Jack Jones wrote: ↑Tue Aug 10, 2021 10:53 am
D1984 wrote: ↑Sun Aug 08, 2021 7:50 pm
Wages over the long term typically at least keep up with inflation which they indeed mostly have; check out the AWI from Social Security or AHEPTI from the Federal Reserve Data (FRED) website and compare it to CPI. Ideally they would also keep up with economywide productivity growth above and beyond merely keeping up with inflation (that they haven't always done so in the last 40-50 years has to do a lot more with other economic factors than it does with inflation or "dollar devaluation" by the Fed).
What you said about money and savings is only true if you keep your savings as physical paper currency in a cookie jar, under the mattress, or buried in a coffee can in your backyard. If you had merely put it in T-Bills (i.e. in a T-Bill money market fund with a 0.04% expense ratio) starting in 1969 you'd have around $11.10 today (end of July 2021); if you'd done the same with a blend of 3 month and 6-month CDs you'd have approximately $12.94. That ad you linked to (the one on Youtube that said it was from 1969) showed what appeared to be two regular hamburgers (i.e. not Big Macs or Quarter Pounders) and what McDonald's would today call a small fry and a small drink. I'd bet that if I went to my local McD's tonight with either $11.10 or $12.94 I could buy those same items and get change back too.
And all the above is only considering what would've happened if you'd invested in the safest risk-free assets imaginable. You would be able to buy even more hamburgers/fries/sodas if you'd invested in stocks, bonds, real estate, or gold.
This is a wealthy, educated perspective. Inflation hurts the poor more than the wealthy. A greater proportion of their wealth is in cash because, well, they don't have any money to invest.
My mother-in-law still gets paid the same $18/hr she did 10 years ago. I agree that over time, wages adjust w/ inflation, but I would guess that is largely driven by younger folks entering the workforce. Older people settle into their lives and watch the price of everything go up.
First of all, see:
https://papers.ssrn.com/sol3/papers.cfm ... id=3571909
This study is titled:
Inflation and the Income Share of the Rich: Evidence for 12 OECD Countries
The authors' conclusion: "This paper examines the distributional implications of inflation on top income shares in 12 advanced economies using data over the period 1920-2016. We use Local Projections to analyze how top income shares respond to an inflation shock, and panel regressions in which all variables are defined as five-year averages to examine the impact of inflation on the position of the top-one-percent in the long run. Our findings suggest that inflation reduces the share of national income held by the top one percent. Furthermore, we find that inflation shocks and long-run inflation have similar effects on top income shares."
Second, how much inflation hurts or helps you depends not so much on whether you are wealthy or middle class or poor but on whether you are more of a borrower or lender.
With that said, most of the debt in the US is owned (directly or indirectly) by the upper middle class, the wealthy, and the ultra wealthy (which makes logical sense given the income and wealth distribution of the US; most of
any kind of financial asset will be owned by these groups). The deliberate holding of rates at around 2% during 1946-47 while inflation averaged around 10% in the US was a confiscation of bondholders' wealth in real terms. Same applied in the 1969-1981 inflation (albeit rates were allowed to rise during this time.....although this also hurt long-term and mid-term bondholders as well since rising rates mean falling bond prices).
A middle class person with a mortgage may very well be helped more by inflation than hurt by it (look at the 1970s.....even if one's wages didn't quite keep up with inflation, the nearly double-digit average inflation rate from 1973 to 1981 basically washed away in real terms much of the mortgage debt--taken on at lower fixed rates from the 1950s to the early 1970s--of homeowners).
A lower-class person (say, a Gen Z'er just getting started in his career) who is up to his eyeballs in student loan debt, credit card debt, and an auto loan would probably welcome some inflation which would reduce the real value of his debts.
Less than 10% of the income of retirees comes from interest payments; see
https://www.newyorker.com/magazine/2013 ... -up-savers; to quote: "even seniors, one of the groups most obviously hurt by low interest rates, get only ten per cent of their income from interest payments". The majority of cash income for seniors in the US comes from Social Security; Social Security income is inflation-indexed so it rises as inflation rises.
The largest asset most working class and middle class people own (albeit not one that can be directly capitalized since doing so would involve essentially selling oneself into slavery) is the value of their labor. To the extent that wages haven't always kept up with inflation (much less with productivity growth) from the early 1970s onward, that is more of the fault of policy choices we've made (bust unions, not raising the minimum wage, no limits on executive pay and/or the ratio of said pay to median worker pay, taxing capital income lower than wage income, offshoring, lowering corporate tax rates which in turn incentivizes companies to keep wages low since at lower tax rates they keep more of the gains of doing so, weakening or elimination of anti-trust regulation, allowing rentier parasitism like too much of the pharma industry or financial industry today engages in, having a mostly shareholder-friendly economic model vs one that takes all stakeholders into account, not having a UBI and universal healthcare which results in potential workers desperate to take any job and there's thus no pressure on employers to raise wages, etc) than of inflation per se. If we reversed these policy choices wages would no doubt at least keep pace with inflation (and indeed with real productivity growth as they did from the late 40s to the early 70s) and your mother in law would see some real inflation-beating wage gains.