Yglesias: The Cult of "Price Stability" Is Killing American Workers

From Slate MoneyBox:

The declining labor share of national income isn't the result of mysterious technological forces; it's the result of policy choices, specifically macroeconomic stabilization policies. Specifically the idea that the thing that macroeconomic policy ought to stabilize isn't output or employment but inflation—which is to say wages.

You often hear members of the central banking establishment allude to the "hard won" battle against inflation in the early 1980s. But the battle was in fact won very quickly and decisively. And not coincidentally, since the victory the labor share has tended to steadily decline as seen above.

Question: If labor share has been trending down since 1980, how come we still have inflation? Prices should have been not only stable, but falling.

Answer: There is something other than labor cost that is pushing prices up.


What's that? There was no inflation for the past 30 years, you say?

Oh right, right, right.


Well, the good thing is that from facts in evidence -- specifically, the declining labor share -- it is clear that labor is not to blame for inflation.

I push this thought back to the 1970s when inflation was raging and wages did better at keeping up with it. In those days, wages were keeping up or, at least, not falling so far behind. But they were not then either the driving force behind inflation.

Oh, wages were blamed for inflation, sure. But that's not the same thing.

What is the same is the "something else" -- other than wages -- that led to increasing wage demands during the Great Inflation and remains the cause of inflation today, when wages are clearly not the driving force.

The "something else" is cost. Specifically? The cost of finance.

// Update

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