Liberty Street Economics

> when wages haven't gone up in 50 years

This argument is made time and time again as though it's a self-evident truth...except it's not true at all. The inflation-adjusted median personal income is higher than it's ever been.

https://fred.stlouisfed.org/series/MEPAINUSA672N

The median disposable income in the US is in the top 3 in the world: https://en.wikipedia.org/wiki/Disposable_household_and_per_capita_income#Median

Since 1967, the middle class has been shrinking...because the upper class has been growing:

https://www.nytimes.com/interactive/2015/01/25/upshot/shrinking-middle-class.html

Yes, college has gotten more expensive (and there are a lot of reasons why), but it's also worth contextualizing: the median number of years to recoup the cost of a bachelors degree, adjusted for inflation, has gone down since the 1980’s, from about 22 years to about 10 years.

https://libertystreeteconomics.newyorkfed.org/2014/09/the-value-of-a-college-degree.html

This is all information you're not going to read in most news media today, because it's, well, pretty boring and doesn't generate revenue.

Yes, there are always improvements that we need to make. Healthcare is indeed a bit of a mess. There are a number of ways to fix it (and not just the one proposal you keep hearing about). Does that mean society is crumbling? Absolutely not. We're living in just about the best time in human history. But climate change is very real, and just about the most catastrophic thing we have…

> I find myself repeatedly trying to make a distinction between inflation in general and consumer price inflation specifically

The issue I'm having with the distinction you're trying to make is that you're also trying to argue wages, which is only helpful in the context of consumer price inflation. Consumer price is also the best measure we have of inflation, since it is the only measure that is widely available and open to the public.

> though it feels otherwise as a homeowner seeking a handyman

Yes, part of what you're paying for is labor, but I guarantee that if the laborers actually got paid what you're getting charged, the world would be a very different place. The main difference between labor and any other good or service is that it does not exchange at its value, it necessarily has to exchange below its value, or else nobody would see profit (that value that people make that companies keep). This is necessary in a capitalist economy or it falls apart. This is why its hard for me to want to include it in our discussion about wages and inflation, because it is valued very differently from anything else, and again, is not something most everyday people are concerned about, which I've been very consistent about arguing about. I have not once talked about how inflation has affected corporations or businesses because I honestly don't care, so I don't see how a discussion about cost of labor is anywhere near relevant (if you say its "part of inflation" again I'm done…

I don't buy this argument. There are good arguments to the contrary which Jerome can bring up and has at previous hearings.

Say demand quiets but the price of inelastic goods (gas and food) continues to skyrocket due to greater demand from developing nations who demand more resources to have a better standard of living. How will hiking to 10% fix anything?

Sure you'll kill demand, but you'll also kill financing supply which will only exacerbates the issue over the long run. We need more drilling, more refining, more farming now that Russia is out of the picture and the Saudis are playing games.

Hiking too far is actually a horrible policy choice, and Powell can make a cogent argument about it: he already has mentioned this in hearings. You can't address supply related constraints with higher rates. At some point, they might justify capping rates to finance the needed supply, and that argument smells like the yield curve control of the 1940s. I suspect this argument will become more palatable if we have high unemployment and high inflation. [0]

I have a feeling whatever policy rate they pick will aim to be slightly sub neutral (negative real rates) as they pray inflation resolves itself, while constantly pointing out they have no control over whether Brazil has a successful wheat harvest.

[0]: https://libertystreeteconomics.newyorkfed.org/2020/04/how-the-fed-managed-the-treasury-yield-curve-in-the-1940s/

See eg https://www.nber.org/system/files/working_papers/w9857/w9857.pdf

https://libertystreeteconomics.newyorkfed.org/2016/10/what-caused-the-decline-in-interstate-migration-in-the-united-states/ has more recent data. The headline of 'What Caused the Decline in Interstate Migration in the United States?' might be telling.

See also https://www.brookings.edu/articles/u-s-migration-still-at-historically-low-levels-census-shows/

> Annual movement within the U.S. is stuck at a postwar low rate of 11 percent. This 2016-2017 rate is not statistically different than the 11.2 percent rate of 2015-2016, the lowest mobility rate in any year since this annual series began in 1947-48 (see Figure 1). The decline in annual mobility rates, from over 20 percent during some years in the 1950s and 1960s down to almost half that today, is the result of long term trends, such as the aging of the population (older people move less than younger people) and rises in homeownership (owners move less than renters). Yet the downward mobility trend of the last decade can certainly be tied to the lasting effects of the Great Recession and housing bust which occurred over the 2007-2009 period.

Adjusted for the inflation on the items that the poorest tend to spend their money on? The inflation statistics I've seen have a few buckets for certain kinds of expenses, but don't break things down into baskets of goods based on income.

https://libertystreeteconomics.newyorkfed.org/2023/01/inflation-disparities-by-race-and-income-narrow/

: As there are no official estimates of inflation by demographic and income groups

: In the first post of this series, we present disparities in inflation rates across racial and ethnic groups as well as across income groups between June 2019 and December 2022. We present evidence that during this period, Black, Hispanic, and middle-income households were most affected by rising inflation, experiencing steadily higher price increases relative to the overall average between early 2021 and June 2022. This pattern is largely because a greater share of these groups’ expenditures is devoted to transportation, particularly used cars and motor fuel, categories that led the 2021 inflationary episode. However, over the last five months, as transportation inflation has declined, these gaps have declined as well.

The decline in junior hiring began before ChatGPT had wide adoption, so AI is not a likely cause.

https://www.employamerica.org/labor-market-analysis/dont-blame-ai-for-the-rise-in-recent-graduate-unemployment/?utm_source=substack&utm_medium=email

The New York Fed has also released some research suggesting remote work has been a major factor differentially affecting early career workers.

https://libertystreeteconomics.newyorkfed.org/2026/06/remote-work-leaves-younger-workers-sidelined/

"But then people who work in actual tech companies come in and explicitly say they are not hiring any juniors anymore specifically because AI is good enough to do most of what juniors do, and that senior engineers can now write 3x as much code, etc."

If you want an anecdote: the media company I work for just started hiring interns and juniors in software career tracks again after a lengthy hiatus.