Bad News About Inflation (opens in new tab)

There are pretty heavy countervailing forces in favor of standardized salary bands for everyone. Employees compare notes; it can be demoralizing to hear that the company thinks your teammate is worth 20% more than you, and it instantly leads to politicking as everybody else asks for raises. While in the eyes of the business owner there may be clearly some employees that generate more value than others, good luck convincing all the employees that some of their teammates' work is more valuable.

This tendency is more pronounced in bigger companies (where performance is more illegible), but the problem with small companies is that there are wide variations in their profitability and hence their ability to offer high salaries (and this is usually less than what big companies offer, hence their ability to get big). Job-switching here is the economy doing its job and funneling resources to the activities that generate the most consumer value.

This works so long as the company giving raises is successful vs the broader economy - however in the process of "creative destruction" in the economy a lot of what drives growth is new firms or innovative firms displacing old firms, thus the ability to pay a raise will be diminished in firms that fall into the "old" category vs the firms eating their lunch. It is just a statistical reality that if you stay at the same firm for 40 years that it is likely to at some point become an "old" firm.

> the issue is if you switch jobs too often is hurts your chances of being able to do that in the future.

I've been hearing this for 20 years so far.

Still no problems.

Here, the "doing nothing" is referring to investments, not consumption.

People consume cars, computers, and phones; the primary intent is to use the product. You might sell it used at some point, but that's not the primary intent, and you're almost certainly going to take a loss on resale.

People invest in companies, governments, and individuals; the primary intent is to provide a loan that will be repaid with interest.

A physical object could be considered an investment, but only if that object is rare or somehow naturally limited (e.g. real estate).

So with inflation, you're rewarded for making investments, because otherwise your money will lose value sitting in fat stacks under your mattress. With deflation, you're rewarded for keeping those stacks hidden away, because it's a risk-free way for it to gain value.

> I hear this all the time, and I see little evidence that it's as strong an effect as everyone says.

You forget that in a deflationary economy prices would go down. Most of Wall Street, of course, is not their own money. It's borrowed money. Borrowed from pensioners, from central banks, from every bank in existence.

Deflation would not only make it in the banks interest never to loan a cent again, it would suck something like 95% of the money out of the stock market (so no, it definitely wouldn't be in your interest to still own profitable firms).

Wall Street is mostly smoke and mirrors, to convince people to work to pay pensioners and banks, and siphon off a healthy percentage for themselves. It just wouldn't work in a deflationary economy and it's the source of most of the money in the US economy. Without it we'd have to do something crazy like have the government run ~50 moonlanding-sized projects at the same time to make up for it.

I think you might be confusing depreciation with deflation?

A $25,000 car becomes a $20,000 car the moment you drive it off the lot due to depreciation.

But the purchasing power of $25,000 cash becomes $26,500 after a year of 5% deflation, which means you _gained_ purchasing power by doing nothing (aka not spending money) as the result of deflation.

And how many people have mortgages or other sources of debt?

> Deflation is terrible for debtors. Prices and wages fall, but the value of your debt does not. So you’re forced to cut spending. This applies to consumers and to governments, and it is one of the biggest issues in Europe right now. As Yale University economist Irving Fisher wrote decades ago, debtors are likely to cut spending more than creditors increase it, and this can turn into a really bad downward spiral. (The experience of Japan, though, proves that an economy can have a prolonged period of moderate deflation without falling into that downward spiral.)

* https://www.brookings.edu/opinions/5-reasons-to-worry-about-...

The Great Depression is an extreme example of high deflation:

> Interest rates dropped to low levels by mid-1930, but expected deflation and the continuing reluctance of people to borrow meant that consumer spending and investment remained low.[13] By May 1930, automobile sales declined to below the levels of 1928. Prices, in general, began to decline, although wages held steady in 1930. Then a deflationary spiral started in 1931. Farmers faced a worse outlook; declining crop prices and a Great Plains drought crippled their economic outlook. At its peak, the Great Depression saw nearly 10% of all Great Plains farms change hands despite federal assistance.[14]

* https://en.wikipedia.org/wiki/Great_Depression

* https://en.wikipedia.org/wiki/Great_Depression#Debt_deflatio...

There are some arguments for good versus bad deflation:

* https://www.nber.org/digest/apr04/good-versus-bad-deflation-...

I am similarly skeptical of the economist dogma that "deflation is economically disastrous". Feels like a spherical cows argument deeply rooted in theory, but not necessarily true in practice.

I think it's bad for greedy corporations who would see their their profit margin shrink, but periods of temporary deflation every once and a while feels like it could be healthy for society.

No, when you hold the bond the government uses that money to do things. With deflation people could hold cash which is truly not using it for anything.

Isn't a treasury bond still "doing something" though? Since they are effectively loans to the government it is in theory being used to fund gov services ("doing something") so that they don't print more new money, versus sitting in a bank account where it's really doing nothing, but still increasing it's purchasing power?

It can also come from consumers reprioritizing. Choosing to spend more on housing and less on cable TV, as one example.

Deflation is bad if you have debt. With inflation, the value of your debt is chipped away which makes taking on debt more attractive. In a deflationary environment, your debt burden grows over time all else being equal.

Who specifically is hiring like crazy?

Mmm that’s not what I’m seeing

I expected the downvotes. The truth isn't always popular. My whole life I've been relentlessly told the fiction that inflation is caused by greedy speculators, etc.

To be fair, that's In-and-Out's whole thing. They pay a living wage, so you as the customer don't feel like you're actively exploiting the person behind the counter by stepping foot in the place, and they use better ingredients so you don't feel like you're poisoning yourself. It helps the whole mood of the place. It used to be you were paying extra for that relative to, say McDonalds, but somehow they've also kept costs down relative to other fast food companies.

There's a reason it's generally well liked.

Were these jobs paying more to the previous employees than they are offering now?

There are giant shortages in a number of job categories that can't be done remotely. Things like nursing, restaurant jobs, the trades (electrician, plumber, etc.)

Some have said there's an undocumented labor shortage after the pandemic. This is, well, undocumented, so it's hard to determine actual numbers for it. Unfilled jobs aside, housing maintenance has become far more expensive.

My theory is that a lot of people who had service jobs pre-pandemic switched to white collar jobs during the pandemic (since they were let go from the hourly service jobs).

Many realized how shitty the service jobs are in comparison so now employers have to pay them a lot more or hope they get fired from the white collar job to fill the service positions.

> since a lot of the demand for non-white-collar-jobs comes from white collar employees...

who are spending money at unprecedented rates.

things can break regardless of employment status.

blue collar workers fix many of those things that can’t stay broken.

appliances, utilities, transportation, etc.

white collar usually also means enough of a credit limit.

“necessary” is relative.

One factor is that a lot of boomers are retiring, and those people need to be replaced, especially if they are blue collar workers.

Not sure why this is down voted.

Here's a chart from the NY Times showing what it looks like in practice: https://static01.nyt.com/images/2021/11/10/opinion/10coy-new...

-- https://www.nytimes.com/2021/11/10/opinion/benefits-cliff-we...

For low wage people with children, they really are often better off in a low wage job than a middle wage job. In the example given, going from 25K a year to 50K would mean a lower standard of living.

The war on poverty has been a miserable failure.

The snap qualification might be significant. The jump in tax brackets, probably not. Only the money above the 10% bracket gets an additional 2% (12%) tax.

Disagreeing and dismissing are two very different things.

There is nothing wrong with disagreeing with even the most respected of experts, history has proven they can be wrong often.

Simply ignoring someone because "I don't know who this is" is generally a bad idea, and even more ridiculous when that person does in fact have a well known reputation.

Well, at least Krugman would know who he was talking about.

Potato, potato.

> The prize in economic sciences is awarded by the Royal Swedish Academy of Sciences, Stockholm, Sweden, according to the same principles as for the Nobel Prizes that have been awarded since 1901. [0] https://www.nobelprize.org/prizes/economic-sciences/

> and it's funded with an endowment from Sweden's Central Bank.

At least the money doesn't come from selling armament...

> To say some of the awards have been controversial among science and arts laureates would be a huge understatement.

More controversial than Nobel Peace Prizes?

That’s the importance of having a unified approach, shared between the government and the Fed. It doesn’t help inflation when the country is running all-time-high (or close to it) deficit levels, especially if that money isn’t being appropriately allocated.