The issue is wages, not inflation
This week, wholesale inflation is jumping at the fastest pace in 27 years. But economics editor Chris Farrell says the focus shouldn't be on inflation, but on the decline in wages. He speaks with Bob Moon.
Economics editor Chris Farrell (American Public Media)
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TEXT OF INTERVIEW
Bob Moon: Rebounding oil prices are rekindling worries about inflation. The price of crude is back above $116 a barrel. And still, our economics editor Chris Farrell is holding out hope that the cost of living will remain in check. What he's most worried about now is whether the floor is dropping out from under American wage-earners. Good morning, Chris.
Chris Farrell: Hi, how you doing?
Moon: Good, thanks. So, I had to get you back here to follow up on something we chatted about a month ago. Let me remind you that you said you're not so sure we need to worry about inflation. Well this week, we've got wholesale inflation jumping at the fastest pace in 27 years. So what do you say, Chris -- are you having nasty flashbacks to the 80's, or do you stand by that earlier assessment?
Farrell: Oh, I stand by that earlier assessment. Now, it's a scary number, but we live in a service sector economy. Guess what service sector inflation has been running?
Moon: Haha, it's gonna be smaller, I'm sure.
Farrell: It's gonna be very small -- four-tenths of a percent. So what you're really seeing is the impact of higher energy and food prices, I mean what we've been talking about a lot. But if you look at the two things that really matter, service sector inflation, it's down. And by the way, wages, they're also down.
Moon: OK, look -- after we spoke a month ago, we got some pretty strong reactions posted on our Web site. Let me read you just a little bit, a few of them here: "If you take out food and energy costs, you still have 2.4 percent inflation. Meanwhile, the average pay increase is 3.4 percent, and most people still like the occasional bite to eat and a warm place to sleep between shifts." I think I read that as sarcasm, Chris.
Farrell: Hahaha, I think it is. And this is one of those things where you take the headline inflation and consumer price inflation and you take out food and energy, and if you're an American, what else is there?
Moon: What I think I heard you saying just a moment ago, though, is that maybe the emphasis shouldn't be on inflation so much, but on wages.
Farrell: It should be on wages. That same report -- why aren't people worrying about the decline in wages that is the biggest decline since 1990? So what's happening to people is that they have less money at the end of the month. They're paying more for fuel, they're paying more for food, they're not getting wage increases, their health care costs are going up. That's not inflation, that just means their budgets are shrinking.
Moon: Aren't you goring your own ox here, though, by suggesting that wages go up? That's just going to promote inflation, right?
Farrell: Haha, what I'm hoping is that I'm right on inflation, because if I am right on inflation and we get continued decline in some commodity prices, a little bit of relief their, then hopefully wages adjusted for inflation start to grow again. And all these cries that the Fed has been weak and weak-kneed in the face of inflation and hasn't taken the tough action, that's wrong. It is really wrong.
Moon: Our economics editor Chris Farrell arguing for the best of all worlds here. Thank you, Chris.
Farrell: Haha! I try.
Comments
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From Freeport, ME, 08/22/2008
It's more than wages: wages and everything else. "Based on data from four years of the Commonwealth Fund Biennial Health Insurance Survey, Losing Ground: How the Loss of Adequate Health Insurance is Burdening Working Families (51 pages, PDF) found that a "perfect storm" of negative economic trends is battering working families across the country: the federal minimum wage is now three dollars an hour lower, in real terms, than it was forty years ago; gas and food prices are soaring; home values are declining; and growth in healthcare costs is far outstripping income growth." From PND on foundationcenter.org
From Afton, VA, 08/22/2008
Subtracting fuel and food from inflation is reminiscent of Enron's Mark-to-Market style of accounting.
Funny accounting, a fiat currency, peak oil (watch "A Crude Awakening,") the stress that the world population is putting on "commodities" (watch Dr. Albert Bartlett's lectures,) and a thirst for debt will all equate to one hell of a hangover!
Hope everyone enjoyed the party!
From Prescott, AZ, 08/21/2008
Of course wages are not increasing as they should.
Americans are not joining unions as they used to.
The middle class was created by union strength and
today's young people do not realise this. As a country, we have forgotten the battles that were fought and won for the right to earn a decent living
and fair working conditions. Corporations have ignored the laws and defied the rulings of the NLRB every where that they can. By forgetting history, we may be forced to relive it.
From Prescott, AZ, 08/21/2008
Of course wages are not increasing as they should.
Americans are not joining unions as they used to.
The middle class was created by union strength and
today's young people do not realise this. As a country, we have forgotten the battles that were fought and won for the right to earn a decent living
and fair working conditions. Corporations have ignored the laws and defied the rulings of the NLRB every where that they can. By forgetting history, we may be forced to relive it.
From Prescott, AZ, 08/21/2008
Of course wages are not increasing as they should.
Americans are not joining unions as they used to.
The middle class was created by union strength and
today's young people do not realise this. As a country, we have forgotten the battles that were fought and won for the right to earn a decent living
and fair working conditions. Corporations have ignored the laws and defied the rulings of the NLRB every where that they can. By forgetting history, we may be forced to relive it.
From Prescott, AZ, 08/21/2008
Of course wages are not increasing as they should.
Americans are not joining unions as they used to.
The middle class was created by union strength and
today's young people do not realise this. As a country, we have forgotten the battles that were fought and won for the right to earn a decent living
and fair working conditions. Corporations have ignored the laws and defied the rulings of the NLRB every where that they can. By forgetting history, we may be forced to relive it.
From NC, 08/21/2008
My first thought, hearing Chris say that there is little inflation in the service economy, was that if the biggest cost of doing business is labor, and wages are stagnant to falling, there is not basis for businesses to raise their prices, viola! no inflation! I recently read a Cato Institute wonk blathering that 'average wages have increased over $4000 since 2000", and I wanted to scream! Of COURSE an average is going to be higher than reality - Put Bill Gates, Warren Buffet and a few hedge fund managers on one side and the rest of us on the other, and it will raise the average. He was being deliberately disingenuous.
From TX, 08/21/2008
This was a pretty annoying interview with the constant chuckling, very odd. More annoying was the incoherence of the economics editor Farrell. I am not sure what his definition of inflation is, but I am pretty sure all wages and prices are not required to rise in lockstep for inflation to exist. The service sector is contracting and any lagging in the inflation rate or prices charged there is due to shrinking profit margins rather than sector immunity from inflationary effects. http://www.nytimes.com/2008/07/04/business/04economy.html He then notes health care costs are rising. Is that not in the service sector?
He apparently is basing his assessment on the hope that food and energy prices will be returning to levels of a year or so ago and staying there. If he would have just said that, it would have been a much shorter interview and it would have been a lot more obvious why he is wrong.
From Freeport, ME, 08/21/2008
When I hear experts, who make well over $100K making forecasts, I cringe. Is it possible to get an "expert" who makes a middle class wage? There's a different story for 85% of us.
From childersburg, AL, 08/21/2008
Price increase and the cost of goods to all Americans is not being driven by gas price but diesel fuel. The general public can slow done on the amount it drives and buy better fuel efficient cars but the trucks still need to run (6~8 Gallons Per Mile). The trucking and rail industry are a captured marked for the government because they know they are needed and to get taxes and we all pay for it.
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