HN users have predicted 9 out of the last 5 recessions.
More seriously, this does suggest that inflation will be more persistent than we had hoped. I'd like to remind people, however, that higher wages don't have to result in high inflation. As formerly low-income households earn more, there are two things they can do with their extra income: they can spend it, or they can save it. One leads, of course, to price growth. The other will actually be very good for the economy. So please don't listen to the fearmongerers who will suggest that higher wages will destroy the economy; it isn't true.
According to surveys most Americans live paycheck to paycheck, including most making over $100k/year [1][2]
So...yeah saving is a nice idea when rents don't increase in 40% in the past couple of year. Low income households also have a much harder time buying their own housing.
People won't work if it won't pay their rent or food, thats the only reason wages have gone up. It's just impossible to pay minimum wage anymore because itll get your employees evicted
All of these reports are based on a single junk survey by Lending Club which is sort of a cut rate online lender. It just doesn't pass the smell test, the median savings account balance is around $6k and the average is around 7x that. Since there's no good reason to have super large balances in a savings account, this is telling. The median 401k balance across all age groups is $33K, which also shows us that a lot of workers are putting some money into their 401k. Both of these things point to most Americans not living pay check to pay check, which generally means one is not saving any money but it's a really squishy term.
> According to surveys most Americans live paycheck to paycheck, including most making over $100k/year [1][2]
You can safely ignore those surveys. They all produce wildly different results for the number of people living "paycheck to paycheck" because they use intentionally vague definitions of "paycheck to paycheck".
But even if we ignore that and assume that most people are living paycheck to paycheck whether they make $50K or $100+K per year, how would you explain that? If you survey people making $50K and people make over $100K and they're both spending the same percentage of their paycheck, what is causing the expenses to grow so rapidly between the two vastly different income levels?
If you want further proof that these numbers are basically made up, check the "Related" column for the Fortune article. They recommend a second article that says 41% of Americans are living paycheck to paycheck, right underneath the big headline that over half of Americans earning >$100K are living Paycheck to Paycheck.
If >50% of Americans earning >$100K are living paycheck-to-paycheck, while only 41% of all Americans of any income level are living paycheck-to-paycheck, that would imply that people earning >$100K are more likely to be living paycheck to paycheck.
Or it would imply that these surveys are useless. They're designed to generate clickbait headlines.
I would attempt to explain the "living paycheck to paycheck" issue for higher earners by saying that many of them are putting most of their excess monthly pay into retirement savings. If they had instead put that excess monthly pay into a regular savings account that they could easily withdraw from without penalty, they'd have a lot less paper wealth, but would also technically no longer be "living paycheck to paycheck".
To avoid this distortion voluntary retirement savings should be treated as regular savings in the "paycheck to paycheck" calculation.
As an aside: $100k+ has been used as a benchmark for higher earners for years now. It's probably time to bump it to $150k or so.
You're talking about one of the 5 highest cost of living cities in the WORLD, that goes out of it's way to make housing more scarce and more expensive. This doesn't generalize to the rest of the country.
That most Americans can live paycheck to paycheck makes me feel better about the post AGI full UBI era. I’ve been thinking about this a lot.
Does it really matter if everyone is living paycheck to paycheck? They aren’t starving to death. They have access to bread and circuses. If we all go on a $1000/month UBI, we’ll still have a decent standard of living. We’re in for a phase transition in the global economy and the relation of the poor to the rich, but it won’t be as bad as the doomsayers on HN are claiming.
You would do well to browse the threads discussing advanced forms of artificial intelligence.
Artificial General Intelligence, AGI, is artificial intelligence that can perform any cognitive task that humans can perform at a human level or higher.
It’s commonly predicted by people like Robin Hanson and Elon Musk that such intelligences would dominate the workforce. Most people will eventually become unemployable as it is always possible for a machine to perform their job cheaper.
I’ve predicted that the State and private entities will build welfare programs or UBI.
This will be done for political reasons, as the most probable alternative would be civilization scale chaos on par with any Communist revolution of the last century.
Such programs will also allow those with power to cement their power further, as the recipients of welfare could not afford to bite the hand that feeds them.
> always possible for a machine to perform their job cheaper.
> the State and private entities will build welfare programs or UBI.
These two things don't seem to add up. If you're paying the person anyway why not have them do a job? It's not as if the labor of the AGI is free. The only way this would make any kind of economic sense is if the labor of the AGI is so superior to the human that it effectively creates additional value that compensates for the friction of having both the working AGI and the compensated, but non-working human. And in that case you need to start factoring in all of the externalities (including psychological welfare of the jobless human).
Edit to add: If an AGI is so good, can't it come up with productive jobs that are better done by humans than by it? Or is this kind of like the "can god make a mountain that he can't lift?" question?
To beat an old drum: the highest good of human life isn't to work like a slave until you die.
Fiction used to write about how robots would lift the yoke of labor from our shoulders, so we could all live our better lives.
Now that it's happening, all folks can think of is how to make sure everybody is still slaving away somehow. Because the alternative - most of us don't have to do that - is unthinkable to the older generation.
Ennui has been a historical problem for the wealthy (and the retired). If we make it so no one has to work to earn a living we still need to address the problem of ennui.
What I prefer, and what I think most people prefer, is a meaningful job that we enjoy doing. Sure, there will be times when the job sucks, but dealing with suckitude and adversity, if it isn't the majority of what you're doing, adds some positive feelings to life when after you've successfully dealt with it.
If we can all do this with hobbies that don't add to the common good, then okay, UBI FTW. I don't know that I could do this with the low income of a UBI though (biology is expensive, and needs others to implement parts of it).
Used to be you did three things: your vocation (made a living). Your avocation (what you'd rather be doing). And hobbies (not very good but dabble).
There's a long, long western tradition of doing things. Today we've forgotten there's more to life, than work and slacking. It'll be good if we could change that, to something more satisfying.
I don’t think that’s the highest good in life. I think it’s important that humans have access to well paying jobs because that gives them more agency. Money gives you options.
I spent 10 minutes typing a response and then my browser lost it. The gist was that some industries could still employ humans where humans have a decisive comparative advantage, as the customer wants the job the done by a human. This includes social work and production of luxury goods. In industries in which there is no human comparative advantage, humans could still be given jobs for philanthropic reasons.
Charitable housing projects might also require tenants to work. A billionaire might buy an apartment complex, let you live there for free, pay you a few hundred dollars per month, but make you work because the billionaire thinks work is good for you.
I don’t think it’s good news myself. I’m in sufficiently wealthy circles to just ask old friends for money. Most other people aren’t, and I’m sure all kinds of abusive cult dynamics will spring up.
On net it might be worse than the power dynamics between employee and employer, as employees have more freedom to just walk away.
The power dynamics may more closely resemble those between child and parent. Parents also provide their children with housing and money, and impose personal social norms on them.
Extracting money violently from people to give it free to others creates a whole subculture of people who will do the very minimum and be totally dependent on the state. we saw it during the pandemic how many people refused to work. A bare bones safety net so people don't starve makes sense, but full lifestyle subcidies do not. It rots society and its theft from those who are productive.
There's no supporting evidence things like Superdole contributed to the COVID labor shortage. What actually happened was a ton of low-wage workers were laid-off, found jobs elsewhere, and their employers struggled to find people willing to work low-wage jobs when everyone else was paying more.
That would be correct if we lived in a twentieth century communist society in which the local spectrum of Mittelstand, to Petite Bourgeoisie to Bourgeoisie consisted of humans with moral rights. I would not advocate for this in a society with twentieth century conditions.
I am advocating for this in a twenty-first century economy in which most wealth will be controlled by corporations and artificial intelligences.
In another comment in another thread I’ve also stated that private entities like Jeff Bezos would operate their own welfare programs. Black celebrities in particular are known to reinvest in the neighborhoods they grew up in.
I predict that the State will provide the basic necessities and that private entities will provide comparatively more luxurious goods to those willing to their loyal patrons. Should the investment portfolio which me and my girlfriend have been building from our salaries as elite embedded systems engineers grow as I think it will, I would provide such a welfare system to those close to my heart. As a good citizen I consider that a civic duty.
I believe that your libertarianism should be compatible with either of these forms of welfare.
In a high cost-of-living place like greater Boston, that's just not true. For example, consider a family of 4 (2 adults and 2 young children), living in a 2-bedroom apartment in eastern Massachusetts:
- 100,000 household income, about 1/3 of that is going directly to income tax. Net is going to be maybe $70-78,000.
- average 2-bedroom apartment rent is around $2800-3200/month: call it $34,000/year. (Because they rent, they can't benefit from mortgage interest tax deduction.) This doesn't include utilities, which have gone bonkers in MA the past few years.
- Childcare/preschool for young kids in Massachusetts is between 15-20,000 PER CHILD PER YEAR. Our example family could be paying $30,000 a year for childcare so both parents can work.
- It's possible that one or both parents are still repaying student loans at 7% interest. Let's say only one parent has a student loan payment, $300/mo which is a little under the average for MA. $3,600/year.
- This example assumes that nobody in the family owns a car! While I know families with young children who get by on public transit only, it can be difficult even in the heart of a city.
> This example assumes that nobody in the family owns a car! While I know families with young children who get by on public transit only, it can be difficult even in the heart of a city.
Even public transport has a cost per use. $2 per trip, twice a day, around 260 days per year = $1040 for each of those parents.
And that theoretical family is gonna starve, you mentioned leaving out utilities but also forgot food and we're already down to like $300 per year left.
Living in an expensive city you cannot afford = lifestyle creep.
I recognize this isn't a popular view but we are living in a white-hot employment market with tons of employers offering remote work. You could move to Chicago, which has better public transit, pay nearly half that in rent and get free Pre-K.
Your estimate is off by half because you're conflating household income with individual income. The figures look way better if you assume that both adults are working, bringing the household income to $200k.
[strikeout]Powell said yesterday that the current issue is in services, and he named housing in particular. Interest rates must increase until they meaningfully lower housing prices. Otherwise, rent and housing will just keep sucking up the wage growth.[/strikeout]
> We are seeing the effects of our policy actions on demand in the most interest-sensitive sectors of the economy, particularly housing.
Main speech, page 3.
> and he named housing in particular.
He named "X-housing", which means "ignoring housing". Housing is doing well. Its everything _EXCEPT_ housing that's doing poorly right now.
Press Conference section, page 8.
> The inflation in the core services X
housing is still running at 4 percent on a 6- and 12-month basis.
--------
So housing inflation has stopped (and anybody shopping for a house would realize that prices are no longer going up, but have begun to drop).
Meanwhile, everything else in our economy seems to still be going up in price. That's bad, but Powell notes that these other sections of the economy take "longer" for the Fed Rate hikes to kick in. So they're going to slow down the rate hikes and see where the current trajectory takes us.
IE: ~5%ish terminal rate in the near term. More data needed to evaluate the long term.
------
> Powell said yesterday
While I'm being pedantic... Powell said it on Wednesday... which was two days ago :-)
In reality it's the high incomes that are continuing to make money and spend it, i.e. the landlords and property companies making serious bank as rents jack up higher and higher. We need to tax these people and corporations--that will quickly stop inflation.
Household saving just slows down the inflation if you’re lucky; it gets spent eventually and reduces the immediate effectiveness at the fed in moderating things. But that assumes people will save, and that isn’t as likely in a situation where people have the opportunity to spend (e.g. restaurants and gyms and theaters are an option)
I think 2020-era inflation is largely a story of stimulus going directly to households, which used that to either spend (chasing too few goods because people were out of work, constraining supply) or save, allowing them to stop working for longer.
You will see lots of stories about people _choosing_ not to work because of COVID or health or whatever - that is a story of savings allowing people to stay out of the labor market. In an economy where supply-demand imbalance is driving up prices, savings may not be all that helpful.
But realistically so much of this inflation happened because the money went to people who didn’t save - they turned around and spent it. This is the argument people used for student loan relief as economic stimulus: these people are poor, so they will turn around and spend what they would have used on their student loans. This is consistent with my personal experience, except now it is happening in an overheated economy.
Giving more money to people living paycheck to paycheck and expecting saving to be the result is an example of missing all the major lessons of the last three years.
The trouble is they haven't been saving it. Savings rates is near the lowest it's been in years [0], debt is rapidly increasing [1] and we're seeing quickly increasing dipping into 401k savings [2].
I do agree with your general argument though, that this isn't about workers being paid to much. All evidence suggest that despite the increases in worker pay, more and more American's are stretching themselves to continue consuming and we've seen in plenty of places that consumption is dropping.
In the last quarter I’ve seen high yield savings accounts go from 3% to 5% at doctorofcredit. This is just anecdotal but it’s the reality I see that isn’t reflected in the links you provided (and it’s more recent).
Higher wages will definitely cause some inflation, I agree. My point is simply that household saving also has the potential to increase, which is a very good thing and often overlooked in this scenario. One problem is that real interest rates have been negative for some time, which is bad for inflation and for saving, but that is beyond the control of wage earners.
You’re both missing a key point. The labor market likely priced labor below the market clearing rate. If people aren’t filling positions at a specific wage level then up the wage level. Laborers have a willingness to work for each level of wage and it’s going to increase with wage.
Nah, don't think so. With such low unemployment you basically have full employment, that is how economist would describe the situation since it can't got to 0%. Now the wages go up, since you have more competition for labor force and of course people want higher wages based on inflation.
PS:
Sure, more people retired and the labor participation rate is lower then before covid. BUT you will not get them back to work with an increase of 10% or let's say 20% in salary. They retired, that's it.
But raising pay does still increase the number of people willing to work across the market. It’s also basically the only direct way to increase the labor pool without exogenous or distant factors to the labor market. Raising interest rates would affect the labor market by diminishing financing to the point demand for labor falls. It’s a blunt/economy wide instrument.
Labor did enjoy increased market demand and increased wages after the 1918 pandemic. Historically, not wanting to raise wages just reads as sour grapes.
You’ve given me an idea. If widespread automation drives down wages, it should also lead to deflation. That should make welfare programs cheaper as the State needs to pay out less money to welfare recipients.
> When your ideology calls fiscal responsibility "hoarding wealth," you should rethink your worldview
The US stock market and the under-the-pillow gold or in-the-bank life savings of the Japanese grannies are not the same. All of what is happening is happening for the sake of the former. None of those countries that you listed is waging a war on their working class to lower their wages to prop up the former. Leaving aside by openly declaring it. The 'fiscally responsible' country is.
Even more, as its central bank moves to kill everyone's wages in general, its higher financial institutions and hedge funds are pushing the companies to go along with it to kill highly paid white collar wages too. And the tech giants who were supposedly going to 'change the world' are complying with it. Even as they post obscene profits.
All of those is to prop up the stock prices. Nothing more. Nothing related to 'savings'. You may have some retirement funds in the stock market that skews your perception. But people like you don't make up the majority in the stock market. Less hold the power and call the shots. Those who make up the majority are people who dont have any relevance to any kind of 'saving', even less, the need to 'save'.
And all of this without touching the fact that how that fiscally responsible country kills its people if they cant pay for healthcare or pushes them out of the cities in the winter if they cant pay rent even while working two jobs. Gotta have them plebs anxious about their livelihood, or they wont consent to working harder for less pay...
Don't rationalize and justify delirious sociopathy that seeks obsessive-compulsive hoarding. There is nothing rational in the hoards of wealth that is sitting only to amass even more hoards of wealth.
Its 20+ years into 21st century and instead of flying cars we have a system that thrives on making people overwork for ever less pay and even kills them if they cant pay for the hospital. Way past time for you to reconsider your ideology. Not others.
I know we’re talking about the macro level, but as an individual stowing your earnings away is certainly a much better idea than blowing a 6 figure income.
More seriously, this does suggest that inflation will be more persistent than we had hoped. I'd like to remind people, however, that higher wages don't have to result in high inflation. As formerly low-income households earn more, there are two things they can do with their extra income: they can spend it, or they can save it. One leads, of course, to price growth. The other will actually be very good for the economy. So please don't listen to the fearmongerers who will suggest that higher wages will destroy the economy; it isn't true.