The Reason Inflation Is Not As Bad As Media Have Led People To Believe

The reality is that wage gains have exceeded inflation, even - or perhaps, especially - for those in the bottom half of the wage scale. 

Inflation has been promoted by conservative media as a means of attacking President Biden. Given the widespread availability of jobs and of rising wages, it is unlikely to prove as troublesome as some believe - or wish - it may be. JL

Andrew Ross Sorkin and colleagues report in DealBook:

Despite strong job numbers, polls show the public thinks the U.S. economy is headed in the wrong direction. The main culprit appears to be inflation. (But) high inflation comes when both prices and wages are rising. Last month, average incomes, including what people earned at their job and from their investments, have outpaced inflation, with gains for the bottom half of earners rising by more than 10%. The economy is “not likely to have the type of wage-price inflation that we had in the 1970s. It is a political problem."

This morning, the Labor Department will report how many jobs employers added to their payrolls in February. Economists expect a healthy gain. (For full coverage of the report, see The Times’s special briefing, which will be updated throughout the day.)

Despite strong job numbers, polls show the public thinks the U.S. economy is headed in the wrong direction. The main culprit appears to be inflation, with fears that fast-rising prices will soon make people worse off — even those in jobs where wages are growing, too.

Some of the concerns may be misplaced. High inflation tends to come when both prices and wages are rising. Last month, the White House pointed out, based on data from a trio of top economists, that average incomes, including what people earned at their job and from their investments, have outpaced inflation, with gains for the bottom half of earners rising by more than 10 percent. But people tend to feel the pain of rising prices more than they do gains in their paychecks, which they see less often.

Inflation becomes a problem when prices continue to rise while wages stagnate. That’s what happened in the 1970s, and is threatening to happen again. Inflation has been stoked by supply-chain problems during the pandemic, and now Russia’s invasion of Ukraine may prolong supply-chain issues and push up energy costs. This persistent inflation could start to hit economic growth, an important factor underlying pay packages and investment gains.

• That said, the Nobel-winning economist Joseph Stiglitz declared yesterday that “we are not facing an inflation crisis.” At a panel discussion hosted by the Center for Economic and Policy Research, a liberal-leaning think tank, he argued that the economy is “not likely to have the type of wage-price inflation that we had in the 1970s.”

Policymakers are mobilizing. “People are unhappy about inflation,” said the economist Jason Furman, a former top adviser to President Barack Obama. “And we should care about that.” President Biden said this week that fighting inflation was his “top priority,” and the Fed chair Jay Powell said he was prepared to raise interest rates for the first time in years later this month. Chris Waller, a Fed governor, said recently that he might support more aggressive rate increases if inflation reports and the February jobs data showed “that the economy is still running exceedingly hot.

 

Some economists think the government should be more creative, trying things like paying people not to drive in order to lower the price of gas. Biden also expressed support for some price controls in his State of the Union speech this week. “It is a political problem,” Stiglitz said. “We should try to protect people from the downside of inflation.