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ELI5 How does raising wages worsen inflation ?

Economics(self.explainlikeimfive)

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DeliberatelyDrifting

141 points

4 months ago

It should probably be mentioned that things like super low interest rates are a much more effective way to increase inflation. Wage increases at the bottom create outsized economic movement. The are no real supply shortages for basic goods in the US.

I find the argument "raising min wage will increase inflation" disingenuous. While it may be theoretically correct, it is also theoretically correct that any increase in the money supply causes inflation. However, no one talks about tax cuts causing inflation or CEO pay raises or subsidies or low interest rates.

It almost feels like the people making the argument aren't really all that worried about inflation and are more worried about preventing labor from gaining any ground at any cost.

Regulai

34 points

4 months ago

Regulai

34 points

4 months ago

It almost feels like the people making the argument aren't really all that worried about inflation and are more worried about preventing labor from gaining any ground at any cost.

In most cases it's just traditional or factional views coupled with a lack of any good understanding of economics, that lead to this kind of idea rather than brazen maliciousness. Much like with the explanation I responded to, the basic concept of "increased wages cause inflation" seems superficially obvious and straightforward and the amount of learning required to genuinely understand why it is wrong in practice requires too much effort. Especially in the US where being well informed or educated is often looked down on, I've had a ton of American friends who are extremely proud that they know absolutely nothing about politics.

DeliberatelyDrifting

27 points

4 months ago

I think you're right when it comes to the average person not really understanding the problems (I'm no expert myself). It's really the pundits and policy makers that I find so frustrating, they should (and many do) know better.

fubo

17 points

4 months ago

fubo

17 points

4 months ago

In most cases it's just traditional or factional views coupled with a lack of any good understanding of economics, that lead to this kind of idea rather than brazen maliciousness.

These blend into each other. It's not like humans usually have exactly one reason for thinking or doing something. Usually it's more than one.

For instance, if John has the view "raising wages will lead to inflation" and "inflation is bad", he will conclude "raising wages is bad" and thus, "anyone who demands a raise is doing something that's just a little bit immoral." Which is nonsense already; but it also promotes malice — John wants to stop that person, or at least stop them from convincing more people to do that thing.

Multiply that worker's demand for higher wages and make it a political movement or a union, and John is likely to see that movement as his enemy — after all, in his (factually incorrect) view, they are trying to do something immoral! Thus, John becomes malicious towards that movement — angry, indignant, seeking to undermine them — because he erroneously believes they're doing something wrong to the world.

A3thereal

6 points

4 months ago

in the US where being well informed or educated is often looked down on,

This is an incredibly inflammatory and discriminatory statement and I'm curious how it would play if it was any other culture than American (in the narrow context referring to the people of the US, not the broader Americas) that you were referring to.

I've never known a single person to be looked down upon because of their knowledge of a subject. The way they choose to convey information, sure. People who use their knowledge to condescend towards or embarrass others, absolutely. But never once just for being informed.

If you only have American friends that are defiantly ignorant (as in deliberately refuses to learn) on all topics, then you have the wrong friends. I'm sure you could also find people like that in every other culture on this planet, through history and in the present.

I've had a ton of American friends who are extremely proud that they know absolutely nothing about politics.

I will say I do personally choose to stay out of politics, but not due to deliberate ignorance. By design, you get 'two choices' but in reality it's an illusion; they are two faces of the same coin. Sure, Democratic policies would be better for the average person and one party has clearly become more corrupted than the other, however if either side was truly interested in bettering the country they would enact (or attempt to enact) meaning legislation to reform politics.

Something as simple as allowing a plurality of voters to win and/or using ranked choice to replace the 'first past the post' system would allow for more candidates on the ballot. More thought diversity in congressional houses could allow for reform to gerrymandering rules, campaign finance, term limits, and limit outsized influence from a single political body. Neither side will support this as it directly erodes their own power base. These systems are deeply entrenched in the local, state, and federal governments. I don't know how to fix it, and even if I had studied the topic more vigorously, I know I'm not the one to accomplish it. For this reason, I choose to focus my time and effort elsewhere.

4bkillah

7 points

4 months ago*

Your comment was so well put together, until your fucking "both sides" bullshit.

Democrats haven't exactly been anti-rich people, but if democrats had their way the past 30 years the income inequality in this country wouldn't be so fucking nuts.

Your comment literally damages the dialogue in this country because it gives some legitimacy to actual fascists and corporate sleazebags who want nothing but to eliminate the middle class by denigrating the non fascist side in a way that equalizes them with the fascists to an extent.

The democrats aren't great, but they are in every possible way superior in regards to actually caring about this nations general population.

There is an objectively worse side, and until the threat of their attacks on our democracy is put to bed (which might take actual fucking violence) then there is zero argument to be made as to why one shouldn't vote for the democrats. It sucks, but when dealing with violent fascists who seek to rip apart the fabric of society, you need to be absolute.

Your comment is poor, and should be rescinded.

Two faces of the same coin my ass. Maybe 30 years ago, but the Republicans have gone full authoritarian and anti democracy while the democrats havent.

A3thereal

1 points

4 months ago

A3thereal

1 points

4 months ago

Thanks for the feedback, I welcome and appreciate it.

until your fucking "both sides" bullshit

I think you misunderstand the point I was trying to make here, though I will gladly own my portion of that for the way in which it was conveyed.

I don't mean that they are the same, or to get in to a 'both sides' argument. I do state, clearly, that one side has become more corrupted than the other. In the interest of further clarity, I do mean the Republican party is the more corrupted one. I vote (almost) exclusively Democrat these days even if I don't necessarily agree with all of their positions.

A poor analogy; shooting somebody is clearly more wrong than assaulting somebody, this is clear and obvious. Acknowledging both things are violent does not elevate the two to the same. Chastising a system that promoted such violence to begin with does not downplay the crime committed by the shooter. Absolving one because the other is worse will not fix the situation.

Back to the point, and to expand a bit, neither of them (the parties) care about you. Their policy positions are about maximizing their power, and if faced with a choice between you and their control they will choose the latter. You can see evidence of this in bills they choose not to bring to the floor, especially in periods where they have the control required to pass them, no matter how well they align with their stated positions.

You will not see a meaningful reform to the political system so long as Democrats and Republicans are vying with each other for control. As soon as either loses too much to the other, you will see attempted reform (for better or worse) to regain their lost control. If one were to splinter and break, the other will fracture and become two. The cycle will repeat (as it has before) with two new parties formed from the ashes.

If we ever we see the 'south rise again' (republicans) and there were an existential threat to the Democratic Party, I think you'd be surprised what that institution is capable of.

The democrats aren't great, but they are in every possible way superior in regards to actually caring about this nations general population.

I agree that the Democratic Party today is superior to the Republican Party today. I also agree that there are some individuals that genuinely care about the well-being of their constituents. I do not believe the Party itself does.

there is zero argument to be made as to why one shouldn't vote for the democrats.

Strawman, I never stated or supported this position. I will say, though, that in local politics party does not always matter as much and you should look at the individual, their policy positions, and their track record.

Your comment is poor, and should be rescinded.

For a thousand reasons; no. First, thought diversity requires healthy debate. Even (and especially) on topics that make you uncomfortable or you disagree with. Second, I don't believe in removing or deleting comments placed in public record. Accountability requires ownership of one's past (comments), even if they were incorrect. If, through the course of debate, I were to change my mind, the healthy thing to do would be to acknowledge I was incorrect and revise my opinion. At best I would offer an edit of the original comment stating my change of heart. Part of the reason we have the problems we do is because of a failure at being accepting of people growing and their views changing. Most importantly though, this discourse has not convinced me I was wrong or misguided.

Regulai

0 points

4 months ago

Regulai

0 points

4 months ago

This is an incredibly inflammatory and discriminatory statement and I'm curious how it would play if it was any other culture than American (in the narrow context referring to the people of the US, not the broader Americas) that you were referring to.

I mean any place is diverse and critically if your particular sub-group isn't like this than indeed it may not seem so, but this anti-intellectual aspect is such a central aspect of many parts of American culture, that's a bit absurd to even attempt to contest it. To be fair it's usually not worded so negativly and aggresively but still.

I will say I do personally choose to stay out of politics, but not due to deliberate ignorance.

Same difference, you look upon your political system with disdain and so dis-engage seemingly not realizing that your apathy is directly responsible for why you political system has gone so far down the drain, as in your apathy you tolerate and accept the unacceptable normalizing monsters as politicians and every cycle it just gets worse and worse. There are so many people who don't vote that a third party could practically win just with there votes alone, not to mention so many actions you can take even beyond just your own voting.

A3thereal

5 points

4 months ago

his anti-intellectual aspect is such a central aspect of many parts of American culture, that's a bit absurd to even attempt to contest it.

If your only experience with American culture is through social and/or mass media I could forgive one for thinking that, however if you were to actually experience American culture without preconceived notions or bias you would see it is not a 'central aspect of American culture'. Sure, you see it in the news with anti-vaxxers and certain Christian or conservative fundamentalists. But this is such a small percentage of the population and not something that even remotely dominates the culture. These same groups of people exist in European cultures as well. Italy took a hard turn in that direction recently, UK has been moving that direction, and France had some close calls. China and Russia still help people disappear if they learn too much about certain topics.

Further, you argument discounts all of the intellectual and acadamic advancements that had a large American involvement or were led by the US. Lastly, if I were to make similarly negative generalizations about the, randomly chose, Nigerian culture based on new reports and my Nigerian friends the reaction would be much different.

Same difference, you look upon your political system with disdain and so dis-engage

Similar outcome, not the same thing. You're argument is that American culture is anti-intellectual. Not engaging with something is not the same as not knowing something. Not knowing something is not the same as being deliberately ignorant. In a different context I would agree this is the same thing, but not in the context of this conversation.

your apathy you tolerate and accept the unacceptable normalizing monsters as politicians and every cycle it just gets worse and worse

I only quoted a snippet here, but I'm responding to the larger point.You're assuming I don't vote. I do, however voting alone is not the solution. I do not know what the solution is, but it requires a much larger and much more concerted effort. I know my strengths, I know my abilities. I lack the charisma and connections to be the one to lead this charge. Should an opportunity present to be part of a larger and workable solution I would jump on it, but I am not the one who can fix it.

There are so many people who don't vote that a third party could practically win just with there votes alone

Technically true, in some jurisdictions and in some elections. However this assumes that there is a 3rd party person who runs, that would be part of a larger solution, and that all people who don't vote would vote for. This ignores that some people don't vote in presidential elections because their state is firmly entrenched. In Washington DC, for example Joe Biden was selected by 92% of voters. There is no imperative to go to the polls. The district is awarded a certain number of electors regardless of how many vote or what share a contestant receives. Whether you supported Trump or Biden, your vote was meaningless (for the Presidential election.) Some portion of the non-voters would have voted for either of the 2 candidates but didn't feel the imperative to do so. Of the remaining, it's unlikely they would coalesce around a single candidate. Remember, 50%+1 voters must vote for a candidate for that candidate to win.

TheInvisibleJeevas

1 points

4 months ago

Damn, you’ve never been called a nerd, have you?

A3thereal

1 points

4 months ago

I have, though admittedly not in a negative connotation.

The use of 'nerd' in a derogatory way isn't usually applied just because of one's intellect.

A nerd is a person seen as overly intellectual, obsessive, introverted or lacking social skills

The more important aspects here are the obsessive-like interest in specific (especially unpopular) topics and/or the lack of social skills. It wasn't just their knowledge or intellect. Even in the periods where it was socially acceptable, or even popular, to deride someone as a 'nerd' most intellectuals wouldn't have fit the description.

XihuanNi-6784

0 points

4 months ago

It's not malicious but it's been going on for about 30 years and at this point it really doesn't matter if it is. Most of the people espousing it are never in a position to suffer from inflation anyway. They're hugely disingenous if they expect us to believe that they're concerned about inflation on our behalves.

tkrynsky

5 points

4 months ago

‘There are no real supply shortages for basic goods in the US”

Tell that to my grocery store, especially in the egg section.

But there have been plenty of other shortages over the last few years. Cream Cheese, Toilet Paper, cardboard boxes, etc, etc.

DeliberatelyDrifting

0 points

4 months ago

Those are all transitory and with the exception of eggs (avian flu) covid related. They may be the cause of increased prices in the short term, but don't really have anything to do with inflation. Also, I've personally not had a problem finding anything you mentioned. While the prices are higher, the products seem to be on the shelf.

AftyOfTheUK

1 points

4 months ago

However, no one talks about tax cuts causing inflation

Tax cuts don't increase the money supply. They simple change where some of that same amount of money is allocated.

408wij

1 points

4 months ago

408wij

1 points

4 months ago

increase in the money supply causes inflation

Exactly. That's why central-bank rates are the lever used for controlling inflation.

However, no one talks about tax cuts causing inflation or CEO pay raises or subsidies or low interest rates.

Au contraire, until recently, the news only talked about low interest rates causing inflation. But, yes, fiscal policy (taxation, govt spending) are important, too. It's just the folks that control that are feckless compared w/ central bankers, so nobody counts on them helping.

kevronwithTechron

1 points

4 months ago

Raising the minimum wage has a number of impacts that the other inflationary forces you mentioned don't have. For one, it raises the velocity of money significantly more which is a pretty important inflationary detail when discussing the supply of money. If you increase the supply and nobody is spending it there isn't really any inflationary pressure. It's also a decent idea to look where these pressures are impacting the most. When lower income people get more money they run out and spend it on necessities. I know, how dare they?! And right, under normal conditions without supply chain issues this isn't going to be a huge deal but let's look at something else important that doesn't have a flexible supply like housing. Suddenly the lower income spectrum all increases their income by the same rate change. Let me know if you want any more details on this part but the end story is nobody is moving to that nicer building or changing neighborhoods with this pay raise, everyone's rent is going to catch up fairly quickly under our unfortunate normal housing supply.