| | | Salary increases don't always follow inflation, sometimes it is concurrent. In addition, inflation does not CAUSE salaries to increase. Rather, the way it works is that companies invest their capital for future growth. That spending creates opportunities and higher economic growth rates, which means more people get hired and supply of workers gets constrained. That supply shortage leads to increasing salaries. Higher income leads to higher consumption, which leads to shortages in goods or consumer tolerance for higher prices. Higher prices is what the Fed calls inflation. So higher salaries across the board usually CAUSES inflation. Not the other way around.
This is the fallacy of Keynesianism. You can't cause salaries to increase by printing money. What we've seen since the Fed has been doing QE is that companies have stopped investing their capital as much and have started RETURNING capital to their shareholders. So much so that they companies have become more leveraged, borrowing more money than ever to fund share buybacks and dividends. Capital investment has languished, which has lead to massive layoffs, stagnant income for the 99%, and deflation as consumers feel the pinch. More money printing has made things worse.
Now that the money printing has stopped, we have a chance to see capital spending increase. In fact, given that the GOP will have a chilling effect on the Fed and given that we'll see gridlock the next two years, I believe companies are going to be EMBOLDENED to INCREASE capital investment. So we have a very good chance of seeing economic activity pick up, salaries increase, and get a natural return to inflation, instead of an unhealthy bout of inflation that comes Fed money printing instead of economic growth from capital investment.
At the end of the day, economic growth from capital investment is sustainable growth. Economic growth from endless stimulus goes away the minute the stimulus goes away...it is the very definition of unsustainable. All that does is pull forward demand. |
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