We live in a most special world where the sheer magnitude of absurdity in economic theories seems to have no bounds. In recent news, Investopedia, self-proclaimed global leader in financial content, featured a headline:
Federal Reserve Officials Are Worried You’re Getting Paid Too Much
Citing the Fed’s latest board minutes, Investopedia elaborates:
Policymakers at the Fed are concerned wage growth isn’t slowing fast enough for inflation to fall to the 2% annual rate that the central bank targets…
Referring to economists in general, they write:
…wage growth, while slowing down, is still too high to allow inflation to fall as far as they want.
This is not the first-time price increases have been blamed on high wages. Earlier this year Barron’s featured the headline:
Powell Is Determined to Drive Down Wages. What Else Is at Stake.
Even VOX attempted its take on economic news with the headline:
Wages are still growing rapidly. The Fed wants them to slow down.
An idea worth exploring: if wages didn’t grow so fast, perhaps prices wouldn’t rise as much. But, upon closer examination, something doesn’t quite add up. Even to entertain this idea, that the increase in prices such as gas, groceries, drugs, tuition, and rent are due to people getting paid more, seems strange for a few reasons. For instance, what caused the unilateral demand for higher wages in the first place? And, could prices and wages increase as much as they did if the money supply hadn’t expanded by several trillions of dollars in the last few years, as it did?
The elephant in the room regarding the (price) inflation problem that central bankers claim to be addressing is the interference in the market by central bankers themselves. This is only made worse by government actions like price controls, subsidies, and regulations, to name a few.
As for the source of Investopedia’s statement regarding the Fed wanting the public to make less money, this claim isn’t unfounded. Page 7 of the Fed’s July minutes reveals how central bankers view the average person’s paycheck in their calculations:
Participants also observed, however, that although growth in payrolls had slowed recently, it continued to exceed values consistent over time with an unchanged unemployment rate, and that nominal wages were still rising at rates above levels assessed to be consistent with the sustained achievement of the Committee’s 2 percent inflation objective.
Discussion about payroll growth exceeding certain values or wages rising “at rates above levels assessed” by the Fed implies they believe that if wages could just come down a bit more, meeting inflation targets would become much easier.
What these targets are, whose wages are being referred to, and how this can be achieved are left unmentioned.
In a truly free market, there wouldn’t be minimum wage laws and the influence of unions distorting cost structures would likely be diminished. In such a world, wages would be more flexible and could potentially decrease from time to time. Also in such a world, there would not be a pervasive problem of currency debasement leading to hyperinflation. But this isn’t what the Fed is discussing.
The Fed is approaching this from a distant vantage point. They are assessing wages in terms of data-driven indices and averages rather than considering the complexities of individual circumstances. This is made possible by ignoring individual value judgments and price determination entirely, coupled by no one in the Fed’s inner circle wanting to do anything other than maintain the status quo. Ultimately, if wages were to come down, it would not fix the overarching problem: the existence of an organization that believes it knows how high (or low) wages should be to begin with.
