FRED Blog

Offering a reply as it seems my comment was perceived incorrectly and I can not unfortunately edit it. My wording was perhaps a bit too nuanced.
(Again this is my opinion, and I might be wrong. I appreciate your opinion. (And other readers' opinion.))

a) You assume that me saying "best case" if we continue as is, is a good case scenario -- from my point of view it is not. Which is what I am expressing.

We both agree here we are not in a good situation. Even if we "recover" GDP wise the buying power of the middle and lower classes is taking a serious hit.

This is one of the results of Volcker's policy (to remind he set the Fed policy in '70s) which we are following or asked to follow by some segment of the banking world today (cf. https://econreview.berkeley.edu/then-and-now-the-crisis-of-the-1970s-and-the-upheaval-of-the-2020s/)
Thus, my '70s reference.

b) Already economists do not consider 2008 crisis as over. But we are arguably in a continuation of that crisis. Again, this is how an economist historian is going to treat the 2000s. Normal could be before that and sure I could recalibrate my normal, but do you think we should expect magical times?

The view that Fed is using too much QE and too much free money is political and moral. I offer no opinion and definitely did not try to include it in my 3 line opinion.

Disclaimer: I do not abide in the market efficiency camp. I think history proves that markets are inefficient.

> Normal would involve checking and savings…

> The emperor really has no clothes on: your* degree really was a waste of money....

I mean... my degree is why I can work in the United States and has been (and will continue to be) worth an unbelievable amount of money.

More seriously though, a university education can be very valuable (we can measure the wage premium [1]), but the cost matters. A 4 year degree at in-state state school prices is almost always worth it (provided you graduate). It is difficult to tease out how much of the value is selection effects vs. signaling vs. credentialism vs. networking vs. exposure to challenge/opportunity vs. skills vs. knowledge vs. stepping stone to a professional degree (medicine/law/engineering/nursing). Thinking about my own experience, obviously the credential was a huge deal, but so was my school's co-op program that got me my first software jobs, and there are still classes that shaped the way I think to this day [2].

Where things go off the rails is when people think they can buy their way into the upper classes by getting a degree from a prestigious school (and spend way too much doing so), or people get snookered by for profit colleges or people who don't have a good chance of completing get pressured into going to a four year program and end up with the debt, but not the credential (you mostly don't get partial credit).

You could argue that the wage premium is just class discrimination through credentialism. Maybe it is... but then that's the thing that needs to be…

"Idiosyncratic" doesn't mean "we expect it to me less accessible", it means "we expect it to behave in its own special way so just taking a random one of them doesn't tell us anything about the average experience".

Given the number of goods and services there are in any given economy, you can probably find at least one good of each of the following categories:

A) that was very inaccessible in the 70s, and accessible now,

B) that was very accessible in the 70s and still very accessible now,

C) that was very inaccessible in the 70s and still very inaccessible, and

D) that was very accessible in the 70s and very inaccessible now (in addition to the one that you already picked)

None of those four tell us anything about whether "things people usually purchase" or "things the economy generally produces" have gotten more or less accessible, because different goods have gotten more or less expensive at different rates. You can easily point towards increasing inequality, which shows that the median American is getting a smaller share of income, and the divergence between CPI and GDPIPD, which serves to show that what people purchase on average (CPI) are getting more expensive faster than what the economy produces on average (IPD). (by about 30% on average according to FRED)

Insisting on intentionally using less useful evidence to support your claims is like making a strawman of your own argument, when clearly a stronger argument exists.

[FRED]:…

Undeniably this has been a trend downward in wages into wage stagnation. The share of GDP to workers is on a near 50 year decline since the mid-70s[1]. Wages and raises, once a staple of America and working hard to achieve a good life, has become lost and efficiently worked out of the system.

Wage stagnation for 15 years heavily and 40 years overall does a number on the wallet while the costs of everything are far beyond inflation[2].

America has lost the ability to give meaningful wage increases to keep growth going in a consumer based economy. When the consumer based economy is low on fuel (cash in wallets and accounts) then it sputters.

Back in the day America viewed wages as a sign of good work and companies saw benefits of increasing workers pay. This led to more money in the system, employees that buy and recommend where they work, better customer service, better informed employees and more.

To "Make America Great Again" either raise wages as a function of work over time/productivity or drive down the dollar so Americans can get raises again. In both cases the wealthy will have to be willing to pay their part, but they didn't get rich by paying.

[1] https://fredblog.stlouisfed.org/2016/06/2393/

[2] http://fortune.com/2015/09/01/heres-the-real-reason-you-dont-make-enough-money/

Even if you factor in investment returns you're not getting the full picture IMO unless you take into account price increases over time as well.

A common refrain is that Carnegie Hall only cost $1M ($29,581,868.13 when adjusted for inflation) to build, so why do we still credit its founder with their name? Shouldn't we rename it in honor of someone who's contributed more to the Hall?

What this doesn't take into account is what it would cost to _build_ a new Carnegie Hall today. Labor is far more expensive (highest $/hr ever in 2019 if I'm not mistaken [1]) today and so are building materials [2].

So it's true he'd see compounding returns from investing, but to do what they did back then would cost significantly more today. IE, their dollars took them further back then.

Also, worth noting Rockefeller donated 6% of his salary to charity every pay check every single year of his life, not just when he could "afford" it [3]. So if you take into account the _missed_ compound returns of those charitable contributions, you can start to get a sense for just otherworldly their charitable efforts were.

Not trying to say these guys were angels. And yet, as rich as they were, I think too often that overshadows the gargantuan contributions to charity they…

In addition to the lack of a control and the sole focus on the federal minimum wage which in many cases is simply irrelevant, the basic failure in this study is the use of nominal instead of real wages. The inflation-adjusted federal minimum wage has not changed significantly in decades, falling below, only to be corrected up to, the 1990 level.[1] Honestly, any empirical evidence that challenges the classic economic models by including the potential effects of increased purchasing power on job growth, among other things, must use inflation-adjusted wages. Furthermore, littering a report with quotes from conservatives, as if to show their inexplicable obsessions with an obviously absurd position is pathetic. This is not some crackpot theory bandied around to keep the boot on the poor beggar's neck, it follows from a logically sound, although perhaps overly simplistic, model which is the basis of our understanding of price controls, including minimum wage.

[1] https://fredblog.stlouisfed.org/2015/07/the-real-minimum-wage/

(Edited wage level analysis and cited source.)