The reason you never hear a good plan for growing wages to catch inflation is because inflation is a form of intentionally regressive taxation. For reasons of macroeconomic theories meeting special interests with socio-political leverage.
Which has always been treated as a spooky four-letter word in economics. I remember the news stories in 2008 when we had a brief period of deflation and the headlines were particularly apocalyptic (even despite the overall grim economic news of the time).
Lowering prices sounds nice, but my understanding has always been that it would come at the cost of less actual wealth overall.
The most obvious argument against this notion is that many things are effectively deflationary anyway, such as computers, which at least until recently were deflationary in the extreme. Not only did they tend to get ever cheaper over time, but while getting cheaper they have and continue to become more powerful, at times by miles in the space of a few years. And yet, people still buy computers, and firms still engineer and manufacture them, because at some point it doesn't matter that if you wait 6 months you can get a vastly better computer for half the price, at some point you have to actually buy a computer.
You have it literally backwards. Like 100% backwards. In a normal healthy economy, salaries grow faster than inflation. So workers living on their wages are not affected.
Transient periods of high inflation might even benefit them, as they also devalue their fixed _debts_. It's the rich people who are affected by the inflation, they are forced to invest money, rather than just leave them sitting in a risk-free account.
Conversely, deflation primarily causes pain for the working class (that's how Hitler came to power!), because it slows down the economy and makes their debts grow. While rich people can just enjoy having a risk-free real income growth.
Interest rates move in the same direction as inflation with some lag, so the idea that poor people benefit due to reduction in debt is weak at best, but given that the rich rely on debt so heavily themselves, any positive effect on the poor would be even greater for the rich barring some special reason I can't think of.
As for rich people being the ones affected by inflation, it does in fact change their incentives dramatically, so that's true as far as that goes, however it doesn't actually result in loss of wealth for them as again, they are the ones with the capacity to invest it in assets to protect or grow its value, and the ability to use leverage to use money now that they don't even have yet, in exchange for devalued money in the future. It might have some effect of weeding out the truly incompetently or indigently rich, but of that group the ones who don't have smarter family around to save them from themselves will be those who probably come from lower class backgrounds anyway.
If deflation were expected, rich people really would just leave money in a bank account (as long as investing gave smaller returns, or seemed too risky.) The inflation is an incentive for cash-rich people to put that cash to use instead of sitting on it. This can be a huge driver for the economy.
A mortgage on a single home seems kind of like a special case, they tend to have unusual rules that insulate borrowers from the effect of interest rates to a certain extent, which otherwise work to cancel out the time-preference effect on money. Otherwise the working classes have their wealth tied to the sale of their labor, something (wages) which is notoriously sticky, hence a greater effect on them.
I don't disagree that the macroeconomic argument does incentivise rich people to use their wealth productively, but it is precisely this argument that relies on the idea that the wealthy have means available to them to protect the value of their wealth. You can't have the former and not the latter.
That's a common misconception, propagated by people who want the economy to stagnate (goldbugs earlier, crypto bros now).
Germany experienced actual _deflation_ in 1929-1932 as a result of the governmental austerity. It's exactly what put Hitler in power. Deflation rose up to 12% in 1932!
Here's the table: https://www.gabriel-zucman.eu/files/capitalisback/T271 (sidenote, seeing scientific notation on the CPI chart is scary).
Hitler then immediately started an expansionist fiscal policy, using state funds to build up the infrastructure and military. This immediately resulted in the GDP growth.
> but given that the rich rely on debt so heavily themselves
Rich people are not in debt. Their net worth is not negative. That's not the case for poor people.
I never said rich people are "in debt", I said that they use and rely on debt. In the sense meant in the argument about why inflation helps the poor, the advantage also comes to the rich, if I even concede that it's true, which I do not, because rising interest exists specifically to counteract the long term effect of inflation.
Rich people's wealth is protected from inflation, while the working classes' wealth is not, that is the key difference. That is precisely inflation's alleged reason detre, that it incentivises people, in effect, those with more wealth, to use their money in ways that protect its value.
You can't have the macroeconomic argument for inflation driving growth and then simultaneously allege that rich people are just as affected by inflation as wage earners, the former relies on the idea that there is a way to use excess wealth through investment that will protect its value.
You can claim that wages should grow with inflation, but not only is that self-evidently not what happens when you look around, but the stickiness of wages is so well recognised that it's treated as almost apriori in macroeconomics, which is why I take it to be a either a feature or accepted consequence of inflation that it is regressive, depending on the specific policymaker.
There's no such thing as a "minor deflation". And yes, it was the proximate cause. And keep in mind, it was not a month, it was 4 years.
Quite simply: you can't have noticeable economic growth with deflation. You _can_ have robust economic growth even during hyperinflation.
I lived through one myself.
> I never said rich people are "in debt", I said that they use and rely on debt.
It mostly means that they _own_ debt (usually indirectly), not that they are _in_ debt.
> Rich people's wealth is protected from inflation, while the working classes' wealth is not, that is the key difference.
That is the opposite of the actual history. Rich people are the ones who suffer the most from inflation. Hyperinflation wipes all debts nominated in the currency, and more importantly, it forces people to invest in risky enterprises.
Workers, in general, simply don't have a lot of savings and instead rely on the constant stream of income from salary.
That's why the ruling classes are so obsessed with the inflation.
I'm not really arguing against either of those positions, though I'd push back against the first more strongly. I'm arguing that inflation as a driver of economic growth comes at greater expense to wage earners than the wealthy, that it's regressive.
>It mostly means that they _own_ debt (usually indirectly), not that they are _in_ debt.
Dude, enough nitpicking my specific language, you know exactly what I mean, this isn't productive or interesting.
>That is the opposite of the actual history. Rich people are the ones who suffer the most from inflation.
No they don't.
>Hyperinflation wipes all debts nominated in the currency
Nobody benefits from hyper-inflation, wealthy people don't want it, working class people don't want it, nobody wants it, except maybe a kleptocratic government. This is why interest rates track inflation, albeit with some lag.
>more importantly, it forces people to invest in risky enterprises.
I agree, although with the caveat that the wealthier you are, the more you can insulate yourself from risk. Again, I agree that the incentive to drive economic growth works, I just don't agree with your assertion of who actually pays the bigger price on aggregate.
>Workers, in general, simply don't have a lot of savings and instead rely on the constant stream of income from salary.
Correct, exactly why they suffer/lose the most wealth from the effects of inflation. Their wages are devalued while remaining sticky, and their capacity to save enough wealth to make investments that protect their wealth is curtailed by inflation eating its value.
>That's why the ruling classes are so obsessed with the inflation.
Obsessed with a "healthy" rate of inflation, find me evidence that a substantial number of people with their hands on the levers of wealth or power advocate that we should have no inflation? They don't.
Yeah. The last time deflation happened in Europe, it resulted in Hitler coming to power.
Not kidding, Hitler came to power after a period of _deflation_ in Germany.
Do you want a mirror?
And why that episode was minor?
This whole thing is just a distraction that I didn't even bring up though, it has nothing to do with my original points. I wouldn't want to experience prolonged deflation at that rate either, markets rely on a certain level of stability and predictability to function well, everybody benefits from that and I would not argue otherwise.
Years from 1929 to 1932. Deflation was 12% in 1932, in particular.
You can’t go buy a nice oak table for less than you did 20 years ago. Or high quality tools (To get something like old Craftsman I need to import tools from Germany at 10x the price). No one notices because of the insidious nature of inflation. “Cheap TVs!” appear to be deflating and are the bread and circuses. Meanwhile a massive amount of wealth is being stolen.
I really don't understand the dynamic here.
Even if you understand intellectually that a pay increase is a cost of living adjustment, that doesn't mean it isn't disheartening to see your new earnings being eaten up by inflation.
Now that we've slowed inflation to a manageable level, we need to grow wages to catch up. I never heard a good plan on that from either side.