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Monday, June 14, 2010

Macroeconomics Post 2: Real Wages

So, I had my first class.  Our professor is something of a surprise.  He apparently directs some sort of hedgefund.  He didn't share that with the class.  I learned that through the infamous series of tubes.  To shield myself, and him, I won't say much--other than that he managed to offend me in the first class.  That said--so far I've been pleasantly surprised by Macro.  There seems to be general agreement (at least between my professor and his textbook, Baumol) that certain social welfare programs are actually very helpful.

Unemployment insurance is definitely one of those things.  As Baumol defines it, "a government program that replaces some of the wages lost by eligible workers who lose their jobs"  these economic outflows help prop up aggregate demand in times of recession, and help even out swings in the economy.   Baumol also points out that on the chart of Growth rate of real GDP the tempermental swings in growth are much mitigated after Keynsian use of monetary and fiscal policy take over post 1950.

These are all things I've heard economists talk about extensively, usually negatively.

But what I really wanted to talk about was real wages v. inflation.  This isn't the chart in the book, just the best I could find on the internet.  Now reading this in the book, I admit I was a bit offended--I misperceived what Baumol meant.  The implication of the chart is that in the last decade, wage growth has largely kept up, and, even surpassed inflation.  I was all set up to get mad because I've talked about minimum wage economics and how the poor keep gettin' poorer.  It took me a minute to remember, well, duh.  That's not economics--its common sense.  My point about prices rising is that the scales have tipped to favor the apocrophyal 1%.  That's the 1% of the population making 90% of the money.  All that chart is saying that prices rise--afterall, one man's wage is another man's cost.  Wages are prices.  Now, this chart doesn't actually address purchasing power-though Baumol infers that it does by referencing the fact that inflation can reduce purchasing power.  Granted--but that's not what I've been on about in this blog.  Ravingleftatic is all about the income disparity between the upper-middle and lower class.  That chart doesn't say a thing about that.  Having just finished statistics, I'm guessing that the data on income distribution is probably left skewed, meaning that the mean is greater than the median.  There are fewer outliers, but they're making so much more money than the median income is lower. 

The other interesting thing to point out is that since inflation rates differ between different items, then I wonder if its possible to practice arbitrage on price inflation.  Probably not--I suspect that inflationary price changes tend to work in particular market baskets and industries, which might make it difficult to find enough commonalities to trade based on that inflation.  Then again--why not?  That's what stock speculation is all about, buying high and selling low isn't it?  Speculators bet that the current price of an object is undervalued.  Before the Great Depression it was fairly common for traders to falsely sell a product to extreme levels just to raise the price of a bad stock.  Securities lawyers call that inflation, why shouldn't Macroeconomists

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