Wages, Prices And A System In Crisis

Wages, Prices And A System In Crisis

Alarmist "wage-price spiral" rhetoric is a fixture of the economic news cycle in 2022. Scarcely a day goes by without someone warning that the US has already crossed the event horizon -- that higher wages are contributing to higher prices, prompting workers to demand even more money, thereby driving up costs for sellers, who then pass along those costs to consumers, in a never-ending, inflationary corkscrew. While it's obvious why everyone can't be rich (if everyone's rich, then nobody is), wh
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12 thoughts on “Wages, Prices And A System In Crisis

  1. The basic math is even more damning, although I’m cherry picking a little here (not that it really needs it). If a median worker is $24k and, on average, the CEO multiple is 670x, that puts the CEO at $16.1 million. Now if the CEO were willing to surrender just half that multiple, down to 335x, that would free up over $8 million which could be used for the rest of the payroll. And with $8 million, that CEO could afford 5% raises for as many as 6,700 median workers making $24k. So that’s 6,700 people, all of whom would immediately go spend their extra $1,200 on actual goods and services rather than abtractions of bored apes or house #6.

    Bottom line: The wage spiral has already happened in the form of ridiculous stock-based comp packages conveniently excluded from non-GAAP/EBITDA metrics and further supported by massive buybacks (that now mostly look like setting cash on fire with so many buybackers now down 60-80%).

    I’m inclined to analogy here — complaining about rising wage costs in the $15-50/hour range when the CEO is making 670x that amount and rising twice as fast is akin to fining some poor guy because he has a single discarded tire in his front yard which someone has complained is harboring mosquitoes, despite the fact that he lives next to a dump where a tire fire has been burning uncontrollably for five years running.

    1. There is nothing that isn’t ridiculous about wage priorities in this country. Everyone complains about CEO pay, and perhaps rightfully so, but for me I really struggle with other areas as well. Nick Sabin, who I like, earns something like $10 mil a year. An average faculty member at that school earns $93k so with Sabin’s pay Alabama could pay for more than 100 faculty. Is UA a school or an NFL affiliate? The school President can’t even sniff Sabin’s pay. An NBA Max contract may pay a “star” up to $50 mil/year for 80-100 games, assuming they actually play all those games, which almost no one does, that’s 500,000 or more per game. Come on man, that is seriously ridiculous. What does the guy picking up the stinky sweat sox and towels in the locker room think about that? Mark Harmon makes over a million per show on NCIS and he isn’t on this season.

    1. That ship sailed ages ago. All our elected officials really care about is keeping their job so they can destroy their opposition (enemies). Clarence Thomas (and his dainty wife) have made it known they are now on a mission to destroy all vestiges of democracy and humanity in our country. Such behavior was unthinkable in Oliver Wendell Holmes’ tenure on the court. Can we survive this? Absolutely not. I noticed the other day that after the Roe decision Canada announced it has posted instructions on its website on how to emigrate to Canada and how to become a citizen, quickly. You’ll need to be vaccinated but the strong US dollar means your money will go father in Can.

    1. Great article. I don’t see how this gets resolved without some kind of catastrophe. This was made so clear while looking for a place to live in Manhattan and surrounding area. Even with 200k/year you really need to compromise to not spend half your salary. Yet I read the median income is like 60k, billionaire row being half empty, massive tax breaks/loopholes afforded to the rich, and how is this anything other than an abject failure of leadership for letting things devolve to this level. It seems like nothing short of an asteroid impact levelling half the country or another civil war will induce change. The fact Republicans are likely to take more power in the near term is scary as shit.

  2. This is the silver lining – maybe – that leverage is shifting to workers and wages are rising, pretty dramatically at the lowest end of the pay scale, with unionization starting to gain a little momentum too.

    When – not if – inflation fades out, a lot of goods will actually decline in price – think gasoline, food, other goods where commodity price is a large percentage of COGS – and those represent a disproportionate portion of the lowest income household’s spending.

  3. I remember when I first started out in the workforce back in the late 70’s. At that time, the average CEO pay was about 20 times that of the median pay in the company, and that was for normal firms, not just services. At the company I worked for in the early 80’s that formula allowed me to closely approximate the CEO and other senior executive pay.

    I just do not understand how a single individual adds 670 times more value to a company than the median worker. They are just people, and often base their decisions on greed versus what is best for the company in the long run.

  4. One way to understand our economy is to realize that “chronically underpaid workers” taken to the extreme is slavery–enshrined in our original constitution. And if outright slavery wasn’t an option after 1865, something else had to be instituted to maintain the asymmetries envisioned by the wealthy patriots who declared independence from England.

    1. I say the following as an “always vote for Democrats for president” liberal: no, I totally disagree. The American Empire has been in the process of being built, probably since 1991 or so. Dems and Reps are both responsible.

  5. There are countless documented situations throughout history, at least going back over the last 1,000 years, where the gap between the wealthiest few within a society and the poorest mass of workers is significant- and yet this type of situation continues to exist today.
    This unfortunate situation is widely covered and lamented in numerous written articles in well respected journals, newspapers and daily news/societal commentary reports, including the Heisenberg Report. And yet that “gap” not only continues to exist today but seems to be getting worse, not better, in spite of more information being supplied faster than ever- via the internet.
    I am always interested in the ironies that can be identified throughout human history and also in modern times. Often the greatest irony is realized by restudying a historical period at my current age and comparing my conclusions to what I thought I had learned when I was originally introduced to a historical subject in say, fifth grade.
    This is a little story full of irony and is yet another example of history, unfortunately, repeating itself. In the background, I have recently been fascinated by and researching the similarities between human beings as workers and ant and bee populations- because all 3 types of animals have large populations of workers that the survival of the group depends upon. One observation is that when the worker ants/bees conditions worsen- eventually, they leave to establish a new society. So within the human population is the trigger for revolution and unrest “worsening conditions” or a bigger “gap” between the wealthiest and the workers? Right now, we are experiencing both.
    This year, I have been fortunate (i.e. wealthy) enough to spend some time in Europe. The USD is strong enough to more than overcome the inflationary effect of traveling/ eating- so on one measure, traveling in Europe is a bargain!
    I recently spent a few days in the Loire Valley where over 1,000 castles exist that were built/rebuilt mostly over the last 500-800 years. All beautiful, massive structures that, for the most part, are still standing in spite of the looting and destruction that occurred during the French Revolution. Many have actually been restored due to the generous contributions of the modern day one percenters. In particular, I visited one castle, Chambord, which “thanks to a generous 3.5M euro contribution by American Stephen Schwarzman”, is being fully restored! Maybe it is just me, but I found that sadly ironic- that the person behind Blackstone chose to donate his money to restoring a castle in France. I guess he could not find a worthy cause in the USA that would be as much fun to discuss at a cocktail party….
    In order to build these castles, many, many workers died- not only from the slavery-like working conditions but also due to being ordered to implement some ridiculously difficult engineering feat- like rerouting sections of a swampy river to provide beautiful canals and motes around the castles.
    After touring a few of these castles- I was “done” because the physical beauty of the structure was no longer enough to offset the uncomfortable feeling I had from thinking about the horrible living conditions that I knew the workers had endured. Very similar to why I always feel a bit uncomfortable seeing Nike tennis shoes realizing the incredibly horrible conditions that the Uighur works live in to make the shoes.
    Why do massive groups of human workers seemingly tolerate this wealth discrepancy? I do not know, but if history repeats itself, without at least a steady incremental improvement in living conditions- the large worker portion of the human population will revolt- absent an authoritarian, militarized dictatorship.

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