Robert Naiman wrote: > 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?) ...
no, it may be that they lack the power to bargain up their wages. In the standard theory (in which "money illusion" plays a role), wages should adjust as long as the workers don't suffer from that illusion. But in the real world, markets aren't perfect and people can be totally free of such illusions but not be able to declare "my will be done." > 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. again, that's in the theory in which all markets are perfect. > 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. Social Security is indexed only after the fact (as I understand it -- if there's an expert in the house, please correct me). 2007's inflation is used to adjust 2008's payments, so that if 2008's surge in inflation is really large, these pensioners lose. They make up their losses at the beginning of 2009, but they lose again if there's a rise in the inflation rate in 2009. In addition, the Boskin reforms reduced the measured inflation rate implied by the CPI. A lot of economists, including yours truly, believe that this means that the measured inflation rate is lower than the actual inflation rates. Thus those on Social Security benefits are losing, even without accelerating inflation. The face value and the coupon payments on bonds do not adjust in the fact of inflation (unless, perhaps, one owns indexed bonds and no other kinds). To compensate for the deterioration of the purchasing power of these due to inflation, the pensioner would have to sell the bonds. But the market price cannot rise above the face value. Put another way, bonds give a return via the coupon payment and the difference between the buying price and the selling price. The fact that both the coupon payment and the face value are losing purchasing power means that the selling price falls, too. > 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 no, it says that we're talking about a differential rise in the wage level. The average price can rise even if relative wages are changing. > 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. I don't get this. The rise of the unemployment rate will likely hit those with the least bargaining power the most, though there are exceptions: the sustained rise in the US$ hit groups -- industrial workers in exporting industries -- that had typically had more bargaining power than most. -- 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
