Inflation’s Logic Pretzel
Terry H. Schwadron
June 6, 2022
You would think that adding another 400,000 U.S. jobs and corralling wage increases topping an annualized 5 percent would be excellent news, the 17th consecutive job month of job increases reported this week.
In our upside-down world, though, we’re not so sure anymore.
The swamis of economics see the good news as evidence of response to continuing consumer demand — growth, in other words — as opposed to the “cooling” of an overheated economy to turn back the resulting inflation in prices.
“With nearly twice as many open jobs as available workers and inflation running at its fastest pace in four decades, many economists and policymakers say a slowdown is just what the economy needs right now, The New York Times noted about this night-as-day news.
On the same day, for example, Tesla, the electric auto giant, was announcing consideration of laying off 10 percent of its employees because owner Elon Musk was expressing “significant bad feelings” about our economy.
And news sites were continuing to go bonkers with images of gas pumps showing record-high prices at the pump.
At the White House, reports were that staff, and an ever-present Joe Biden are worried that they can’t seem to persuade Americans that this country fundamentally is doing well despite high prices. Among the competing political parties, all this was raw meat for competing messages about competence of Democrats to steer through a rough period for supply chains and prices.
A Logic Puzzle
To watch these economic indicator reports is to twist oneself into a logic puzzle. Economists are reportedly concerned about wage growth, which many feel need to slow to bring inflation under control.
It sounds nuts on its face to blame worker pay for an unending desire to raise prices, It’s the other way around. Companies are having trouble hiring and keeping employees and so are raising wages to lure them.
What needs to change are prices, which are not controlled by the government and are being boosted by some combination of supply and demand, a changing global market, and a desire by some companies to take advantage of chaotic times by charging more. This week, there were reports of several oil executives selling out their high company stock shares, for example, even while ignoring invitations to drill more, produce more or considered less profit.
There’s no sudden supply problem for rents, for example, or for pharmaceutical drugs, so blaming wage hikes seems, well, illogical. Gas prices are high as a result of global market prices, and until this week, being kept high by a failure to pump more oil temporarily, or to favor diesel and jet fuel over refined auto gasoline.
Prices are rising because transportation and production costs keep rising — the result of covid problems the world over, because of tariffs on a wide assortment of goods imposed by the last administration, as a result of economic ripples from the war in Europe and because companies think they can do so.
In any event, we’re now being lectured that adding more jobs and rising wages may not be good developments. Instead, economists hoping for stability want a cooler labor market with slower salary growth and less flexible work arrangements. Somehow, this vision of fewer job opportunities at same pay sounds as if it benefits only business owners who will lay off workers to maintain profit.
Report issued on Friday reflected data that Americans had bigger paychecks in May, but still lagging price hikes. Indeed, the price of gas for commuting to work is seen as a disincentive for taking a job.
But isn’t something here wrong when bigger household income is at odds with national demands to stabilize inflation without discussion of price controls of some sort?
The Bureau of Labor Statistics job report shows, as in previous months, that the job gains were biggest for leisure and hospitality, professional and business services like accounting and bookkeeping, and in transportation and warehousing. There are still 1.8 million fewer people working than in pre-covid months, and the basic unemployment rate is 3.6 percent, record territory.
We know there are not enough truckers, pilots or teachers.
Another month of solid job growth and wage increase show that companies are paying up to attract and retain workers. Basically, there are more open jobs open than attractive workers. This should be good news.
At the Federal Reserve, there is concern that rising wages means it will take time for the economy to cool. The belief seems to be that less growth through higher borrowing costs will force lower business expenses passed along to consumers as higher prices. But the price will be layoffs.
Whatever balancing act is required here seems beyond our control. Economists see annualized wage increases of 5.2 percent as a reason for 8.3 percent inflation. You and I see that we are falling further behind.
We’ll be hearing that message plenty from the politicians who cherry-pick the data to press the message they want us to hear.