The extent of our wage problem in this country-an anecdote

[EstimatedProphet]

When I was very young (maybe 4 or 5) I remember watching a skit on TV by Red Skelton. Red was a basic workign stiff, and found out that if he got fired, he could collect unemployment of $10 per week. His wife egged him on to get fired-as she said, she could buy a new dress every week with $10-so Red came up with a plan to piss off his boss and get fired.

Little did Red know that at the same time his boss was planning on promoting him to upper management at a salary of $10,000 per year. Hilarity ensues.

Now, the thing is, I ain't old, folks. this means that withing my lifetime, wages in this country have gone from $10,000 a year salary being high-status to being something even WaL-Mart employees hope to outdo, as little as they are allowed to make.

Scary how meaningless salaries have become, isn't it? We all used to want to be millionaires, but now that's nothing. You have to be a multi-millionaire now to be an "achiever" in the eyes of the public, and even a billionaire doesn't have the punch it used to. Yet, how many of us are ever going to be millionaires?

[orwell]

1. But Wait...

I've been told by so many economic "experts" and "gurus" that "mild inflation" is not a problem.

Could "conventional wisdom" be...gulp...wrong?

[EstimatedProphet]

2. Looks to be wrong, doesn't it?

What's so bad is that the shift isn't proportional. the average Joe may make several times what he would have 40 years ago, but the average Thurston makes several HUNDRED times as much in comparison.

[orwell]

3. Actually

Facts prove that your hypothesis is quite correct. In fact it is my contention that this is the precise reason why inflation has been "engineered" by the Federal Reserve into existence in the first place.

In reality, there can be no greater long term threat to the effectiveness of capitalism than the debasement of the money stock itself.

I contend that inflation is the fundamental building block to asset and wealth transfer upward to the elites.

[jdlh8894]

4. Something My 10 Year Did

I know I'm a Newbie, but I thought this might be comparitiveDear Congressman, December 25, 1931

How come Hoover did not close the stock market when it was crashing? It was obviously going down too far. Many people lost their money and it is hard to find jobs. He should make bread lines so people do not go hungry and die.

Some of the depression was not caused by the stock market. It was also caused by unequal income, business fraud, and the baking business. The depression was not only in the U.S.A., but also in Germany, England, and other countries. It lasted the longest in the United States.

It maks me angry that Hoover is not doing anything to get us out of the depression. I want you to give this to the President please.

Sincerely,
Barbra Jones

[orwell]

7. Funny

Out of the mouths of babes...

Good stuff.

[LiberallyInclined]

8. the baking business?

is that why Barbra wanted Hoover to make bread lines?

[jdlh8894]

10. Sorry

Baking,Banking ? Still it's the dough that matters.

[LiberallyInclined]

11. i figured it was a case of the missing "n"...

but sometimes- kids say the darndest things...or so i hear.

[newyawker99]

9. Hi jdlh8894!!

Welcome to DU!! :toast:

[EstimatedProphet]

5. Very good point!

I have never heard it articulated so well. The rich get richer because the money loses its value.

[orwell]

6. Thanks

The process goes like this. Inflation demands investment leverage (debt) as the money returned is worth less than the money borrowed. It also makes existing raw material and capital assets worth more (oil for example). So those who own the most assets financed by the most debt are in a long term winning position. Those economic players, by and large, are the global elites.

They also own the banks, including the Federal Reserve, which can now create greater quantities of money to "fund" inflationary growth. They make it on both sides, the money supply side and the goods demand side. It is the leverage that is the kicker, the magnifier if you will of the wealth theft. The Fed also has a mission to head off any threat for the normal capitalist corrective recessionary cycle which wipes out the previous excess growth and capital creation (otherwise known as deflation).

What is impacted: labor rates. Because labor, especially on the lower rungs, is extremely competitive, labor rates will never keep up with the rate of inflation over the long term. They simply do not have the economic leverage.

Hence, relentless buying power or wealth transfer to the upper classes, the large debt and asset holding class. They are in the premier position to "insulate" themselves from the negative effects of inflation while reaping its benefits.

The rest of us can just enjoy the fruits...two income families and lower standards of living.

Enjoy!

[sweetheart]

12. The theory needs to explain inflationary pressures

I like your partial explanation(s), but how does you "engineered"
explanation explain the basis for inflation? In conventional wisdom,
it is that the economy reaches a point where resources are relatively
efficiently allocated, and as it "heats up", business can't find
resources, because people are already working. Given that the US
was on the gold standard until 72, by your comments, inflation
should not have existed before 1972.

For those wanting a more street-level explanation. Think of an economy
with 10 people in it, and there are 10 jobs. Every person earns a
salary and pays it to the other 9 people through their purchases at
the farmer, butcher, blacksmith and the like. One of the persons forms
a new business playing music, but he can't find anyone to be his drummer
in the band because everyone has already got a job. But because
eveyone love's music, he's got capital and can pay a higher wage, and
eventually gets the butcher to close down to come to play for the
band at even a higher wage than he was earning. Well, suddenly
the ex-butcher has greater spending power, and is able to buy "more"
in the economy... so as the community previously had a static capital
amount, the wealth creation of the band, causes an inflationary
pressure. All the businesses charge a little bit more, because the
ex-butcher and the lead singer can now pay higher, whilst the rest
of the community is put out.

A 10 person economy is a bit small to explain, but you get the drift.
It strikes me, that your real beef is with the federal reserve system
and what you're saying about inflaion is rather more true about the
open markets committee, and its ability to print money (issue credit).
It is less about engineering inflation, and more about the ability
to create credit in an undemocratic institution of white racism created by a
white racist president.

[orwell]

14. Butcher, Baker, Money Maker

A 10 person economy is a bit small to explain, but you get the drift.
It strikes me, that your real beef is with the federal reserve system
and what you're saying about inflaion is rather more true about the
open markets committee, and its ability to print money (issue credit).
It is less about engineering inflation, and more about the ability
to create credit in an undemocratic institution of white racism created by a white racist president.

That is exactly who my beef is with as I have posted here for years. They are the engineers. If you look at a long term chart of US inflation, aside from periods of war, prices more or less remain constant over time. (It is actually my assertion that with the tremendous productivity gains that technology provides, prices should be slowly falling, allowing for less work for the same output.)

The chart begins to trend up relentlessly after the Federal Reserve Act. This is no accident.

As far as your analogy, there are two things that determine the inflation fuel, quantity of money available, leveraged by the transaction rate (referred to as velocity). So you can not look at raw money stock without also looking at velocity. This, in one respect, is where monetarism failed.

All things being equal capital is not static as velocity effects the net effect of the base money stock. In your example, without net population growth, the "economy" has replaced the butcher (net productivity loss in meat) with a drummer (net productivity gain in music). The only reason there is more possible "spending" money in the system is that capital is removed from savings to be added to the drummer's (former butcher's) salary.

Has any wealth been created? That becomes far more complex. That would depend on whether the drummer provided a quantitative or qualitative net gain to wealth. It this case, absent more information, he doesn't as drumming offsets meat production.

The gold standard in and of itself means nothing unless all transactions are in gold. Then the ability to mine it becomes the limiting factor (labor productivity and asset base). What is important is that money, which for most of modern history has been a creation of the government, does not rise faster than the total transactional flows of the real economy ("spendable money" x velocity). That means, money supply x velocity much roughly match real GDP. The difference (growth in real GDP) demands issuance of new "money" by the government. This however would be non-inflationary.

This could be achieved rather simply if the Fed closed down the FOMC and got out of the money creation/interest rate targeting business. The US government should issue money directly. When the money is paid back it can be "decreated" leaving the net wealth. I know the concept is foreign to many but it has been done before with rather surprising results.

[sweetheart]

15. How should the baker make money?

Can you clarify the failure of monetarism? You're saying that the
chicago school is looking at a static "wealth" and not velocity, and
that this is an innacurate way to assess GDP growth?

What would you propose should be the structure within a government
controlled-central bank, that "decreated" money. My figuring was to
"elect" the FOMC, that their actions at least reflected the credit
creation needs of the society. However, accepting your argument, then
i'm at a loss as to how it really should operate in a just society.

How do your view Q, the potential GDP growth, and measuring against it.
I have only been schooled in this "growth" monetarist economic thinking
as is evident. However, i am curious as to what methodology you
would recommend for a more realistic mechanism of wealth-currency-supply
management that is realistic and sustainable, not just following the
flawed fallacy that you debunk in the other posts.

I'm curious, as an ignorant bystander, what i should recommend, when
asked, as to how money creation should be managed given our learning
experiences in the 20th century, and a modern economy.

[orwell]

18. The Gas Pedal

Actually the Chicago School was fixated with the money supply as represented by the M's (M1, M2, and M3). There was very little discussion about money velocity, or how much the money turned over. What I am saying is that there are two things wrong with the current system.

The Federal Reserve is a private banking cartel which allows tremendous levels of fiat money creation through the mechanism of fractional banking. Because they have allowed an enormous debt bubble to develop through the "ponzi scheme" of fractional banking, they have effectively fueled excess levels of both total quantity of money and money velocity.

Think of it this way. Instead of allowing the market economy to naturally equilibrate prices, they have repeatedly put their foot on the gas whenever threats to money creation arise. They did it recently after the bubble collapsed with some of the greatest levels of money creation in history. Greenspan and cronies openly stated they would not allow deflation. I believe it was Fed Governor Bernanke who said they would drop money out of helicopters if they had to to keep prices rising at an acceptable rate.

This is insane. This is anti-free market. Anti-capital. Anti-savings. It debases the existing money stock.

The Fed is not really Government controlled. They are a chartered private banking cartel given the power to regulate the nation's money. But this power is Constitutionally mandated to Congress. The Founder's did not like the idea of a private central bank for they saw the inherent dangers that it represented. This was hotly debated with Alexander Hamilton one of the most important advocates for a Bank of the United States.

GDP will grow naturally as population is added - goods and services transactions increase. If we had direct US Government issuance of money/credit, with the goal being funding of public sector investment, currency for transactions, along with private banking regulated credit creation, we could eliminate the monopoly of the Fed over money and credit creation.

The greatest anathema is the Fed setting/targeting of the interbank lending rate through the FOMC. This must be set by the market participants. By the US Government acting as the primary, most important actor in the money supply creation, you have effectively added a counterbalance to the private banking sector. As a side benefit you will greatly lower public debt as the US Government does not have to pay interest on money it creates.

There is another misunderstanding. Money is in effect a transactional medium. The paper in your wallet is not a house (true wealth). It can be converted into a house at some clearing cost set by the two involved in the transaction, but it is not a house. So if all the money on the planet disappeared overnight, the houses, damns, roads, bridges, knowledge, invention would remain. So money is representational of these things, but only because we as a society accept it as such. Do confederate dollars have any worth? But they were money...You get the picture.

Inflation is caused by a very complex interaction of events, not the least of which is belief structures within our own minds. I don't want to leave you with the impression that money quantity x velocity is the only cause. But it is through the enablement of the Fed, with its stated aversion to deflation, where the permanent fuel is added to temporary inflationary brushfires caused disequillibrium between supply and demand. This is because they are a private cartel that is making a profit for their member banks. This profit relies on constantly rising prices.

Here are some interesting links with some new/old ideas about money creation, most involving the interest free issuance of public money. BTW this was something that Abraham Lincoln actually did (issuance of the greenback) and John F. Kennedy proposed doing. They both ended up assassinated:

http://www.seek2know.net/money.html

The Isle of Guernsey "experiment". In this system money "volume" had nothing to do with inflation:

http://www.monetary-reform.on.ca/archives/6d.shtml

Some interesting articles here, some on the Islamic system:

http://www.globaljusticemovement.net/justices/monetary.htm

BTW you are far from being an ignorant bystander.

Thanks for your posts.

[Lydia Leftcoast]

13. Reminds me of a cartoon I saw in the late 1980s

A man is sitting in an armchair, staring glumly into space.

Behind him is his wife, explaining the situation to a friend: "Poor Harold. In 1958, a genie gave him three wishes, and he wished for an Edsel, a vacation home in Cuba, and $10,000 a year for life."

[expatriate]

16. I can distinctly remember my mother thinking

that we would be on easy street if my father could only achieve an annual salary of $20,000. This was in the 1960's.

By the time he did, in the early 1970's, that "easy street" figure had gone up to $30,000 per annum. And it skyrocketed from there.

[EstimatedProphet]

17. And it skyrocketed pretty fast too, didn't it?

I remember my aunt made $40,000 in 1981 working for AT&T, and that was a "high-end career" job at the time, like a $200,000 year job would be now. Then the Reagan came...