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DanS posted 05-21-99 02:57 PM ET
Interest rates were jarred upwards. Just last week, they jumped a full half point in the US. Has our merry economic existence been irretrievably compromised?
Hey sex sells.
DanS posted 05-21-99 02:59 PM ET
Before I get flamed for my topic title, Commander Democ made me do it!
SnowFire posted 05-21-99 03:01 PM ET
More like possibly saved. We can't just keep on zooming upward and upward without a "correction," and we don't want to have another 1929 on our hands here. This is the best thing the Fed's done in awhile.
Khan Singh posted 05-21-99 05:03 PM ET
I thought Greenspan's fear of inflation throughout the early 90's was stupid and inexplicable. (And I was right!)The only thing it did was drive down wages. But even I have to admit that a tiny smidgen of tightening is probably called for here. As the rest of the world begins to recover, their demand for goods should increase. Even with the "new paradigm" economy, demand for conventional goods is high and could easily spark price inflation.
But the Fed certainly shouldn't overdo it. "Wage inflation", what normal people would call "wage increases", is not to be feared. More like encouraged.
DanS posted 05-22-99 01:03 AM ET
Well Khan, to a certain extent I agree with you. But there are signs that, over the long run, wage increases are outstripping productivity gains, which gets everybody nowhere fast. This might "right" itself, since productivity gains are highly variable.
My post was really driven by the fact that the perception out there (as I perceive it), is that interest rates are not going to be lower for years, and perhaps substantially higher. Almost like an overnight shift in perceptions. All of a sudden, people are saying "well, I locked in 7.5%. Last week, I could have had it at 7%, but 7.5% is still good, and I wanted to lock in the rates before they go higher." Would people have thought this two weeks ago?
Khan Singh posted 05-22-99 12:39 PM ET
Regardless of productivity, wage increases still benefit wage earners, assuming, of course, that prices don't increase. But since there are some signs of price inflation, a little tightening probably won't hurt.
Roland posted 05-25-99 03:19 AM ET
Hi Dan! Where did you get that title ?
Sex sells ? Are you talking about the Beate Uhse IPO ?
Khan, there is no "new paradigm". Wage increases beyond productivity will either spur inflation or hurt earnings - or both.
The fed will most likely take back the 3/4 percent cut from last fall. That was way overdone and made money supply skyrocket in the 4th quarter of '98; now they have to get the bubble out of the economy again.
"Has our merry economic existence been irretrievably compromised?"
Depends upon how you define "merry" ...
Khan Singh posted 05-25-99 08:39 AM ET
Sure, that's how the equations work. The economy, however, probably works differently. If we had a measure of productivity that, well, actually measured productivity, you would be right. Since we don't, the wage growth/productivity growth equation is basically meaningless.
Roland posted 05-25-99 09:23 AM ET
Oh fine... another productivity stats debate...
In which respect do you think that the productivity measures are wrong ?

Ok, let's see for the two usual "suspects":
Labor productivity = output/labor
Nominal Labor productivity rise = (delta)output/labor
Real labor productivity rise = ((delta)output/labor)/deflator
The people who talk about a higher real productivity rise usually assume that inflation is measured incorrectly, ie that the deflator is in reality lower.
But this also means that that the real wage increases are higher.

The other version is that there is unmeasured output. This has to assume that there is a) unmeasured output and b) that this unmeasured output is growing faster than the measured output (otherwise, the productivity rise would stay the same). Two problems:
a) this unmeasured output would most likely be related to unmeasured input, so its impact on productivity would be very limited at best
b) this additional output has to show up somewhere, ie in unmeasured wages or unmeasured earnings (ie returns on capital; or that it would be wasted ). Unless they can show that it goes predominantly to earnings (and why should that be different from the measured output?), this would also mean that real wage increases are higher.
A variation of that would be an overstimate of labor input, but that part of the equation is hardly disputed.
Got a different version why productivity measures would be wrong ?
DanS posted 05-25-99 09:51 AM ET
I would agree with Khan on other grounds and don't wish to get into a productivity equation debate. My "other grounds" are that it's not always bad that wage-earners take some of the increased earnings.
>Sex sells ? Are you talking about the Beate Uhse IPO ?
Well, I was talking about the title of the thread. But a Beate Uhse IPO (whatever that is), sounds pretty sexy too!
Khan Singh posted 05-25-99 10:30 AM ET
The entire economy can probably grow faster than the Fed has been willing to let it. If the Fed raises interest rates every time wages go up, all they are doing is causing inflation in the prices of certain capital good. Which is precisely what seems to have happened.
Productivity measurements that the total the whole output of the economy and divide it by the whole number of hours worked are only valid for equations that deal with the economy as a whole. Such measurements are not valid when applied to something like wages that only comprise a fraction (a shrinking fraction) of the total economy.
Khan Singh posted 05-25-99 10:33 AM ET
Sorry, typed that quickly. Correct that to: "Capital goods", and "Productivity measurements that total" (delete "the")
Roland posted 05-25-99 10:56 AM ET
Dan:
"I would agree with Khan on other grounds and don't wish to get into a productivity equation debate. My "other grounds" are that it's not always bad that wage-earners take some of the increased earnings."
If additional wgae gains come at the expense of returns on capital and do not translate into higher prices, then there is no inflation problem; as I've said above: "Wage increases beyond productivity will either spur inflation or hurt earnings - or both."
"Well, I was talking about the title of the thread. But a Beate Uhse IPO (whatever that is), sounds pretty sexy too!"
I know... Beate Uhse is a german chain of sex shops that is going public (sounds a bit strange here.. )... they just cut the period for the offering due to high demand... hilarious. Headline in the business news: "Sex sells!"
Khan
"The entire economy can probably grow faster than the Fed has been willing to let it. If the Fed raises interest rates every time wages go up, all they are doing is causing inflation in the prices of certain capital good. Which is precisely what seems to have happened."
Over the last years, the US economy has been growing way beyond its limit - which is only possible in the short term. Rate hikes cause some inflation, but overall, they reduce it.
"Productivity measurements that total the whole output of the economy and divide it by the whole number of hours worked are only valid for equations that deal with the economy as a whole. Such measurements are not valid when applied to something like wages that only comprise a fraction (a shrinking fraction) of the total economy."
Wages are a big part (about 50 % or so) of the economy and their share is not shrinking substantially - if at all. I don't understand the argument - the only thing that could enter the equation would be the income of the self-employed. The other part of the economy would be return on capital which I have already mentioned. Hmm...

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Author	Topic: You're All A Pack Of Whores...
DanS	posted 05-21-99 02:57 PM ET Interest rates were jarred upwards. Just last week, they jumped a full half point in the US. Has our merry economic existence been irretrievably compromised? Hey sex sells.
DanS	posted 05-21-99 02:59 PM ET Before I get flamed for my topic title, Commander Democ made me do it!
SnowFire	posted 05-21-99 03:01 PM ET More like possibly saved. We can't just keep on zooming upward and upward without a "correction," and we don't want to have another 1929 on our hands here. This is the best thing the Fed's done in awhile.
Khan Singh	posted 05-21-99 05:03 PM ET I thought Greenspan's fear of inflation throughout the early 90's was stupid and inexplicable. (And I was right!)The only thing it did was drive down wages. But even I have to admit that a tiny smidgen of tightening is probably called for here. As the rest of the world begins to recover, their demand for goods should increase. Even with the "new paradigm" economy, demand for conventional goods is high and could easily spark price inflation. But the Fed certainly shouldn't overdo it. "Wage inflation", what normal people would call "wage increases", is not to be feared. More like encouraged.
DanS	posted 05-22-99 01:03 AM ET Well Khan, to a certain extent I agree with you. But there are signs that, over the long run, wage increases are outstripping productivity gains, which gets everybody nowhere fast. This might "right" itself, since productivity gains are highly variable. My post was really driven by the fact that the perception out there (as I perceive it), is that interest rates are not going to be lower for years, and perhaps substantially higher. Almost like an overnight shift in perceptions. All of a sudden, people are saying "well, I locked in 7.5%. Last week, I could have had it at 7%, but 7.5% is still good, and I wanted to lock in the rates before they go higher." Would people have thought this two weeks ago?
Khan Singh	posted 05-22-99 12:39 PM ET Regardless of productivity, wage increases still benefit wage earners, assuming, of course, that prices don't increase. But since there are some signs of price inflation, a little tightening probably won't hurt.
Roland	posted 05-25-99 03:19 AM ET Hi Dan! Where did you get that title ? Sex sells ? Are you talking about the Beate Uhse IPO ? Khan, there is no "new paradigm". Wage increases beyond productivity will either spur inflation or hurt earnings - or both. The fed will most likely take back the 3/4 percent cut from last fall. That was way overdone and made money supply skyrocket in the 4th quarter of '98; now they have to get the bubble out of the economy again. "Has our merry economic existence been irretrievably compromised?" Depends upon how you define "merry" ...
Khan Singh	posted 05-25-99 08:39 AM ET Sure, that's how the equations work. The economy, however, probably works differently. If we had a measure of productivity that, well, actually measured productivity, you would be right. Since we don't, the wage growth/productivity growth equation is basically meaningless.
Roland	posted 05-25-99 09:23 AM ET Oh fine... another productivity stats debate... In which respect do you think that the productivity measures are wrong ? Ok, let's see for the two usual "suspects": Labor productivity = output/labor Nominal Labor productivity rise = (delta)output/labor Real labor productivity rise = ((delta)output/labor)/deflator The people who talk about a higher real productivity rise usually assume that inflation is measured incorrectly, ie that the deflator is in reality lower. But this also means that that the real wage increases are higher. The other version is that there is unmeasured output. This has to assume that there is a) unmeasured output and b) that this unmeasured output is growing faster than the measured output (otherwise, the productivity rise would stay the same). Two problems: a) this unmeasured output would most likely be related to unmeasured input, so its impact on productivity would be very limited at best b) this additional output has to show up somewhere, ie in unmeasured wages or unmeasured earnings (ie returns on capital; or that it would be wasted ). Unless they can show that it goes predominantly to earnings (and why should that be different from the measured output?), this would also mean that real wage increases are higher. A variation of that would be an overstimate of labor input, but that part of the equation is hardly disputed. Got a different version why productivity measures would be wrong ?
DanS	posted 05-25-99 09:51 AM ET I would agree with Khan on other grounds and don't wish to get into a productivity equation debate. My "other grounds" are that it's not always bad that wage-earners take some of the increased earnings. >Sex sells ? Are you talking about the Beate Uhse IPO ? Well, I was talking about the title of the thread. But a Beate Uhse IPO (whatever that is), sounds pretty sexy too!
Khan Singh	posted 05-25-99 10:30 AM ET The entire economy can probably grow faster than the Fed has been willing to let it. If the Fed raises interest rates every time wages go up, all they are doing is causing inflation in the prices of certain capital good. Which is precisely what seems to have happened. Productivity measurements that the total the whole output of the economy and divide it by the whole number of hours worked are only valid for equations that deal with the economy as a whole. Such measurements are not valid when applied to something like wages that only comprise a fraction (a shrinking fraction) of the total economy.
Khan Singh	posted 05-25-99 10:33 AM ET Sorry, typed that quickly. Correct that to: "Capital goods", and "Productivity measurements that total" (delete "the")
Roland	posted 05-25-99 10:56 AM ET Dan: "I would agree with Khan on other grounds and don't wish to get into a productivity equation debate. My "other grounds" are that it's not always bad that wage-earners take some of the increased earnings." If additional wgae gains come at the expense of returns on capital and do not translate into higher prices, then there is no inflation problem; as I've said above: "Wage increases beyond productivity will either spur inflation or hurt earnings - or both." "Well, I was talking about the title of the thread. But a Beate Uhse IPO (whatever that is), sounds pretty sexy too!" I know... Beate Uhse is a german chain of sex shops that is going public (sounds a bit strange here.. )... they just cut the period for the offering due to high demand... hilarious. Headline in the business news: "Sex sells!" Khan "The entire economy can probably grow faster than the Fed has been willing to let it. If the Fed raises interest rates every time wages go up, all they are doing is causing inflation in the prices of certain capital good. Which is precisely what seems to have happened." Over the last years, the US economy has been growing way beyond its limit - which is only possible in the short term. Rate hikes cause some inflation, but overall, they reduce it. "Productivity measurements that total the whole output of the economy and divide it by the whole number of hours worked are only valid for equations that deal with the economy as a whole. Such measurements are not valid when applied to something like wages that only comprise a fraction (a shrinking fraction) of the total economy." Wages are a big part (about 50 % or so) of the economy and their share is not shrinking substantially - if at all. I don't understand the argument - the only thing that could enter the equation would be the income of the self-employed. The other part of the economy would be return on capital which I have already mentioned. Hmm...