Saturday, November 10, 2007


In an article at the CNN web site they reported that “Rising wages are good for workers but if they are not accompanied by strong productivity gains, they raise concerns among Fed policy makers about inflation.”

Every time I read something like this I wonder if the policy makers at the Fed are living in the real world. Anyone who works for a living knows that wages always lag behind performance. Raises are the reward for workers who perform. But the performance comes first. If I’m right, then raises can’t drive inflation since the products were produced at the lower cost before the raise.

Any one who works for a living knows that inflation is caused by increasing the cost of goods or services without increasing the value. If workers created more products or delivered more services in the same time frame a raise should hold the cost per unit at the same level.

Once again we have people circulating a theory that fits their thesis but not reality. A job actually producing a product besides conversation would go a long way toward educating the “theoreticians” in how the real world works.

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