I need another look at Steve Waldman's interesting layout of our economic problem:
"Prior to the 1980s, the marginal unit of CPI was purchased from wages... Prior to the 1980s, central bankers routinely had to choose between inflation or recession."
Then came the “Great Moderation”. The signal fact of the Great Moderation was that the marginal unit of CPI was purchased from asset-related wealth and consumer credit rather than from wages.
So in this view, the policy-change was a change from intermittent wage-suppression to continuous wage-suppression. It's a tidy thought, but that doesn't make it right.
I do not accept Waldman's tidy analysis. The Federal Reserve does not manage wages. It does not control wages. It
The premise of Waldman's opening remarks -- wage suppression by central banks -- is wrong. The Federal Reserve fights inflation by restricting the quantity of money and has done so continuously since the end of the Second World War:
Continuously, except for two little bumps in the 1980s and one in the 1990s, which I have discussed elsewhere. I always wondered about those bumps on this graph, but never saw the connection until now. Nice. Off-topic, but nice.
The quantity of money was suppressed for the full post-war period. Eventually, that open-ended, bullheaded policy began to have an effect. Wages declined a little then, during the recent half of the post-war period:
As Waldman has it, the plan was wage suppression. As I have it, the plan was to fight inflation, but they did a bad job of it. After they pushed money down to fifteen cents, they tried to fix things with Reaganomics, and that's when wages started coming down a bit. Two different stories altogether.
Let's say the plan during the Great Moderation has been continuous wage suppression, as Waldman claims. Call it a change from money-suppression to wage-suppression.
Now, what is Waldman's solution? It is a return to money-suppression! Waldman proposes to use "helicopter drop" money, and to vary the quantity dropped as needed, to combat inflation. Money-suppression, it is.
Well, that's certainly better than accumulating more debt.