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Inflation and wages.

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I think if the general worker's wage went up with inflation we would not be in the economic situation we are facing today.

Am i the only one who thinks this?

What do you think?

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At my company there has not been a pay rise for 5 years.

This year the union negotiated an extra 3p per hour, this is too littlre and there should be legislation to make sure wages rise with the rate of inflation.

What's wrong with you politicians?

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If you don’t work you get a inflation “pay rise” if you do work you will probably have another pay freeze ………… don’t forget we are all in this together. :roll:

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I learnt a lot about this problem and the effect that wage stagnation is having on the economy as a whole by watching this lecture by Prof. Richard Wolff (starts at 7.13 minutes into the video):

 

 

Certainly it's a problem that both government and corporations are aware of, (Wolff states that, despite being a Marxist economist, he's often called in to give advice to corporations and governments) so the questions are- why has it been allowed to go on so long (since at least the 1970's) and why is nothing being done about it?

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You need to understand what "inflation" is.

 

There shouldn't be any inflation really. Rather there should be a tendency towards deflation. Inflation is just a hidden tax paid to the banks. It is caused by the printing of new money without there being anything to back it up. This new money is often created by high street banks and lent out at interest.

 

Consider the scenario where 100 people are magically teleported to a completely isolated island. Assume these 100 people start off with nothing but a collective bag of exactly $100 in pennies which they determine to make their island's permanent, fixed currency. They divide up the pennies equally so the citizens of the island will each start off with 100 pennies.

 

Within the first week you probably have people buying and selling firewood, coconuts, and maybe even a few huts made with palm fronds. Maybe some fish are being bought and sold as well. Would you buy a coconut for a penny? Would the person who was able to climb trees and gather coconuts pay 5 pennies for a hearty fish to get energy for tomorrow's coconut harvest? Would the coconut entrepreneur pay 50 pennies for the best hut on the island so they could get rejuvenating rest after each work day?

 

In 60 years the population might have grown to 500 people. Think of all the goods and services being bought and sold after 60 years of people creating things on the island. There would be things like furnished homes, transportation, tools for farming, boats for fishing, and the list would go on and on. How much might things on the island sell for? Keep in mind that the average amount of money per person is now only 20 pennies. Maybe a two bedroom log cabin somebody outgrew might sell for half the average net worth of the island's population which is a mere 10 pennies. That is a lot of price deflation in 60 years.

 

Imagine if a few hundred years passed and the people of the island grew to a population of a million. Imagine they produced lots of automobiles, trains, tractors, planes and skyscrapers. The 100 founders each started with 100 pennies each and, after a few hundred years of growth, the total amount of money on the entire island would be 1/100 of a penny per person. However, that fraction of a penny would have tremendous purchasing power as an average home might sell for around the average net worth of a person which is only 1/100 of a penny.

 

By introducing new money, governments and banks try and keep prices the same (or have a modest level of inflation). This new money is created by banks out of thin air and lent in to circulation, either to businesses or to the government.

 

It's too simplistic to say that wage increases in line with inflation would have helped stop the financial crisis without understanding the fundamental mechanics of both inflation AND the actual causes of the crisis.

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I think if the general worker's wage went up with inflation we would not be in the economic situation we are facing today.

Am i the only one who thinks this?

What do you think?

 

Why do you think this...?

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I think if the general worker's wage went up with inflation we would not be in the economic situation we are facing today.

Am i the only one who thinks this?

What do you think?

 

Think about it, everything that you buy is produced or supplied by someone that is paid, so every time you increase their wage the price of the end product goes up. Inflation.

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Think about it, everything that you buy is produced or supplied by someone that is paid, so every time you increase their wage the price of the end product goes up. Inflation.

 

The minimum wage was the biggest con ever thought up in this country.

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The minimum wage was the biggest con ever thought up in this country.

 

no it wasn't

 

why do you think it is?

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Think about it, everything that you buy is produced or supplied by someone that is paid, so every time you increase their wage the price of the end product goes up. Inflation.

 

not really

 

demand exceeding supply pushes prices up far more

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not really

 

demand exceeding supply pushes prices up far more

 

I didn't say it doesn't but the OP thinks increasing wages will counter inflation when in fact it will just increase inflation, and increasing wages would also increase demand which again will drive inflation higher.

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not really

 

demand exceeding supply pushes prices up far more

 

If we all have more money through higher wages then won't demand increase... pushing up prices?

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