alt Hacker News> They should lift incomes, not suppress prices
I think this misses the psychology of inflation.
If wages go up 20%, and prices go up 15%, everyone is better off and got a 5% raise, right?
Go poll people that experienced that and they won't tell you they're celebrating being 5% richer, they'll tell you they're outraged about the 15% inflation.
Psychologically they'll believe they earned that 20% raise through hard work. Putting in extra hours to get that promotion. But then the inflation robbed them of their 20% raise, and turned it into a measly 5% raise. They'll be outraged.
Politicians get this. No one will credit politicians for raising average wages, people will believe they earned their raise themselves. But there's lots of votes available for lowering prices.
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i don't think this is really true. people don't complain about an abstract concept of inflation, they complain that they can no longer afford things they once could. if wages really did practically increase by 5%, they could afford more things and have more money left over at the end of the month, and that is what they would notice.
politicians can't really affect wages the same way they can temporarily and artificially lower prices. but they also understand they need inflation to get elected, since you generally win elections by what you promise, not what you don't promise.
It's partly because a 20% raise isn't a 20% raise. Even at the most modest tax bracket (above poverty) that will be reduced down to 17%. So outpacing groceries by 2% doesn't really feel good at all.
Percentages also don't matter as much when you break down raw numbers. A 20% (ignoring taxes) raise when your take home pay is $3000 disappears very quickly into your $6000 credit card debt, or maybe your $700/month car loan, or your $400/month student loans. People making that extra $600 more don't get a breath of relief, they get closer to the surface to breathe at all.
>No one will credit politicians for raising average wages, people will believe they earned their raise themselves.
And this is why we're doomed to fail at this rate. We're in 4 entirely different crises that are entirely above any individual worker's head, but somehow our solution is to just grind our way out. Maybe do some gambling (or sorry, "prediction markets")to get ahead. We're trying to dig out of a hole we didn't make and we just keep shuffling sand around instead of actually progressing.
When wages go up 20%, they go up 50% for the top quintile and 5% average for everyone else (or whatever the math is, preserving the general proportion). When prices go up 15%, they go up 50% on mandatory expenses and 20% on discretionary spending, and the basket of goods used to index inflation for both is massaged until it looks like a 15% increase overall.
That said, your assessment of the psychology of inflation is correct. It's just inapplicable here. The issue isn't people not understanding how much richer they are, because they're not. It's the intelligentsia and "elite" refusing to acknowledge the reality, because they'd then have to actually make material changes, which would reverse the siphoning of wealth from the middle class that they've been engaging in for at least the last 30 years.
The article is behind a paywall :(
Having lived through hyper-inflation the only thing that got that under control was price controls. Wages going up can't stop inflation - they fuel inflation. Inflation psychology is that your money is going to become worthless so you don't save it, you spend it, which keeps prices going up. It wrecks havoc on loans and debt as well. If you lent money with a fixed rate hyperinflation erases your returns. If you borrowed with a fixed rate your debt is effectively erased.
Not to mention that governments in general don't control incomes. They can lower taxes (which is good IMO). They can pay government employees higher wages (which is hard to do when you lower taxes).
At the end of the day governments make things better by making smart investments (or policies that enable smart investments) and make things worse by making bad investments (or policies that lead to bad investments). Everything else is second order effect.
> Psychologically they'll believe they earned that 20% raise through hard work.
Well, it's not just that. They've been telling us for decades that wages are alternatively a direct reflection of the value of our labor to the company, or, a price set by the market, depending on which is cheaper for the corporations.
Kind of like when people say that UBI would simply instantly raise the price of all rent to match. Oh, really? The supply of rentable units will suddenly have decreased? The demand will suddenly have gone up? No? Odd that the "market set price" responded then.
Don't forget about taxes. Things cost 15% more, wages go up 20%, but the government takes a chunk of that 20%. Do you net even 15%? Depends on your tax bracket.
There is no 'wages go up 20%'. That's not how the economy works. Wages are renegotiated on an annual basis and most people have to job hop to get anything close to a 20% raise.
Inflation affects everyone rapidly. But to get the claimed wage increase people have to do work to find new jobs.
I think this is part of the article's point. Raising incomes to combat affordability problems is far better for everyone involved than lowering prices artificially.
But like you said politicians get less credit for the the former than they do the latter, and thus we have the current situation of continued bad policy decisions.
The article isn't denying that lowering prices is politically effective--I think that's undeniable at this point--just that doing so is probably the wrong call.