Inflation Will Continue to be Low

Jared BernsteinJared Bernstein put together the great graph below that shows the rate at which wages are going up, Wage Mash Up: No Pressure, No Matter How You Cook It. What it shows is that wages are barely going up. The rate before the financial crisis was twice as high and even during the recession of the early Bush years the rate was 50% higher.

The reason people worry about this stuff is because of the wage-push theory of inflation. If workers’ wages go up without corresponding increases in productivity, it will increase the rate of inflation. Currently, inflation is low—too low, in fact. But there is a whole class of people who always want the Federal Reserve to pull back to keep inflation as low as possible. This class of people is the rich class. People who have lots of dollars want them to hold on to their wealth. If they own bonds that pay 6%, the lower the inflation rate, the more money they are making on the bonds.

The down side is that the lower the inflation rate, the less reason there is for people to make purchases. They might as well sit on their cash. And this means that there is less demand in the economy and so less jobs. If inflation is moderately high, businesses have an incentive to make capital improvements and to hire people. So for people in the lower classes, modest inflation is a good thing.

But as I said, inflation is already low. So the people who want the Fed to raise interest rates (which is how the Fed fights inflation) must come up with reasons for thinking that inflation is about to go up. Thus they look at things like how much wages are going up. And they cherry pick data. What Bernstein has done is put together five different measures of wage changes and of course, he finds that there is absolutely no reason for anyone to be concerned about inflation.

Wage Growth Time Series - Jared Bernstein

It is pathetic that serious economists like Bernstein have to do this kind of thing. What we do is pretend that these people who are now wringing their hands about inflation are honest brokers. But they aren’t. They are always wringing their hands about inflation. They want the Federal Reserve to raise interest rates so that all the stuff they own will make them as much money as possible.

It is indicative of the fact that we live in an oligarchy that we don’t shame these inflation proselytizers for looking out for their own interests at the direct expense of the best interests of the country as a whole. But instead, we pretend that they are just looking out for the country. And great economists like Jared Bernstein have to spend time to show that, just like last year and the year before and the year before and on and on for decades, they are wrong and we have no inflation problem.

The Father of Modern Geology

James HuttonOn this day in 1726, the great geologist James Hutton was born. Like most scientists of that time, he worked a large number of fields. But he is most remembered for his work in geology. He is often referred to as the “Father of Modern Geology.”

He came up with the idea of uniformitarianism. This is the idea that how the environment changes now is how it always has. So by looking at the effects of things like erosion, he saw how the crust of the earth changed over very long periods of time. It’s important to remember that at the time he was working, the vast majority of people were young earth creationists. So that alone was a big deal. Obviously, he didn’t know about plate tectonics, but he did understand that rock was created in the oceans and then pushed up onto the land.

Most interesting, Hutton was the first scientist to suggest that the earth itself was a living organism. This, of course, is the basic idea of the Gaia hypothesis. He also applied his ideas of uniformitarianism to changes in species. He did not come up with the idea of natural selection, but it is known that a young Charles Darwin had read his work, and it undoubtedly affected the way he saw the world.

Happy birthday James Hutton!