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Just like a tax…

Key bit:   Today’s high inflation means salaries aren’t keeping pace with the growth in prices. “Real wages” — salaries minus price increases — are actually in negative territory, Federal Reserve data show. For November, real wages, far from rising, were down 2.3 percent from last year. No wonder the Deere workforce held out for big raises. They need them just to break even as household expenses keep rising. It calls to mind the old adage: Inflation is the silent thief.

“A vicious cycle of expectations,” is how economist Judy Shelton recently put it. As she explains it, employees are demanding raises to be able to afford products on store shelves. Companies in turn have to raise prices to pay the higher salaries. Yet the wage increases are being offered by companies without any boost in productivity in return from the workforce. That’s a recipe for the so-called stagflation that plagued the American economy in the 1970s.

Beating stagflation required political heroics by President Reagan and the chairman of the Federal Reserve, Paul Volcker. It was “a triumph of economic policy,” Robert Samuelson recently wrote. “Volcker imposed a ferocious credit squeeze, and Reagan supported this wildly unpopular policy.” Interest rates soared to 21 percent. Unemployment spiked at more than 10 percent. Bankruptcies ensued. “The triumph over inflation was bought at a huge personal and social cost,” Mr. Samuelson writes.

More here:  The Wages of Inflation (nysun.com)