In theory, if wage- and salary-earners fear they won't be able to bargain up their wages to meet a general rise in the price level, aren't they suffering from money illusion (and/or employer class/Fed propaganda?) If inflation was running at 3%, but now moves to a higher rate of 6%, then in theory it should be just as easy for me to get a 6% raise now as it would have been to get a 3% raise before (i.e. no real raise at all, just keeping even in either case), unless the boss is suffering from money illusion, because the cost to the boss is the same in either case.
In theory, again, the wage- or salary-worker whose contract or wage bargain comes up every so often should only be concerned about unanticipated rises in inflation, just like the banker who lends money for a certain period of time at a fixed interest rate. They always talk about the folks on fixed incomes...but Social Security is indexed, and if folks are living off income from bonds that income should rise as well, as the nominal interest rate adjusts to the level of inflation. Folks can argue that particular groups of workers are in a poor bargaining position, but then this indicates that 1) we're talking about a differential rise in the price level, not a general rise in the price level and 2) the cost to these workers of the rise in inflation has to be traded off against the cost to them of Fed policies that, justified on the basis of reducing inflation, reduce employment, and therefore reduce these workers' bargaining power. If inflation rises but unemployment falls, these workers will be in a better bargaining position to bid up their wages. Which effect would dominate? It's far from obvious that it's the cost of inflation effect. It seems much more likely, in general, that the cost of unemployment effect would dominate for the workers in the worst position (because they're most likely to be in competition with unemployed workers, not to mention most likely to become unemployed themselves.) If that's so, then workers in general are very poorly served by a general phobia concerning rises in the price level. On Sun, Mar 30, 2008 at 12:15 PM, Jim Devine <[EMAIL PROTECTED]> wrote: > Robert Naiman wrote: > > aren't progressive economists generally of the view that a little extra > > inflation isn't such a terrible thing? > > > > suppose that unemployment is 6% and inflation is 3%. Behind Door Number Two > > we have: inflation is 6% and unemployment is 3%. > > > > shouldn't we favor Door Number Two? > > Most macroeconomists see relatively low inflation rates (say, below > 10%) as pretty harmless. (Rates below about 2% per year can be > harmful, encouraging excessively slow real growth -- but that's > another story.) But those on fixed incomes -- e.g., those on private > pensions -- have to scramble to keep up. Even those of us without > fixed incomes have to do some extra work to keep our money wages from > being undermined by inflation. (This is why most people don't like > inflation.) > > The rich/creditor classes lose due to inflation, but only if the > inflation is unanticipated. They don't require low inflation rates. > Rather, they want rates that don't rise steeply so that they can hike > nominal interest rates to protect the life styles to which they've > become accustomed (or lust for). > > Inflation creates all sorts of redistributions. Nowadays, it's oil > producers, ethanol producers, etc. who are gaining, while a lot of the > rest of us are losing. > > Michael Perelman writes: >The effort to tame inflation is, in reality, > a class war. < > > Yes, but inflation can also be a _result_ of class struggle. Back in > the 1960s & 1970s, inflation resulted from the willingness of the > employers to tolerate union contracts: they passed the cost of > money-wage increases onto consumers. Since the latter were often the > wage-earners, it made money-wage increases futile, so further > money-wage increases were needed. The "price/wage spiral" is a battle > over the distribution of income, with the claims on income exceeding > the actual real income available. It's a distorted expression of the > class struggle. > > Part of the story of class struggle causing inflation is that labor > restricts its side of the conflict to pushing money wages up (or > increasing labor costs in other ways) rather than trying to change the > rules of the "game" in a more fundamental way. Of course, Volcker and > his comrades decided to change the rules going in the other direction, > destroying private-sector unions, undermining one side of the > wage/price spiral. This key part of the "neoliberal policy revolution" > destroyed 1970s-era inflationary hangover (inflation's resistance to > recessions). They broke the back of stagflation by breaking the back > of organized labor. (This also destroyed the old "industrial > heartland" in the US, but that's another story.) > -- > Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own > way and let people talk.) -- Karl, paraphrasing Dante. > > > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l > _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
