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Author Topic: First Significant Hint of Wage Price Inflation Beyond Silicon Valley  (Read 1373 times)
hugolp
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August 25, 2011, 02:49:44 PM
 #1

According to keynesianism wages can not go up when there is high unemployment. And because of this, they argue, prices wont go up much, because any upward presure will meet people having stagnant wages. This is their explanation of why printing money in a depression is ok. But reality begs to differ.

The problem with the stated above is that they are looking at the economy through aggregates, which is a horrible way of looking at the economy and leads to big mistakes. What happens in reality is that not all workers are competition for the rest of the workers. For example, a guy with experience on the housing industry that is now unemployed is no competition for a engineer working at Google, therefore when the Google engineer negotiates his next increase it does not affect him much that there is a lot of construction workers unemployed or not. Thats why in the last year we have seen a lot of the more skilled workers getting better wages, even in the face of high unemployment.

Now the raise in wages is starting to move onto less skilled workers and its the first evidence for the wave of high inflation that we will see.

http://www.economicpolicyjournal.com/2011/08/first-significant-hint-of-wage-price.html

Quote
First Significant Hint of Wage Price Inflation Beyond Silicon Valley

U.S. trucking companies may face a 30 percent surge in wage bills by 2014 as rising demand for freight shipments threatens to push the industry’s driver shortage to the longest on record, reports Reuters.

Aside from Reuters technical error on "shortages" (There are no such things when markets are allowed to clear), this is a very interesting data point. Up to now, the strongest wage gains have been seen for highly skilled specialist software engineers in the Silicon Valley area. Upward  pressure on trucking wages indicates developing wage inflation in the blue collar sector.

Company-employed drivers, who don’t own their rigs, earn average salaries in the mid-$40,000 range, based on figures from Norita Taylor, a spokeswoman for the Owner-Operator Independent Driver Association in Grain Valley, Missouri, according to Reuters.

But, forget the 2014 forecasts. Here's what is going on right now, according to Reuters:

Saia Inc. said this month it would increase wages by 2.5 percent for drivers and many other employees.

J.B. Hunt’s spending on wages, salaries and benefits rose 12 percent last quarter from a year earlier.

Bottom line: Price inflation, as expected is starting to spread. At some point, it gets real ugly.
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August 25, 2011, 03:58:37 PM
 #2

All the money is going to the bankers and the connected insiders.

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hugolp
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August 25, 2011, 05:14:10 PM
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All the money is going to the bankers and the connected insiders.

Of course. When the crisis started the financial system went into panic and as the money printing started again the benefits went up again. But now the money is starting to leak everywhere, and even truck drivers are starting to get wage increases. Thats the sign that heavy price inflation is around the corner.
miscreanity
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August 25, 2011, 05:43:45 PM
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Didn't Mish say this was impossible as well?

Good ol' Jim Sinclair with currency-induced, cost-push inflation. This might be a good time to review his formula.

Nice find, Hugo.
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August 25, 2011, 09:35:57 PM
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Bullish for Bitcoin Longterm  Cool
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August 26, 2011, 12:28:37 AM
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In a recession, many people's income will increase due to less and less worker, but the total GDP is going down

10 people get a salary increase for 200$/month, while 1 people lost his 4000$/month job and receive 1200$/month unemployment benefit, it is a net reduce of consumption power of 800$/month, this will create deflation




hugolp
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August 26, 2011, 05:31:13 AM
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In a recession, many people's income will increase due to less and less worker, but the total GDP is going down

10 people get a salary increase for 200$/month, while 1 people lost his 4000$/month job and receive 1200$/month unemployment benefit, it is a net reduce of consumption power of 800$/month, this will create deflation

You need to learn to read. It would create deflation IF there wasnt a central bank increasing the money supply.
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August 26, 2011, 10:43:11 AM
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In a recession, many people's income will increase due to less and less worker, but the total GDP is going down

10 people get a salary increase for 200$/month, while 1 people lost his 4000$/month job and receive 1200$/month unemployment benefit, it is a net reduce of consumption power of 800$/month, this will create deflation

You need to learn to read. It would create deflation IF there wasnt a central bank increasing the money supply.

Aha, so you mean the central bank is doing the right thing to fight deflation, I think so too  Wink

And there is a timing issue, from the time those money are loaned out to Enterprises until those money actually reach the end consumer (they are the one bidding up the goods price thus create inflation), it could take years. And cosumer's confidence also need years to recover from a financial crisis

hugolp
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August 26, 2011, 10:54:09 AM
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Aha, so you mean the central bank is doing the right thing to fight deflation, I think so too  Wink

And there is a timing issue, from the time those money are loaned out to Enterprises until those money actually reach the end consumer (they are the one bidding up the goods price thus create inflation), it could take years. And cosumer's confidence also need years to recover from a financial crisis

If you want to "fight deflation" then yes, the central bank is doing the correct thing.

I dont think its correct to "fight deflation".
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August 26, 2011, 06:01:41 PM
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I love the term "wage price inflation".

I got a 3.5% raise this year.  Oh noes!!! My wages are inflating! 


I'll keep my politics out of your economics if you keep your economics out of my politics.

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niemivh
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August 26, 2011, 06:14:16 PM
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Aha, so you mean the central bank is doing the right thing to fight deflation, I think so too  Wink

And there is a timing issue, from the time those money are loaned out to Enterprises until those money actually reach the end consumer (they are the one bidding up the goods price thus create inflation), it could take years. And cosumer's confidence also need years to recover from a financial crisis

If you want to "fight deflation" then yes, the central bank is doing the correct thing.

I dont think its correct to "fight deflation".

They aren't even fighting deflation, that's just the cover story to placate the Keynesians.  Inflation/Deflation is not only an effect of the money supply, it's also an effect of effective demand.

By issuing endless debt at 0% or nearly 0% interest to the major zombie banks the money flees abroad for speculative returns driving down the price of the dollar.  What this 'competitive devaluation' does is supposedly (in theory, of course) cheapen your exports in relation to other countries,  but what actually happens in practice is that other countries typically follow suit (since the USD is the world reserve currency and still the worlds leading economy) in devaluing their own currencies.  The overall effect of this global currency devaluation is to drive down the price of labor universally in the world.  This is why wages are generally stagnant or declining in the US.  The reason I think you're seeing wages go up in silicon valley is because the market is rapidly developing (the drive to Tablets is like reminiscent of the PC boom of the 90s), virtualization and a move to (and I really dislike using this term) the 'cloud' is driving lots of innovation in these areas.  Innovation breeds competition and this type of competition equates to rising wages as the various industries in those sectors must raise wages to compete for a limited talent pool.

But to point to a few sectors of the economy where wages are increasing and say that that is evidence that there is no deflation is not accurate.

There is inflation and deflation in different areas of the economy at the same time, and the working people are experiencing the negatives of both simultaneously.  Food prices, energy prices, commodity prices increase and wages stagnate. 


I'll keep my politics out of your economics if you keep your economics out of my politics.

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hugolp
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August 26, 2011, 06:16:02 PM
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They aren't even fighting deflation, that's just the cover story to placate the Keynesians.  Inflation/Deflation is not only an effect of the money supply, it's also an effect of effective demand.

By issuing endless debt at 0% or nearly 0% interest to the major zombie banks the money flees abroad for speculative returns driving down the price of the dollar.  What this 'competitive devaluation' does is supposedly (in theory, of course) cheapen your exports in relation to other countries,  but what actually happens in practice is that other countries typically follow suit (since the USD is the world reserve currency and still the worlds leading economy) in devaluing their own currencies.  The overall effect of this global currency devaluation is to drive down the price of labor universally in the world.  This is why wages are generally stagnant or declining in the US.  The reason I think you're seeing wages go up in silicon valley is because the market is rapidly developing (the drive to Tablets is like reminiscent of the PC boom of the 90s), virtualization and a move to (and I really dislike using this term) the 'cloud' is driving lots of innovation in these areas.  Innovation breeds competition and this type of competition equates to rising wages as the various industries in those sectors must raise wages to compete for a limited talent pool.

But to point to a few sectors of the economy where wages are increasing and say that that is evidence that there is no deflation is not accurate.

There is inflation and deflation in different areas of the economy at the same time, and the working people are experiencing the negatives of both simultaneously.  Food prices, energy prices, commodity prices increase and wages stagnate.

Yes, but we are past that discussion. We are in the next phase.
Anth0n
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August 26, 2011, 09:53:02 PM
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Another interesting thing to note is that even if prices do not rise with money printing, they will be kept higher than they would go without the money printing. In other words, prices would fall more without the money printing than with it.
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August 27, 2011, 02:34:14 AM
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All the money is going to the bankers and the connected insiders.

Of course. When the crisis started the financial system went into panic and as the money printing started again the benefits went up again. But now the money is starting to leak everywhere, and even truck drivers are starting to get wage increases. Thats the sign that heavy price inflation is around the corner.

If you'd even bothered to read an article you'd realise it's becuase there aren't enough truck drivers and the volume of overland freight is increasing, and the wage increase is most likely to encourage people to sign up and become truckers.
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August 27, 2011, 04:17:29 AM
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If you'd even bothered to read an article you'd realise it's becuase there aren't enough truck drivers and the volume of overland freight is increasing, and the wage increase is most likely to encourage people to sign up and become truckers.

As inflation raises the cost of expenses, profit margins become squeezed. When that happens, employees demanding their raises further reduces margins. That isn't even including inane government regulations that heap on additional costs of running a business.

There is no incentive to hire new employees from a businesses perspective. Volume may be increasing, but it will be an uphill battle to add additional help because of orientation and training cost outlays when volume is uncertain to remain elevated with a looming return to recession.
hugolp
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August 27, 2011, 04:52:16 AM
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If you'd even bothered to read an article you'd realise it's becuase there aren't enough truck drivers and the volume of overland freight is increasing, and the wage increase is most likely to encourage people to sign up and become truckers.

Is this one a troll or not? I dont remember him/her.

If you bother to read my first post that is exactly what Im saying, including the effects of money printing.
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