There was talk about renaming the Krugman thread for this purpose, but that seems to be going nowhere. Besides which, I feel the Krugman thread should be left to discuss Krugman while this thread can be used for more general economic discussion.
Discuss:
- The merits of competing theories.
- The role of the government in managing the economy.
- The causes of and solutions to our current economic woes.
- Comparisons between the economic systems of different countries.
- Theoretical and existing alternatives to our current market system.
edited 17th Dec '12 10:58:52 AM by Topazan
I do not see Italian Wikipedia mentioning it anywhere that the scala mobile was responsible for it, other than a "...it's generally considered to be the cause of the rise of inflation and public debt in the country", which I can tell you is rubbish. Anybody I spoke to who understands something about economy has said time and time again that the scala mobile had nothing to do with inflation, which was caused by poor economic policy to keep exports strong and ride debt to generate wealth. The few voices against it I've heard have always said it was "unnecessarily expensive for employers and enterprises" or that "it dissuaded producticity", which... those comment themselves, really.
I personally believe rising wages do very little to cause inflation, a role so infinitesimal that is clearly overblown. Historically speaking, rising wages and new jobs did not cause the lira to inflate — government policy caused it more than anything else, and the lira kept inflating during the Petrol Crisis despite the loss of jobs and a drop in wages. If anything, I believe rising prices cause inflation, which would mean that it's market actors that mess with a currency's value the most alongside governments. And from experience, I'm lead to believe that is truly the case.
Whether wage increases cause price increases, and whether wages should be pegged to inflation, are two different questions. The first explores the mechanisms by which prices rise, one of which is likely to be consumer demand, which is probably influenced by average wages. How that works exactly is an open question.
The other is much more radical, and has the theoretical potential to turn into an escalating feedback mechanism. If an employer is forced to raise wages to account for inflation in the rest of the economy, they are likely to raise their own prices to account for it. That, in turn, affects yet other employers. Since business decisions in the present are often based on what executives think might happen in the future, and they are all more concerned with their own business than they are with the economy as a whole, this could have unpredictable effects.
I'm done trying to sound smart. "Clear" is the new smart.Increasing wages can lead to inflation via two mechanisms, both blatantly obvious:
- Labor is an input cost for production. If you have to pay your fry cook more, you need to raise your food prices to maintain the same margins.
- Wages provide income for consumers (duh). If people have more money to spend, they will buy more things. This increased demand will mean that either supply has to increase or prices have to rise.
If rising wages do not cause inflation, that necessarily means that the economy has a lot of slack in either or both of the above areas: margins or supply.
Now, there are ways to defer these price increases: increase productivity or outsource to cheaper suppliers. But both of those have depressing effects on net incomes: in the first case, because you hire fewer workers to get the same outputs; in the second, because you fire local workers and hire cheaper labor elsewhere.
TAANSTAFL. If, hypothetically, everybody is suddenly given a $50,000 voucher to buy a new car, there simply aren't enough cars made to satisfy everyone who will want to purchase them, so either prices will rise, or people won't be able to get cars. Or both. (Also, the used car market will collapse.)
Edited by Fighteer on Jun 6th 2025 at 11:32:42 AM
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"The leading theory does seem to be that there is slack in the margins in a lot of places. But I will not pretend I know enough to say whether that is true.
My musician pageThe portion of input costs that wages make up will also be a determining factor for how much wages contribute to general inflation even if there is no slack. To use a simplified pair of examples:
- If wages are 100% of my costs (say I own my location, produce and sell on-site, have no equipment costs and harvest all raw materials on-site using the labour I hire) then if I increase wages by 8% to maintain my profit margin I’m going to increase prices by 8%.
- If my input costs are however split something like 30% rent, 25% wages, 20% energy costs, 10% pre-profit taxes, 10% input goods, 5% other then I can put wages up by 8% and only need to put prices up by 2%
A clear wage to see this is to compare average wage growth in a country and inflation, in 2015 in the U.K. wage growth was 3.9% (largely driven by increases in the minimum wage), but inflation was 0.4%, it’s not like we had a massive inflation spike afterwards either, U.K. inflation only went above 3% in 2022.
“And the Bunny nails it!” ~ Gabrael “If the UN can get through a day without everyone strangling everyone else so can we.” ~ CyranThere are also situations, as shown during COVID, of companies raising prices whilst lowering production costs, including wages, which allowed them to put in record profits. Inflation went up.
Italy, even after adopting the Euro, has one of the worst inflations of the EU. With the worst salaries of the G7.
Seriously, this isn't "arrogance", it's math. If you increase the cost of inputs, including labor, your prices have to increase to maintain the same margins.
Now, we can argue all day about how evil corporations jack up profit margins and such, but if you think they wouldn't use higher labor costs as an excuse to do that, thus generating price inflation... what are we even talking about here?
Economic theory is not about emotion. You can't immaculately raise wages and expect nothing else to change because you're mad about living costs.
Edited by Fighteer on Jun 6th 2025 at 4:37:37 AM
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"Because it’s not always profitable to raise prices, you may drive away customers and thus it’s better for the business to just eat the higher labour costs out of profits.
Fast food is actually a good example, the cost of Mc Donalds is comparable between the US and European countries with much higher wages, which shows that the price of labour isn’t automatically going to drive prices up.
Edited by Silasw on Jun 6th 2025 at 9:39:58 AM
“And the Bunny nails it!” ~ Gabrael “If the UN can get through a day without everyone strangling everyone else so can we.” ~ CyranThe price of fast food has gone up so much in the past five years that it's often comparable to a sit-down meal at a low to mid-range restaurant.
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"![]()
And…
Your response is a total non-sequester, yes fast food prices have gone up recently (a time period where inflation has generally outstripped wage growth and been caused by increases in energy costs, supply chain shock and large scale government stimulus), that doesn’t change the fact that we can see from the disconnect between fast food wages and the Big Mac index that it is in-fact possible to pay fast food workers more without raising prices.
Edited by Silasw on Jun 6th 2025 at 10:15:59 AM
“And the Bunny nails it!” ~ Gabrael “If the UN can get through a day without everyone strangling everyone else so can we.” ~ Cyran![]()
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are you implying that fast food aren't low end restaurants?
there was also the now on the wqay to being discredited idea of fast food chains being "recession-proof" as is they are so cheap and so universally useful that even when people are broke and homeless, they woudls till go to these establishments.
A rather naive notion in hindsight when it failed to account for the possibility that even the people cooking the food could be eventually priced out of the meals there.
Ugh. I'm saying that if the narrative is that increased wages don't lead to increased prices, the fast-food industry over the past few years has put the lie to that.
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"But wage increases haven’t been the cause of fast food price increases, the price increases came first due to inflation from other sources and there’s been a (not particularly successful) attempt to get wages to catch up with price increases.
“And the Bunny nails it!” ~ Gabrael “If the UN can get through a day without everyone strangling everyone else so can we.” ~ Cyran
One of the reasons that European fast food workers are paid better are better worker protections and regulations in that industry, contrasting the shoddy state of worker protections and regulations in the US. Can't go into further details as it is unfortunately tied to a certain country's politics.
Edited by GhostofPNW on Jun 6th 2025 at 6:43:52 AM
Heads on a swivel, we live in unusual times.Not sure where to put this (in terms of talking about smartphone tech), but Purism's an American-based smartphone company that's trying to challenge norms that Apple can go move back to the US, but CEO Todd Weaver does concede that one needs to make investments over time so that manufacturing said smartphones can be viable.
The phone's OS is based on Linux.
there's the rub. It is theoretically possible for any big company to set up manufacturing in US soil, but to do so would require tremendous investment and losses that the C-suite would rather not pay.
You'd have to be a saint to dare consider moving your company back to the US with the purpose of giving people jobs, forgoing automation and all the cost cutting and profiting that entails. And unfortunately executives are the exact kind of position that repels saints and the corporate world is that kind of ruthless that would require corruption just to survive.
The rub with any new piece of hardware and OS is that 'will it be ready to be sent to market for the masses?', especially when said masses are located in a country who's politics we can't even mention due to an understandable embargo. Saying this from my own experience with the 'tech industry' as an observer, customer, and someone who's shifting their own career to IT.
Edited by GhostofPNW on Jun 7th 2025 at 2:45:35 AM
Heads on a swivel, we live in unusual times.The problem with trying to do US manufacturing is that the tariffs have also driven up the cost of that, because you now can’t import the raw materials required, so the US has not only higher labour costs, higher land-use costs but self-imposed higher raw materials costs.
“And the Bunny nails it!” ~ Gabrael “If the UN can get through a day without everyone strangling everyone else so can we.” ~ CyranPurism started in 2014, just for those who want to know.
Dig more digging; turns out that Liberty/Librem smartphones are made in San Diego. The electronics and all are made in the US. Only thing that's interesting that the metal phone chassis is obtained from China.
The company's made in America pitch is more on privacy/security in terms of being able to ensure no one can hack them or plant explosives.

The first paper says "mixed or weak". The second is focused on recent inflation and says "not necessarily". The third is legit unless we want to quibble with "little". The fourth I am not sure that its methodology is useful to the question at hand, and it really sounds motivated too. Dunno where the fifth is so no comment. At least the Italian Wikipedia thinks the scala mobile played a major role in driving inflation. Inflation can have more than one cause and a wage-price spiral is more an amplifier than a trigger, so the lira depreciating anyway isn't strong evidence.
...that's not, like, a "myth" or "completely and utterly false"
"For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled." - Richard Feynman