Topic: An interesting case of a widespread misconception (Read 528 times)

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

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.

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

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


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


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


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)

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.

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:


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?

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.

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.

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.

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


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

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.

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.

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

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

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.

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.

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.

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.

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.

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".

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.

People are earning more even with inflation but today there are way more needs that were 100 years ago.

It dont really matter that people are earning more. Money is losing value. People that dont earn anything and have stored money lost. There is no need for that.

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.

I know about inflation in 1970's

But the inflation rates as they were in the US in that period could not halt or hinder economic growth, especially if it was simple monetary inflation, i.e. rebalancing of available money supply with the size of the economy after the Nixon shock. On the other hand, you can't discard the objective rise in productivity, and that inevitably raises valid concerns regarding the validity and veracity of the "stagflation" narrative


Look closely at the part of it which shows the rise in real wages of the top tiers:



It essentially tells us that the economic growth was stolen from those who had been creating it. Put simply, we are not told the whole truth about "stagnating" wages

@deisik simple logic can explain the stagflation period when there was no or little economic growth accompanied by high inflation, the total nominal wages couldn't grow; therefore the average nominal wages was stagnant too. Remember, in the event of a recession, the nominal wages cannot fall because of the sticky nature, so should we take into account unemployment as well, not only about wages?

Since the average nominal wages was stagnant and inflation was high, it's understandable if the average real wages falls.

Anyways, the term real wages is a bit misleading since it's just inflation-adjusted, and not about what goods and services that a person can buy with the money. Therefore people use the CPI approach.

Not sure how to read the table mentioned here.

But that has nothing to do with inflation

Tuition costs are probably up (I don't really know) because a lot more people are looking for better education as without a college degree it is hard, if not downright impossible, to land a good and high paying job nowadays. House prices had been surging pre-2008 due to speculation, i.e. people were buying houses to sell them later at a higher price. Ultimately, this led to a housing bubble followed by a nationwide subprime mortgage crisis

The inflation is calculated in a way that it looks like wages are outpacing it however there are stuff that became a lot more expensive as well. For example it is true that your wage is getting a lot higher compared to price of food, yes that is correct and that is the most vital thing, after all you need to eat to survive and that is cool.

However, look at house prices and look at education prices and look at the unemployment levels as well. Now when you calculate these three, in the past 20 years alone (and you can go back further to WWII) you will see that people are having harder time to buy houses, people are having harder time paying for college and people are having harder time finding a good job as well or even a job at all. Which means inflation might be not so bad but there are very bad things going on anyway.

Well, that actually remains to be seen

Here's a chart which invites you to reconsider the definition of that period (link):



As everyone can confirm, productivity continued to climb, while real wages either flatlined or outright declined during the following 20 years. It looks like a paradox because the growth in productivity is how higher real wages come about (all other things being equal), and which had been the case prior to 1973

However, there is no paradox as this phenomenon has a very simple and established explanation. It is the wages of simple workers that stagnated but as the table in this post clearly shows, the super rich had started to steal from the working class. If it weren't for them and their greedy hands, we would see something like this:



Real wages would still have grown significantly even despite the stagflation of 1970's but for the rise in inequality

Before the creation of the Federal Reserve System back in 1913,the US banking system and the US dollar were way more unstable and there were financial panic and inflation(if I remember this part of the US financial history correctly).
Nobody denies the fact that moderate levels of inflation can help for further economic growth.
The people are way wealthier now,compared to 1913,but this is caused by many other factors,that have nothing to do with the value of the US national currency and FED.Factors like WWI and WWII,technological progress,The Cold War,etc.The world wars actually boosted the US economy a lot,which looks like a paradox.

Actually, for me personally, for example, there are two different concepts for determining value, where a certain asset can be used as a reliable source of income, and the other can be a reliable asset for storing savings. If you take Bitcoin for example, then I don’t want to keep all my savings in this particular currency, because because of its volatility, I can lose a lot. but at the same time, I invested part of my savings in Bitcoin, and froze for a long time, since there is one hundred percent chance that these investments will bring me very big profits. In addition, one must take into account the fact that each person has their own approach to managing their income and saving their finances.

Ofcourse. Though one of the problems with fiat currency is saving long-term without adequate interest getting to your savings. Not really good as long-term store of value unless your value/money is safely working  for you and earning good interest to compensate for inflation.
     Besides, you'll need to be consumption based economy to avoid this sort of problem. Imagine the harm it will cause to the world if most people are constantly producing and consuming the wrong things or at unsustainable rate.

Except for the stagflation period
https://www.investopedia.com/articles/economics/08/1970-stagflation.asp

And thanks to Mr. Free To Choose, the US can get out of the situation.

Other than that, generally, we are in better shape than our grandfathers.

Then what about the last 45 years? And around 30 years before that?


What important data exactly?

But let me guess, you are talking about that spike in wages in 1973 and a few years before. On that account, you come to the conclusion that during the majority of the post-WWII time the increase in wages hasn't been on par with inflation (lagging behind). However, if it really were so, we would now have real wages lower than they were at the beginning of that period. Aside from that, no matter how you may try to dance around it, even according to your own stats, real wages had been growing before 1973 and have been growing since at least 1995, and outperforming inflation for the entire period of 75 years on average, as well as for the last 25 years. So what are you trying to prove? Your misunderstanding of stats?

Pick any year you like. I'm simply using that year because as the data show, it disproves your assertion that wages have been outperforming inflation since WWII, when for the last 50 years they clearly haven't.

Because taking individual years without looking at how well each year is performing is utterly meaningless.

Let's take your example. In the two year period of 1976 and 1977, real wages grew from $21.53 to $22.13. In the 18 months that followed, they fell from $22.13 to $21.36. That's a net loss of $0.17 in that 3.5 year period. You can say that wages "outperformed inflation" for the majority of that time period if you like, but you are purposefully omitting the important data.

I'm curious if you don't understand how elaborately you are cherry-picking here

Seriously, what made you took 1973 as a starting year? Just because wages peaked in that year after WWII? Regardless, since I am talking about the whole post-WWII era, the point which you strongly emphasized yourself, it looks like you should take the entire period of 75 years. So stick to the point


For the majority of the time, i.e. in 1976, 1977, etc, real wages have been outperforming inflation. You don't even seem to understand that "the majority of the time" refers to the majority of the years within that period as both inflation and wages are estimated on a yearly basis


So why don't you really take a look at the bigger picture, and start with 1945 as per OP?

I would hardly call 1973 - 2020, which represents 47 years and 63% of the years since the end of WWII, a "rather short period". For the majority of the time, wages have not been outperforming inflation. If they had been, then why have real wages never been higher than they were in 1973?

Yes, wages have been rising since 1995, but the doesn't mean anything when you look at the wider picture, as I explained above. If you buy a shitcoin at $1, it drops to $0.10, then rebounds to $0.20, you wouldn't call that a profit. When real wages fell from $23.00 to $18.50, then rebounded to $22.00, you can't call that an overall rise.

Let's make something clear . US is a wealthy county , a developed one at that matter. When we are taking about Inflation and wages , we need to look at the developing and the underdeveloped countries where situations are becoming very dire.
We all know how to dispose hazardous chemicals : Neutralize them , set their temperature normal , release them through a filter chamber . But what does these wealthy countries do might surprise you .
They pay the developing countries to throw these wastes in their mountains and forests because they apparently have a lot of it , which causes a lot of biodiversity change.
Due to this unfair inflation , Rich is becoming Richer and Poor is becoming Poorer might be quite true.
It's not just one country we are talking about. Quite the opposite* It's all of them * .
That is why people migrate to those countries for better jobs , better wages , better opportunities and education. Your statement might be true but at the same time you are not even consider *Competition* .
So many Graduates fight for a single job , with the increase in population and resources , education and other exams have made it very tough to get into one. It's not just about one job .
Do you know how many people are jobless let alone in the US?
Millions !!

But here's what I actually posted:


Now you can start over from this unabridged version of my point


You may want to stop twisting my words

There was a brief period of a few years in late 1960's when wages peaked after WWII. Other than that, real wages had been rising most of the post-war era. So who is actually picking the years here?

In my country, an increase in the minimum wage for workers follows an increase in the rate of inflation. The government uses inflation factors and gross domestic product in determining minimum wages. The inflation rate causes the cost of living to be more expensive as prices of goods and services increase. Thus, the value of money decreases, so that people's purchasing power decreases. The rate of inflation every year needs to be balanced with an increase in labor wages so that workers can still meet their daily needs. Therefore, employee salary increases are generally set above the inflation rate.

UMn = UMt + (UMt x (Inflation +% Δ PDBt)).

UMn = Minimum Wage
UMt = Minimum wage for the current year
PDBt = Current Gross domestic product (economic growth)

The higher the inflation, the higher the minimum wage increases. So the actual increase in labor salaries does not improve their welfare because in general, it is only to sustain the needs of a decent living. The necessities of a decent life consist of 78 components, namely food & beverage, clothing, housing, education, health, transportation, recreation, and savings. An increase in labor wages may be able to support for personal needs but even then it is not enough to support the needs of one family.

That's the reason why I don't save all my money in the bank, there was this one guy who suggested me to just put my money in the bank and let it earn interest through time deposit, he was even telling me that if you are earning interest, you will just have to sit and just withdraw your interest income to fund your expenses and life would be easy for you. Unfortunately, I said to myself that he failed to realize how money depreciate in the long run so that interest earned is not enough to avoid that depreciation because of inflation.

The best thing to do is get involved into business or invest on it.

I believe online investment particularly crypto investment is good choice too.

Except that's not the point you made. Here is the point you made:
And I never said they didn't. But if you look at all the data, rather than just cherry picking the years which fit your preconceived notions, wages have fallen.

I'm obviously not saying that wages haven't increased, but they have increased at a slower rate than the cost of living, resulting in a real terms decrease, as proved by the statistics above.

Are people really getting wealthy though or is even the increase in income just an illusion that people are getting wealthy? We have students after they graduate will owe debt at the beginning of their first employment, we have mortgages that they have to pay for years, and of course dozens of insurances and other loans that can leech all their money bit by bit. Yeah the increase in income might be greater than the inflation but so is companies having ways to get a pieace of the pie back at them , I might not have the actual numbers but this os what I am seeing in dozens of news and documentaries related to debt in the US.

It's not only a misconception on this forum--I've been reading the same crap on precious metals sites for years now, and it's a way that the gold & silver permabulls hype metals and show how they apparently keep pace with inflation.  But anyone with a brain ought to realize exactly what you pointed out, OP.  None of us are earning 1920s (or pick your year) wages or paying 1920s prices for things.  If you consider that labor is just one more thing that gets priced in terms of US dollars, it makes sense that its price has inflated along with everything else, i.e., wages have increased along with the price of food, housing, gas, whatever.

No doubt, but we're talking about economics and not hard science.  And economists tend to disagree with each other on a lot of things, so I'm sure we'll see the CPI redefined several more times before we're dead.

So we can safely throw it away


So you agree that after we hit the bottom in 1995, the wages have been rising in real terms ever since then, and that has been the case for 25 years. Point proved


I think we can stick with the "everybody else" group

And then the annual earnings in the inflation-adjusted dollars had been on the rise since 1979 till 2007. And even if 1979 has been deliberately chosen, you can't discard that growth


You are cherry-picking. Here's the relevant part:


So, all in all, wages outperformed inflation by 17% for 1979-2012, or around 0.5% per year. Again, point proved

The gray line, with the scale at the left of the graph, shows the average wage in dollars per hour that the worker was paid at the time. In 1973, that was $4 per hour. In 2019, that was approaching $24 per hour.

The red line, with the scale at the right of the graph, shows the average wage in dollars per hour if paid at the value of a 2017 dollar.

In 1973, the average wage in terms of 2017 dollars was over $23. It has never been higher than that value since. The closet it has got is just now, at around $22.50.

I would suggest you read the paper you have shared that table from, because it does not back up the point you are trying to make.

Look at the 5 categories in the table you have shared. Top 0.1%, top 1%, top 5%, top 10%, and everybody else. The higher earners have experienced real wages increases, yes, but "everybody else" has had wage stagnation. You'll also notice as well that the table picks arbitrary dates - 1979 was already down significantly from the 1973 peak. If you compare to the actual peak, that stagnation turns negative.

Here are a few quotes from that paper:

There are significant flaws in the way Consumer Price Index (CPI; the inflation measure used by BLS) is calculated and it's been tweaked over time so historic values don't necessarily compare well to each other. I think it's safe to assume that the government's number is lower than the actual inflation. I could never make sense of how certain expenses like healthcare are showing modest 2-3% increases in the CPI but in reality go up by 5-10%.

Care to explain how you arrived at that conclusion from these data? As I understand it, for your claims to be true, the inflation-adjusted curve should go under 0, but it never does


Well, I have different data, which actually shows the change in inflation-adjusted wages (more specifically, earnings) over time. It is based on the Social Security Administration wage statistics (link):



As you can see, real annual earnings were outperforming inflation since 1947 till 2007

Nominal wages have been constantly increasing. Real wages, i.e. wages adjusted for inflation, have not. Observe below the data from the Bureau of Labor Statistics (click for full size):



The average American has never had a higher real wage than that which they had in 1973, despite their nominal wage increasing from $4 to $24. That's two entire generations so far (Gen X and Millennials) with lower wages than their parents/grandparents (Baby boomers). The trend isn't exactly likely to reverse for Gen Z.

Yeah if you imagine you could but something with a half pence in the 80s and a pound was considered a lot in the past I'd agree with this... Also people didn't have many possessions in the past (some of this could be related to globalisation though like bananas and pineapples used to be ornaments - now they can reach you in 16 hours by plane)...

The advancements in technology are quite considerable since one person used to control everything thst happened in a town in the past (a lot of the time) and now multiple parties can compete... If air shipping went up in price for example, a passenger jet company could take over.

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