Sunday, March 27, 2011

Not Inflation

I’m sick of hearing people complain about inflation. Unless your income comes from long-duration fixed-income investments, inflation has nothing to do with how much groceries and gasoline you can afford. Inflation is a pattern of increase in the general price level. What matters for affording stuff is a relative price, not the general price level. Specifically in this case it is the price of groceries and gasoline relative to the price of labor. And whether or not you like to eat iPads, the broader problem (for people with jobs) is not that the nominal price of groceries and gasoline is going up but that the real price of labor is going down.

In fact, when measured in terms of how much that labor can produce, even the nominal price of labor is going down, as illustrated by the last part of this chart from the Bureau of Labor Statistics:


Look at the last two years compared to the rest of the chart. As someone who thinks people are more important than gasoline, I’d say this looks a heck of a lot more like deflation than inflation.

And people are more important than gasoline – not just in the ethical sense implied by my snide suggestion, but in a cold, economic sense: labor is more important than energy as an input to the goods and services that get produced. Therefore if the price of labor is falling while the price of energy is rising, the pressure on the prices of goods and services is likely to be downward rather than upward.

Not that I’m expecting the prices of goods and services to start moving dramatically downward in the immediate future. After all, the price of energy has been rising faster than the price of labor has been falling. And the value of the dollar has been falling, while many of the goods Americans consume are produced abroad. And the price of labor is not necessarily going to continue falling. I will say, though, that I think the price of labor provides a strong anchor for the general price level: just as the gold standard provided assurances against runaway inflation, so the “labor standard” provides such assurances. In fact, the labor standard provides better assurances, because labor is the most important input into the production of many useful things, whereas gold is – well, just gold.

(You might object that we really aren’t on a labor standard, because unit labor costs could start rising at any time, and there is no guarantee that policymakers would resist such increases. All I can say is, if you think the gold standard provides a guarantee against changes in the whims of policymakers, you need to read about what happened in 1933 and 1971.)

I’m going to go further and say that I think the falling real price of labor is a good thing, at least in the short run. I’ll even say that rising food and energy prices, while not good in themselves, are symptomatic of something good that is happening and that I would like to see accelerate rather than decelerate.

The flip side of falling real wages is rising profit margins. In a simplified closed economy this would be trivially true: the profit margin for businesses in aggregate would be the difference between the prices they charge and the wages they pay, i.e., the inverse of the real wage. It’s also true to a lesser extent in the real world, although the situation is more complicated because there are imports and exports, and labor and capital are not the only inputs.

What we experienced in 2008 and 2009 can be seen as a dramatic decline in the willingness of aggregate business to produce more for any given level of the aggregate profit margin. (Obviously, the phrase “aggregate business” hides a lot of critical details: part of the problem was with banks’ willingness to lend; part was with hoarding of cash by large corporations; part was with investors’ preferences over public vs. private sector assets; and so on.) What we need to do to fix this problem (and what we are doing, to some extent) is to make profit margins so high that businesses are willing to expand despite their newfound conservatism.

And it should be noted that there is a continuum of price flexibility. At one end, wages are perhaps the least flexible; at the other end, commodity prices are the most flexible. But there is a whole range in-between. When demand picks up, commodity prices rise first, product prices rise more sluggishly (with varying degrees of sluggishness), and wages rise most sluggishly. If the objective is to raise profit margins, then product prices have to rise more quickly than wages, and an inevitable side effect is that commodity prices will rise even faster than product prices. To the (limited) extent that rising commodity prices represent domestic US demand, they are a sign of a process that needs to be encouraged, not discouraged.

In the intermediate run, the evidence is clear that real wages are procyclial. When a recovery really gets going, real wages eventually rise, presumably because the economy as a whole becomes more efficient and “a rising tide lifts all boats.” In the short run, though, we need to get the recovery going before this can happen, and the way to get the recovery going is to let real wages fall – or at least rise more slowly than productivity. Say what you like, I’m cheering for rising prices.


DISCLOSURE: Through my investment and management role in a Treasury directional pooled investment vehicle and through my role as Chief Economist at Atlantic Asset Management, which generally manages fixed income portfolios for its clients, I have direct or indirect interests in various fixed income instruments, which may be impacted by the issues discussed herein. The views expressed herein are entirely my own opinions and may not represent the views of Atlantic Asset Management. This article should not be construed as investment advice, and is not an offer to participate in any investment strategy or product.

493 comments:

«Oldest   ‹Older   401 – 493 of 493
friendship day images said...

pics of friendship
image of friendship
friendship image
friendship day quote
happy friendship day quotes
friendship day shayari in hindi
friendship pictures
friendship day shayari

friendship day images said...

independence day images
independence day pictures
15 augustspeech in hindi
independence day status
independence day pics
teachers day speech in hindi
rangoli design for competition
independence day speech for students

Sanjeev Singh said...

Videosdna
Video Download
Song Video Download
Punjabi Songs Video Download
Hindi Song Video Download
Sports Video Download
Funny Videos Download
Dance Videos Download

lady queen said...


Situs BandarQ Terpercaya
Situs Poker Uang Asli
Judi Domino 99

Gege Dai said...

uggs outlet
longchamp bags
michael kors handbags clearance
chrome hearts eyewear
polo ralph lauren
ugg outlet
longchamp handbags
cheap soccer jerseys
moncler outlet store
coach outlet store
michael kors outlet clearance
ugg outlet online
tory burch outlet
michael kors outlet online
oakley sunglasses
celine outlet online
polo ralph lauren
lululemon pants
beats by dr dre
ugg boots
nike outlet store online
ugg outlet
cheap uggs
michael kors outlet
adidas outlet
converse shoes
fitflops outlet sale
ugg boots
michael kors outlet
michael kors outlet clearance
louis vuitton handbags
ugg boots on sale
michael kors outlet
cheap uggs
nike free run
czq20160816

Vinamilk Vinamilk said...

Gaming world where everyone entertained with games like Run 3 unblocked or Run 4 unblocked or Run unblocked . The adventure racing game as Car Racing Games or game that a lot of people like the Super Mario Unblocked or Donkey Kong Unblocked is also very attractive. Have fun!

Valentines Day said...


http://www.blackfridayoffers2016.net/


http://happychristmasday-2016.com/happy-christmas-day-images-2016-hd-pictures-wallpapers-facebook-photos/





http://happychristmasday-2016.com/christmas-day-messages-sms-wishes-greetings-e-cards-merry-christmas-2016/





http://www.happyhalloweendayimages2016.net/happy-halloween-2016-quotes-pictures-images-greetings-messages-scary-halloween-images/





http://www.happyhalloweendayimages2016.net/happy-halloween-2016-

quotes-pictures-images-greetings-messages-scary-halloween-images/





http://www.diwaliquotes2016.com/2016/07/happy-diwali-whatsapp-status-happy.html


Happy Diwali 2016

Happy Diwali Quotes

Happy Christmas

2016


Happy Christmas

Quotes

Happy Dussehra Images

2016




Happy

Halloween 2016



Happy

Halloween images




Black Friday

2016


Walmart Black Friday

Offers 2016



http://www.diwaliquotes2016.com/2016/07/diwali-2016-hindi-shayari-quotes-sms.html

Raja Shrama said...

www.123-ganeshchaturthi.com
123-ganeshchaturthi.com
123 ganesh chaturthi
source
vinayaka chaturthi
happy ganesh chaturthi
ganesh chaturthi wishes
ganesh chaturthi images
ganesh chaturthi songs
ganesh chaturthi photos
ganesh chaturthi messages
happy ganesh chaturthi wishes
vinayaka chaturthi wishes
vinayaka chaturthi images
vinayaka chaturthi messages
happy vinayaka chaturthi
ganesh chaturthi recipes
ganesh chaturthi greetings
ganesh chaturthi sms
images of ganesh chaturthi
when is ganesh chaturthi
ganesh chaturthi pooja
ganesh chaturthi wallpaper
ganesh chaturthi status
what is ganesh chaturthi
ganesh chaturthi invitation
ganesh chaturthi decoration
ganesh chaturthi 2016
essay on ganesh chaturthi
ganesh chaturthi pictures
ganesh chaturthi date
about ganesh chaturthi
why is ganesh chaturthi celebrated
how to celebrate ganesh chaturthi
ganesh chaturthi pics
ganesh chaturthi puja
ganesh chaturthi festival

Uday Sharma said...

Dussehra Images
Happy Dussehra 2016 Images
Dussehra 2016 Wallpapers
Happy Dussehra 2016 Wishes
Dussehra 2016 Pictures
Happy Dussehra 2016 Greetings
Dussehra 2016 Whatsapp Status Messages
Happy Dussehra 2016 Cards
Vijaydashmi Images

http://thetechpoint.org/ said...

ae dil hai mushkil total box office collaction
true friends quotes
Happy New Year Pictures
awesome wallpapers hd
halloween for kids
grandparents day poem
when is the mexican independence day

Alice Denny said...

I was working and suddenly I visits your site frequently and recommended it to me to read also. Age Of War 2
Big Farm | Slitherio
Tank Trouble | Happy Wheels
Goodgeme Empire | Slither.io

Priya Singh said...

Halloween Images
Halloween Quotes
Halloween Poems
Halloween Sayings
Halloween Costume Ideas
Halloween Wallpapers
Halloween Messages
Halloween Crafts
Halloween Clipart
Halloween Coloring Pages
Halloween Printable Template
Halloween FB Cover
Halloween Greetings
Halloween Nail Arts

Priya Singh said...

Halloween Coloring Pages
Printable Halloween Coloring Pages
Halloween Colouring Pages
Halloween Coloring Pictures
Halloween Coloring Sheets
Halloween Coloring Pages for Kids
Free Halloween Coloring Pages
Halloween Pumpkin Coloring Pages
Halloween Witch Coloring Pages
Halloween Ghost Coloring Pages
Halloween Skeleton Coloring Pages
Halloween Monster Coloring Pages
Halloween Vampire Coloring Pages
Hello Kitty Halloween Coloring Pages
Halloween Haunted House Coloring Pages
Halloween Printable Coloring Pages

Renu Rawat said...

halloween party games
happy halloween images free
halloweens date
halloweens date
halloween costumes for adults
Happy Halloween GIF Images
Happy Halloween Wishes for Friend
Halloween Scary Face Makeup Ideas Images Free Download
halloween costume accessories

John Kerry said...

More activity on facebook fan page attracts more status. For this, you need to buy facebook video views on consistent basis. This can produce you prosperous. buy views for facebook video

Uday Sharma said...

Halloween 2016 USA
Happy Halloween 2016
Happy Halloween 2016 Images
Halloween 2016 Costumes
Halloween 2016 Costumes
Happy Halloween 2016 Coloring Pages
Happy Halloween 2016 Coloring Pages
Happy Halloween 2016 Printable
Happy Halloween 2016 Printable

Golu Bankar said...

Looking for honestly penned reviews/ratings for android apps? Forget the worries, we present Android App marketing experts with impartially created reviews with five star rating. buy appstore reviews

lady queen said...



apartemen depok
apartemen harian depok
apartemen harian di depok
hotel depok
hotel murah depok
hotel murah di depok
penginapan depok
penginapan murah depok
penginapan murah di depok

Nikita Arora said...

Diwali 2016 Images
Shubh Deepawali Images
Happy Diwali 2016 Images
Diwali 2016 Wallpapers
Diwali 2016 Photos
Diwali 2016 HD Images
Happy Diwali 2016 Quotes
Happy Diwali 2016 Wishes
Diwali 2016 Profile Pic For Facebook
Diwali 2016 Greeting Cards

mango dolly said...

Real Madrid vs Barcelona Online

Rajeev Parashar said...

Thanks for the best blog.it was very useful for me.keep sharing such ideas in the future as well. Thanks for giving me the useful information. I think I need it! --
Naagin 2
Naagin 2 Serial
Naagin 2 Colors
Naagin 2 episodes
Mouni Roy
Aashka Goradia
Naagin Colors TV
Adaa Khan
Shesha
Shivangi

Rajeev Parashar said...

Such a very useful article. Very interesting to read this article.I would like to thank you for the efforts you had made for writing this awesome article.


Brahmrakshas Serial on Zee TV

Rajeev Parashar said...

Don't miss your favorite tv show Yaaron Ki Baraat. Watch Yaaron Ki Baraat tv serial full episode, latest episode:-

Yaaron ki barat Serial Written Episode

Rajeev Parashar said...

The Kapil Sharma Show is an Indian Hindi stand-up comedy and talk television series. :-

Watch:- Beyhadh Serial

Rajeev Parashar said...

Pardes Mein Hai Mera Dil is a Hindi romantic drama aired on Star Plus. The story is about Naina Batra and Raghav Mehra.

Watch:- Pardesh Mai Hai Mera Dil on star plus

Rajeev Parashar said...

Dil Deke Dekho which is a mix of male and female protagonists. It is a romantic comedy of three generations.

Dil Deke Dekho serial

Rajeev Parashar said...

Chandra nandini is an Indian Hindi drama tv show which is produced by Balaji Telefilms of Ekta Kapoor and Shobha Kapoor.

Chandranandni serial

Rajeev Parashar said...

Our new youth show, Pyaar Tune Kya Kiya, talks about love and other feelings.

Pyaar Tune Kya Kiya serial

Rajeev Parashar said...

P.O.W.-Bandi Yuddh Ke is an Indian political thriller television finite series developed by Nikkhil Advani, and is loosely based on the Israeli drama Hatufim.

P.O.W Bandhi Yuddh Ke serial

Rajeev Parashar said...

MasterChef India Season 5 is a Hindi reality show aired on Star Plus, where cooking is not just a hobby for the contestants, but their passion.

MasterChef 5 serial

Rajeev Parashar said...

Koffee with Karan is a talk show on STAR World India and STAR Plus, hosted by film producer and director Karan Johar.

Koffee With Karan 5 SERIAL

Rajeev Parashar said...

India's favourite and most popular singing reality show 'Indian Idol' is all set to come back with a new season this year.

Indian Idol 7 serial

Rajeev Parashar said...

Rashami Desai is all set to make a comeback on the fiction space with Dil Se Dil Tak, the show starring Siddharth Shukla and Jasmine Bhasin ...

Dil Se Dil Tak serial

Rajeev Parashar said...

The Show shows a story about a family where an old man lives in a house with his three sons, three

daughter in laws and grand childrens, where they tries to...

Dil Hai Hindustani serial

Rajeev Parashar said...

Rising Star a singing competition for aspiring singers to identifying the best singing talent in a unique and

innovative manner based on.

Rising Star Serial

Rajeev Parashar said...

Juhi Parmar is all set to make a return on TV with Shani, a mythological show on Colors ... Juhi will play

the role of Shani's mother on the serial.

Shani Serial Serial

Rajeev Parashar said...

Know everything about Bigg Boss Season 10. Bigg Boss 2016 Contestants Name, BB10 Videos,

Photos, Promos, BB10 News, Bigg Boss House ...

Bigg Boss 10 Serial

Chirag Dureja said...

real madrid vs barcelona 2016 live stream

real madrid vs barcelona live stream

El Clasico Live Stream

rocko hunter said...

Felice Anno Nuovo
Felice Anno Nuovo 2017
Nuovo Anno
Buon Anno 2017
Capodanno 2017
Buon Capodanno
Nuovo Anno 2017

filehippo said...

thanks admin for fresh article and useful for reader

intodriver

download opera

similardriver

caranddrivereview

coupon free new

filehippo

canontreiber

hima sri said...

nice article,its very nice and useful content have a glance on my blog fastpokemap apk

Meiqing Xu said...

pandora jewelry
ralph lauren
gucci outlet
polo ralph lauren outlet
beats earbuds
jordan shoes
michael kors outlet clearance
oakley sunglasses outlet
michael kors outlet clearance
denver broncos jerseys
20170320caian

car and driver said...

thank broh...

yuni said...

Your content is very useful for me, I never get tired to continue reading your content. thank you

tsani said...

Your content is very useful for me, I never get tired to continue reading your content. thank you

shila said...

Your article was very impressive for me, a lot of information and knowledge I can from your articles. thank you

revi said...

I was amazed by your consistency in delivering quality content, I believe the visitors of this blog also feel happy. thank you

budi said...

Your content is very impressive once so it makes me want to come back again to visit your blog. thank you

bishop said...

Your content is very interesting and valuable, I really appreciate your hard work. hopefully I can take advantage of your content. thank you

darren said...

I am very happy to continue to enjoy the best content from your blog, I'm sure the loyal readers of your blog must have felt the same way. Thanks for the inspiration

lilly said...

I was excited when reading some of your articles useful for me in particular. Another reader would also benefit from your articles. thank you

janic said...

thanks for the information and knowledge that you have shared with readers. I hope you can still give all your knowledge with a variety of creative ideas.

ilsa said...

I like your articles, some of which have inspired me. thank you

anna said...

I really enjoy reading your article, a lot of knowledge that I can get on your blog. thank you

casandra said...

Thank you for being faithful to provide useful articles and to inspire people.

Jejen Zaenudin said...

I salute with your creativity on the blog, the article on your blog is very inspiring for me. thank you


cara aman mengobati dinding rahim tebal

nate said...

Your articles are very good and interesting to read. I always look forward to your innovative works. thank you

adams said...

Your articles are very good and interesting to read. Good work must be loved by many people. thank you

bob said...

Interesting content for me, simple but still have an exclusive feel. thank you

bucky said...

Various interesting content appear in many blogs, and your blog is one blog that has good and useful content as well. thank you

zoe said...

This content is very useful for me, because a lot of information and knowledge that I can get here. thank you

vince said...

Thank you for consistently serving content that is always useful for me as a reader. Hopefully you are always given health.

byron said...

Thank you for consistently serving content that is always useful for me as a reader. Hopefully you are always given health.

zack said...

I deeply appreciate your hard work in presenting quality content. It certainly requires skill and mature experience. I am very grateful to you.

warden said...

I really appreciate your hard work in presenting quality content. No wonder I always come back to your blog. I am very grateful to you.

morgan said...

Good content requires extensive skills and knowledge, I am proud to continue to visit your blog.

wade said...

I am interested in your content, the discussion is light but contains lots of information.

robinson said...

Your article is very impressive for me, many of your articles that have inspired me. thank you


cara menyembuhkan dinding rahim tebal tanpa operasi

Sanjeev Singh said...

Calendar Printbale 2017
Blank Calendar Printbale 2017
Editable Calendar Printbale 2017
May Calendar Printbale 2017
June Calendar Printbale 2017

stuart said...

I have long been a loyal reader of your blog, has a lot of knowledge that I get from your blog. thank you

st. john said...

I am very enthusiastic when visiting your blog, because your content always provide benefits and information for me. thank you

lenny said...

I'm sure your content will benefit the people, hopefully you can continue to consistently deliver useful content. thank you

neeson said...

Your content is very interesting to read, after I read slowly, it turns out a lot of information that I can get. thanks for the information

carol said...

Thank you for all the information and knowledge you have given through blog.


cara mengatasi dinding rahim tebal dengan cepat

finerty said...

Your blog always provide useful content for the readers especially my own. thanks.

laura said...

Thank you for consistently delivering creative and informative content.

roger said...

Your blog is always present articles that are very useful for me. thank you

Mayfree said...

The content you create is very memorable for me, this is the reason I always visit your blog. thank you

brianna said...

Thank you for faithfully displaying great content. Hopefully your blog increasingly skyrocketed.

Evigan said...

Your article is very inspiring me, a lot of knowledge that I can get from your article. Hopefully your article more and more and interested.

sevani said...

Thank you for providing a lot of information through good articles. Hopefully you can still provide various other interesting information

prince said...

Thank you for this helpful information. Hopefully you are always healthy in order to continue to work.

jeremy said...

I really enjoy reading your article, many knowledge that I can take and I use in life. thank you

linus said...

Thank you for the knowledge you have given me through the content on your blog. Good luck

charliez said...

thank you very much for the information. I learned a lot from your content that is always good and quality.

elsa said...

Thank you for the knowledge you have given me through the content on your blog. Good luck

Gibson said...

The writing is neat and contains a lot of information. I like to read articles like this.

Michelle said...

Your articles are different from others, the discussion is light but still contains useful information.

johnson said...

thanks for the information. The content you created is very useful to me.

ripaul said...

I am happy to visit your blog, because the content you create is very useful for me. Thank you in advance

eliot said...

I am very happy to visit and enjoy quality articles on your blog. thank you

santana said...

Thank you for this helpful article.

sneidjer said...

Many articles are scattered on various blogs, but your articles always provide useful information and knowledge for me. thank you

«Oldest ‹Older   401 – 493 of 493   Newer› Newest»