An interesting case of a widespread misconception

[Arkann]

Ofcourse. Though one of the problems with fiat currency is saving long-term without adequate interest getting to your savings. Not really good as long-term store of value unless your value/money is safely working  for you and earning good interest to compensate for inflation.
     Besides, you'll need to be consumption based economy to avoid this sort of problem. Imagine the harm it will cause to the world if most people are constantly producing and consuming the wrong things or at unsustainable rate.

Actually, for me personally, for example, there are two different concepts for determining value, where a certain asset can be used as a reliable source of income, and the other can be a reliable asset for storing savings. If you take Bitcoin for example, then I don’t want to keep all my savings in this particular currency, because because of its volatility, I can lose a lot. but at the same time, I invested part of my savings in Bitcoin, and froze for a long time, since there is one hundred percent chance that these investments will bring me very big profits. In addition, one must take into account the fact that each person has their own approach to managing their income and saving their finances.

[1714981109]

1714981109

[davis196]

A lot of posters on the forum love to come up with figures showing how much the dollar (the American dollar, obviously) has depreciated over time, like 1 dollar in 1913 was worth 1000 dollars today (or whatever), with the general idea being that "the grass was greener and the light brighter back in the day"

However, what these forum members forget to account for is the rise in wages during the same time span. And the irony is that wages in the US have been outperforming inflation since WWII, barring a few rather short periods. It basically means that people become wealthier over years despite a declining dollar

So much for dollar inflation

Before the creation of the Federal Reserve System back in 1913,the US banking system and the US dollar were way more unstable and there were financial panic and inflation(if I remember this part of the US financial history correctly).
Nobody denies the fact that moderate levels of inflation can help for further economic growth.
The people are way wealthier now,compared to 1913,but this is caused by many other factors,that have nothing to do with the value of the US national currency and FED.Factors like WWI and WWII,technological progress,The Cold War,etc.The world wars actually boosted the US economy a lot,which looks like a paradox.

[deisik]

However, what these forum members forget to account for is the rise in wages during the same time span. And the irony is that wages in the US have been outperforming inflation since WWII, barring a few rather short periods. It basically means that people become wealthier over years despite a declining dollar

Except for the stagflation period
https://www.investopedia.com/articles/economics/08/1970-stagflation.asp

Well, that actually remains to be seen

Here's a chart which invites you to reconsider the definition of that period (link):



As everyone can confirm, productivity continued to climb, while real wages either flatlined or outright declined during the following 20 years. It looks like a paradox because the growth in productivity is how higher real wages come about (all other things being equal), and which had been the case prior to 1973

However, there is no paradox as this phenomenon has a very simple and established explanation. It is the wages of simple workers that stagnated but as the table in this post clearly shows, the super rich had started to steal from the working class. If it weren't for them and their greedy hands, we would see something like this:



Real wages would still have grown significantly even despite the stagflation of 1970's but for the rise in inequality

[FanEagle]

The inflation is calculated in a way that it looks like wages are outpacing it however there are stuff that became a lot more expensive as well. For example it is true that your wage is getting a lot higher compared to price of food, yes that is correct and that is the most vital thing, after all you need to eat to survive and that is cool.

However, look at house prices and look at education prices and look at the unemployment levels as well. Now when you calculate these three, in the past 20 years alone (and you can go back further to WWII) you will see that people are having harder time to buy houses, people are having harder time paying for college and people are having harder time finding a good job as well or even a job at all. Which means inflation might be not so bad but there are very bad things going on anyway.

[deisik]

However, look at house prices and look at education prices and look at the unemployment levels as well. Now when you calculate these three, in the past 20 years alone (and you can go back further to WWII) you will see that people are having harder time to buy houses, people are having harder time paying for college and people are having harder time finding a good job as well or even a job at all. Which means inflation might be not so bad but there are very bad things going on anyway

But that has nothing to do with inflation

Tuition costs are probably up (I don't really know) because a lot more people are looking for better education as without a college degree it is hard, if not downright impossible, to land a good and high paying job nowadays. House prices had been surging pre-2008 due to speculation, i.e. people were buying houses to sell them later at a higher price. Ultimately, this led to a housing bubble followed by a nationwide subprime mortgage crisis

[mu_enrico]

@deisik simple logic can explain the stagflation period when there was no or little economic growth accompanied by high inflation, the total nominal wages couldn't grow; therefore the average nominal wages was stagnant too. Remember, in the event of a recession, the nominal wages cannot fall because of the sticky nature, so should we take into account unemployment as well, not only about wages?

Since the average nominal wages was stagnant and inflation was high, it's understandable if the average real wages falls.

Anyways, the term real wages is a bit misleading since it's just inflation-adjusted, and not about what goods and services that a person can buy with the money. Therefore people use the CPI approach.

Not sure how to read the table mentioned here.

[deisik]

@deisik simple logic can explain the stagflation period when there was no or little economic growth accompanied by high inflation, the total nominal wages couldn't grow; therefore the average nominal wages was stagnant too. Remember, in the event of a recession, the nominal wages cannot fall because of the sticky nature, so should we take into account unemployment as well, not only about wages?

I know about inflation in 1970's

But the inflation rates as they were in the US in that period could not halt or hinder economic growth, especially if it was simple monetary inflation, i.e. rebalancing of available money supply with the size of the economy after the Nixon shock. On the other hand, you can't discard the objective rise in productivity, and that inevitably raises valid concerns regarding the validity and veracity of the "stagflation" narrative

Not sure how to read the table mentioned here

Look closely at the part of it which shows the rise in real wages of the top tiers:



It essentially tells us that the economic growth was stolen from those who had been creating it. Put simply, we are not told the whole truth about "stagnating" wages

[mu_enrico]

True, at the end of the day "it's always been a monetary phenomenon" - Datguy

I see, we can say the total real wages is increasing, but the average real wages can depend on many things, mainly about population and the distribution. Not sure how society can solve this issue (i.e., concentration of wealth) though. Perhaps it will always occur in nature, so we shouldn't try to solve it.

"Freedom will lead to higher equality" - Datguy again.

[Febo]

A lot of posters on the forum love to come up with figures showing how much the dollar (the American dollar, obviously) has depreciated over time, like 1 dollar in 1913 was worth 1000 dollars today (or whatever), with the general idea being that "the grass was greener and the light brighter back in the day"

However, what these forum members forget to account for is the rise in wages during the same time span. And the irony is that wages in the US have been outperforming inflation since WWII, barring a few rather short periods. It basically means that people become wealthier over years despite a declining dollar

So much for dollar inflation

People are earning more even with inflation but today there are way more needs that were 100 years ago.

It dont really matter that people are earning more. Money is losing value. People that dont earn anything and have stored money lost. There is no need for that.

[danherbias07]

Sadly, we cannot live with the past.
All of those should be forgotten, and we need to embrace whatever is offered now.
Same goes with a lot of different currencies in the world.
Grandpa stories may have lessons in it, but it will always be just another story from when they are young.
Hoping those days will come back have a slim chance.

[fullhdpixel]

Well, there are some differences. In those days, the pennies you have now were worth something, and you can at least afford to buy something with it. But right now you can't afford to buy those things you could buy then if you have a penny then. And I do think that things back then would have been easy for them? Or maybe not? Or is it still the same thing when you compare it with what we have today? Because if things were cheap then and pennies were worth something, I think labor will also be cheap and the amount they are getting paid then will also be less than what we are getting now to match their condition.

People do compare bitcoin against fiat due to those misconception. Bitcoin can act like fiats but it is designed by keeping gold in mind. Gold is suitable to be used like fiat? Even there are some trades are happening on gold as medium of exchange, gold cannot compete against fiats. But, bitcoin can compete against fiats but it will still have gold like properties.

Bitcoin must be the all new thing for mankind because it will be having properties of both gold and fiats. It is suitable for transacting like fiats still it will  have gold's  property of "store of value".

[slapper]

Agree. People today are having a better life and salary than they used to in the past. People keep complaining about inflation but forget that we are earning much more money easier and there are plenty of things we can do to have a good life. And as the economy rises, Inflation is inevitable. Its just a simple math of supply and demand. Governments and FED do know how to run the world.

If you want to have more money without being a victim of inflation, try to hold gold or bitcoin. Gold is always a number 1 asset overtime. Bitcoin is different but there are still many people who believe in its fate.

[abhiseshakana]

True, at the end of the day "it's always been a monetary phenomenon" - Datguy

I see, we can say the total real wages is increasing, but the average real wages can depend on many things, mainly about population and the distribution. Not sure how society can solve this issue (i.e., concentration of wealth) though. Perhaps it will always occur in nature, so we shouldn't try to solve it.

"Freedom will lead to higher equality" - Datguy again.

When searching for references on inflation and rising wages of workers, I found out about the O-ring theory. The O-ring effect across companies in a country can create a trap of low productivity nationally.
https://en.wikipedia.org/wiki/O-ring_theory_of_economic_development

Is the increase in employee wages intended to offset inflation precisely as a factor that triggers an increase in inflation because it is not offset by an increase in productivity? So that the actual income calculation does not increase but the price of goods is even more expensive. So there is an imbalance between the increase in employee wages and productivity per man-hour.

[mu_enrico]

When searching for references on inflation and rising wages of workers, I found out about the O-ring theory. The O-ring effect across companies in a country can create a trap of low productivity nationally.
https://en.wikipedia.org/wiki/O-ring_theory_of_economic_development

AFAIK it has nothing to do with inflation and stuff (macroeconomics), it may explain how the same skills worker in our country got paid significantly less compared to the developed countries, e.g., the US.

Is the increase in employee wages intended to offset inflation precisely as a factor that triggers an increase in inflation because it is not offset by an increase in productivity? So that the actual income calculation does not increase but the price of goods is even more expensive. So there is an imbalance between the increase in employee wages and productivity per man-hour.

In a pure free-market system, wages are determined by the labor market (supply and demand for labor), it is not directly affected by inflation. For example, when a worker willingly accepts, let's say $2,000 a month, and then the price of goods and services increases, and he might not want the job anymore. But the firm doesn't have to raise his wage because of inflation.

The relationship between wage and inflation is getting more attention is because of socialism's minimum wage. Now, firms MUST raise wages because of inflation.
That makes the production inefficient.

[tbterryboy]

A lot of posters on the forum love to come up with figures showing how much the dollar (the American dollar, obviously) has depreciated over time, like 1 dollar in 1913 was worth 1000 dollars today (or whatever), with the general idea being that "the grass was greener and the light brighter back in the day"

However, what these forum members forget to account for is the rise in wages during the same time span. And the irony is that wages in the US have been outperforming inflation since WWII, barring a few rather short periods. It basically means that people become wealthier over years despite a declining dollar

Yes, you made a good point here. I do see those that talks about the inflation but they never consider the point you have just made here now. The wages increased and that’s the truth. If you check how much those people then we’re making for the same jobs that we have today, you will see that the amount they are being paid is also small compared to what we are being today.

Imagine that you’re a cleaner, you might be getting paid 10k today, but if you check back in those days it’s possible that the people doing same work are being paid around 1k or less. And I think life then is similar to life we have now, and they were also complaining, it’s not like everyone was living huge.

[deisik]

Well, there are some differences. In those days, the pennies you have now were worth something, and you can at least afford to buy something with it. But right now you can't afford to buy those things you could buy then if you have a penny then

And what makes you think that these pennies were as easy to get?

Indeed, they were worth something "back then", but to get them you would have to work 100 times longer or harder than now. This is the part which "penny-wise" people fail to consider or take into account. The 1913 dollar could probably buy 100 dollar worth of goods today (or even more than that) but back in 1913 you would have to work your ass off to be able to buy that many goods

[deisik]

In a pure free-market system, wages are determined by the labor market (supply and demand for labor), it is not directly affected by inflation. For example, when a worker willingly accepts, let's say $2,000 a month, and then the price of goods and services increases, and he might not want the job anymore. But the firm doesn't have to raise his wage because of inflation

There are two important points worth mentioning

First, inflation reflects the price growth (as per definition), and the latter in general means that a given company starts to sell their goods and services at a higher price (to whoever it may concern, please note the use of the phrase "in general"). In turn, that typically translates to an almost automatic increase in wages (though with a certain lag depending on the production cycle of the company)

Then, good companies take particular care that it never comes to the point when their labor force "might not want the job anymore", for the simple reason if they didn't, someone else would. The implication is that employers are vitally interested to keep wages on par with inflation. Failing to do so may be a sign that the company itself is failing. This has an interesting and well-known side effect of inflation that helps employees to find better jobs for themselves

[o_e_l_e_o]

First, inflation reflects the price growth (as per definition), and the latter in general means that a given company starts to sell their goods and services at a higher price (to whoever it may concern, please note the use of the phrase "in general"). In turn, that typically translates to an almost automatic increase in wages (though with a certain lag depending on the production cycle of the company)

The table you shared on the previous page directly contradicts this point. As a company starts to sell their goods and services at a higher price, and therefore their gross income increases, then it is the top 10% - the directors, the executive, the board, the upper level management - who see their wages grow. Everyone else, the bottom 90%, including middle managers, line managers, and all the workers, see wage stagnation.

Then, good companies take particular care that it never comes to the point when their labor force "might not want the job anymore", for the simple reason if they didn't, someone else would. The implication is that employers are vitally interested to keep wages on par with inflation.

We are on track for levels of unemployment not seen since the Great Depression. There is no incentive for companies to keep real wages increasing. Their workforce will be reluctant to leave since most would be unable to find a new job, and any vacancy they do have will likely have dozens of applicants.

[deisik]

First, inflation reflects the price growth (as per definition), and the latter in general means that a given company starts to sell their goods and services at a higher price (to whoever it may concern, please note the use of the phrase "in general"). In turn, that typically translates to an almost automatic increase in wages (though with a certain lag depending on the production cycle of the company)

The table you shared on the previous page directly contradicts this point. As a company starts to sell their goods and services at a higher price, and therefore their gross income increases, then it is the top 10% - the directors, the executive, the board, the upper level management - who see their wages grow. Everyone else, the bottom 90%, including middle managers, line managers, and all the workers, see wage stagnation

So you agree that top management had been stealing from simple people since 1970's and through 1980's? Good

Then, good companies take particular care that it never comes to the point when their labor force "might not want the job anymore", for the simple reason if they didn't, someone else would. The implication is that employers are vitally interested to keep wages on par with inflation.

We are on track for levels of unemployment not seen since the Great Depression. There is no incentive for companies to keep real wages increasing. Their workforce will be reluctant to leave since most would be unable to find a new job, and any vacancy they do have will likely have dozens of applicants

That's because you don't read what I write

And thus can't understand the point I'm trying to make. Inflation contributes to higher employment (again, in general). Conversely, deflation (which preceded the Great Depression) and low inflation contribute to higher unemployment. This is a well-known tendency confirmed by numerous examples. So if employers are to raise wages, this is more likely to occur in an inflationary environment, and therefore the latter is actually not without its benefits and advantages for simple workers, in terms of both jobs and wages

[o_e_l_e_o]

So you agree that top management had been stealing from simple people since 1970's and through 1980's?

Yes, and I've never stated otherwise. Such a statement also doesn't change the fact that regular workers have seen their real wages stagnate or fall for the last 50 years.

Inflation contributes to higher employment (again, in general). Conversely, deflation (which preceded the Great Depression) and low inflation contribute to higher unemployment.

And you have not read what I have written. We are in agreement here.

As I said, when there is high unemployment, companies have no incentive to continually raise wages, and so at least in the short term wage inflation tends to be lower, leading to overall inflation also being lower.

So if employers are to raise wages, this is more likely to occur in an inflationary environment, and therefore the latter is actually not without its benefits and advantages for simple workers, in terms of both jobs and wages

Again, I wouldn't disagree. At no point have I said that the average worker hasn't had wage increases. My point is that the wage increases have by and large not kept up with inflation. They have nominal wage increases, but real wage stagnation or decreases.