact to consider in when comparing crypto to fiat.
A lot of people in crypto community are assured that its only a matter of time when crypto will replace or at least take its place near the fiat in banking systems and etc.
However, the current system works for a very-very long time, yeah it has its own problems but due to ease of use and incredible prevalence of usd makes it way bigger than btc

deisik

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I did not omit anything as my post quotes the exact line you claim I omitted

That's your reply which makes sense only in a deflationary context:

Quote from: o_e_l_e_o on June 29, 2020, 02:17:41 PM

As I said, when there is high unemployment, companies have no incentive to continually raise wages, and so at least in the short term wage inflation tends to be lower, leading to overall inflation also being lower

Thereby, you are describing a situation which doesn't usually happen in inflationary circumstances. Since your post included a citation of my post which describes a different situation (specified earlier), it should be obvious that you failed to understand the correct context

Quote from: o_e_l_e_o on June 29, 2020, 03:31:35 PM

workers have faced real terms wage stagnation or decreases, and high unemployment contributes to low wages - rather than taking issue with the way they were presented then please do

So you agreed the wealth that simple people created during the discussed period of 20 years have been stolen from them. Now, you have to admit that without this rip-off real wages should have been outperforming inflation as per OP, and all in all should follow the increase in productivity

Quote from: o_e_l_e_o on June 29, 2020, 03:31:35 PM

but if you can't stand someone disagreeing with you without making it personal and throwing out insults, then I have no desire to continue this discussion

If you come to think of it this way, then you are free to leave as no one is forcing you to reply here or elsewhere (read, there's no need for crying out loud)

o_e_l_e_o

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Quote from: deisik on June 29, 2020, 02:59:24 PM

But what could I actually hope for?

Lol.

I did not omit anything as my post quotes the exact line you claim I omitted, and I also did not take your post out of context at all but simply pointed out reverse also holds true. If you wish to actually argument against my points - workers have faced real terms wage stagnation or decreases, and high unemployment contributes to low wages - rather than taking issue with the way they were presented then please do, but if you can't stand someone disagreeing with you without making it personal and throwing out insults, then I have no desire to continue this discussion.

deisik

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Quote from: o_e_l_e_o on June 29, 2020, 02:17:41 PM

Inflation contributes to higher employment (again, in general). Conversely, deflation (which preceded the Great Depression) and low inflation contribute to higher unemployment.

And you have not read what I have written. We are in agreement here.

As I said, when there is high unemployment, companies have no incentive to continually raise wages, and so at least in the short term wage inflation tends to be lower, leading to overall inflation also being lower

So you didn't even think that I was talking specifically about the inflationary environment, did you? Here's the part which set it straight and which you either intentionally or by neglect chose to omit:

First, inflation reflects the price growth (as per definition), and the latter in general means that a given company starts to sell their goods and services at a higher price

Then, you just took some part of my post completely out of context, and then tried to challenge it in a different context, i.e. in the context that I specifically excluded from consideration (deflationary environment). Aside from that, I also said "in general" and even went to great lengths to emphasize that for those who don't read and don't care about the context. Obviously, it didn't help. But what could I actually hope for?

o_e_l_e_o

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So you agree that top management had been stealing from simple people since 1970's and through 1980's?

Yes, and I've never stated otherwise. Such a statement also doesn't change the fact that regular workers have seen their real wages stagnate or fall for the last 50 years.

Inflation contributes to higher employment (again, in general). Conversely, deflation (which preceded the Great Depression) and low inflation contribute to higher unemployment.

And you have not read what I have written. We are in agreement here.

As I said, when there is high unemployment, companies have no incentive to continually raise wages, and so at least in the short term wage inflation tends to be lower, leading to overall inflation also being lower.

Quote from: o_e_l_e_o on June 29, 2020, 08:08:10 AM

So if employers are to raise wages, this is more likely to occur in an inflationary environment, and therefore the latter is actually not without its benefits and advantages for simple workers, in terms of both jobs and wages

Again, I wouldn't disagree. At no point have I said that the average worker hasn't had wage increases. My point is that the wage increases have by and large not kept up with inflation. They have nominal wage increases, but real wage stagnation or decreases.

deisik

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Quote from: o_e_l_e_o on June 29, 2020, 08:08:10 AM

First, inflation reflects the price growth (as per definition), and the latter in general means that a given company starts to sell their goods and services at a higher price (to whoever it may concern, please note the use of the phrase "in general"). In turn, that typically translates to an almost automatic increase in wages (though with a certain lag depending on the production cycle of the company)

The table you shared on the previous page directly contradicts this point. As a company starts to sell their goods and services at a higher price, and therefore their gross income increases, then it is the top 10% - the directors, the executive, the board, the upper level management - who see their wages grow. Everyone else, the bottom 90%, including middle managers, line managers, and all the workers, see wage stagnation

So you agree that top management had been stealing from simple people since 1970's and through 1980's? Good

Then, good companies take particular care that it never comes to the point when their labor force "might not want the job anymore", for the simple reason if they didn't, someone else would. The implication is that employers are vitally interested to keep wages on par with inflation.

We are on track for levels of unemployment not seen since the Great Depression. There is no incentive for companies to keep real wages increasing. Their workforce will be reluctant to leave since most would be unable to find a new job, and any vacancy they do have will likely have dozens of applicants

That's because you don't read what I write

And thus can't understand the point I'm trying to make. Inflation contributes to higher employment (again, in general). Conversely, deflation (which preceded the Great Depression) and low inflation contribute to higher unemployment. This is a well-known tendency confirmed by numerous examples. So if employers are to raise wages, this is more likely to occur in an inflationary environment, and therefore the latter is actually not without its benefits and advantages for simple workers, in terms of both jobs and wages

o_e_l_e_o

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First, inflation reflects the price growth (as per definition), and the latter in general means that a given company starts to sell their goods and services at a higher price (to whoever it may concern, please note the use of the phrase "in general"). In turn, that typically translates to an almost automatic increase in wages (though with a certain lag depending on the production cycle of the company)

The table you shared on the previous page directly contradicts this point. As a company starts to sell their goods and services at a higher price, and therefore their gross income increases, then it is the top 10% - the directors, the executive, the board, the upper level management - who see their wages grow. Everyone else, the bottom 90%, including middle managers, line managers, and all the workers, see wage stagnation.

Quote from: mu_enrico on June 24, 2020, 06:41:02 PM

Then, good companies take particular care that it never comes to the point when their labor force "might not want the job anymore", for the simple reason if they didn't, someone else would. The implication is that employers are vitally interested to keep wages on par with inflation.

We are on track for levels of unemployment not seen since the Great Depression. There is no incentive for companies to keep real wages increasing. Their workforce will be reluctant to leave since most would be unable to find a new job, and any vacancy they do have will likely have dozens of applicants.

deisik

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In a pure free-market system, wages are determined by the labor market (supply and demand for labor), it is not directly affected by inflation. For example, when a worker willingly accepts, let's say $2,000 a month, and then the price of goods and services increases, and he might not want the job anymore. But the firm doesn't have to raise his wage because of inflation

There are two important points worth mentioning

First, inflation reflects the price growth (as per definition), and the latter in general means that a given company starts to sell their goods and services at a higher price (to whoever it may concern, please note the use of the phrase "in general"). In turn, that typically translates to an almost automatic increase in wages (though with a certain lag depending on the production cycle of the company)

Then, good companies take particular care that it never comes to the point when their labor force "might not want the job anymore", for the simple reason if they didn't, someone else would. The implication is that employers are vitally interested to keep wages on par with inflation. Failing to do so may be a sign that the company itself is failing. This has an interesting and well-known side effect of inflation that helps employees to find better jobs for themselves

deisik

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Quote from: fullhdpixel on June 24, 2020, 09:48:49 AM

Well, there are some differences. In those days, the pennies you have now were worth something, and you can at least afford to buy something with it. But right now you can't afford to buy those things you could buy then if you have a penny then

And what makes you think that these pennies were as easy to get?

Indeed, they were worth something "back then", but to get them you would have to work 100 times longer or harder than now. This is the part which "penny-wise" people fail to consider or take into account. The 1913 dollar could probably buy 100 dollar worth of goods today (or even more than that) but back in 1913 you would have to work your ass off to be able to buy that many goods

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Quote from: abhiseshakana on June 24, 2020, 03:12:08 PM

A lot of posters on the forum love to come up with figures showing how much the dollar (the American dollar, obviously) has depreciated over time, like 1 dollar in 1913 was worth 1000 dollars today (or whatever), with the general idea being that "the grass was greener and the light brighter back in the day"

However, what these forum members forget to account for is the rise in wages during the same time span. And the irony is that wages in the US have been outperforming inflation since WWII, barring a few rather short periods. It basically means that people become wealthier over years despite a declining dollar

Yes, you made a good point here. I do see those that talks about the inflation but they never consider the point you have just made here now. The wages increased and that’s the truth. If you check how much those people then we’re making for the same jobs that we have today, you will see that the amount they are being paid is also small compared to what we are being today.

Imagine that you’re a cleaner, you might be getting paid 10k today, but if you check back in those days it’s possible that the people doing same work are being paid around 1k or less. And I think life then is similar to life we have now, and they were also complaining, it’s not like everyone was living huge.

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When searching for references on inflation and rising wages of workers, I found out about the O-ring theory. The O-ring effect across companies in a country can create a trap of low productivity nationally.
https://en.wikipedia.org/wiki/O-ring_theory_of_economic_development

AFAIK it has nothing to do with inflation and stuff (macroeconomics), it may explain how the same skills worker in our country got paid significantly less compared to the developed countries, e.g., the US.

Quote from: abhiseshakana on June 24, 2020, 03:12:08 PM

Is the increase in employee wages intended to offset inflation precisely as a factor that triggers an increase in inflation because it is not offset by an increase in productivity? So that the actual income calculation does not increase but the price of goods is even more expensive. So there is an imbalance between the increase in employee wages and productivity per man-hour.

In a pure free-market system, wages are determined by the labor market (supply and demand for labor), it is not directly affected by inflation. For example, when a worker willingly accepts, let's say $2,000 a month, and then the price of goods and services increases, and he might not want the job anymore. But the firm doesn't have to raise his wage because of inflation.

The relationship between wage and inflation is getting more attention is because of socialism's minimum wage. Now, firms MUST raise wages because of inflation.
That makes the production inefficient.

abhiseshakana

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Quote from: mu_enrico on June 24, 2020, 03:53:53 AM

True, at the end of the day "it's always been a monetary phenomenon" - Datguy

I see, we can say the total real wages is increasing, but the average real wages can depend on many things, mainly about population and the distribution. Not sure how society can solve this issue (i.e., concentration of wealth) though. Perhaps it will always occur in nature, so we shouldn't try to solve it.

"Freedom will lead to higher equality" - Datguy again.

When searching for references on inflation and rising wages of workers, I found out about the O-ring theory. The O-ring effect across companies in a country can create a trap of low productivity nationally.
https://en.wikipedia.org/wiki/O-ring_theory_of_economic_development

Is the increase in employee wages intended to offset inflation precisely as a factor that triggers an increase in inflation because it is not offset by an increase in productivity? So that the actual income calculation does not increase but the price of goods is even more expensive. So there is an imbalance between the increase in employee wages and productivity per man-hour.

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Agree. People today are having a better life and salary than they used to in the past. People keep complaining about inflation but forget that we are earning much more money easier and there are plenty of things we can do to have a good life. And as the economy rises, Inflation is inevitable. Its just a simple math of supply and demand. Governments and FED do know how to run the world.

If you want to have more money without being a victim of inflation, try to hold gold or bitcoin. Gold is always a number 1 asset overtime. Bitcoin is different but there are still many people who believe in its fate.

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Well, there are some differences. In those days, the pennies you have now were worth something, and you can at least afford to buy something with it. But right now you can't afford to buy those things you could buy then if you have a penny then. And I do think that things back then would have been easy for them? Or maybe not? Or is it still the same thing when you compare it with what we have today? Because if things were cheap then and pennies were worth something, I think labor will also be cheap and the amount they are getting paid then will also be less than what we are getting now to match their condition.

People do compare bitcoin against fiat due to those misconception. Bitcoin can act like fiats but it is designed by keeping gold in mind. Gold is suitable to be used like fiat? Even there are some trades are happening on gold as medium of exchange, gold cannot compete against fiats. But, bitcoin can compete against fiats but it will still have gold like properties.

Bitcoin must be the all new thing for mankind because it will be having properties of both gold and fiats. It is suitable for transacting like fiats still it will have gold's property of "store of value".

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Sadly, we cannot live with the past.
All of those should be forgotten, and we need to embrace whatever is offered now.
Same goes with a lot of different currencies in the world.
Grandpa stories may have lessons in it, but it will always be just another story from when they are young.
Hoping those days will come back have a slim chance.

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