Comments on: Are wages sticky after all? A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: RH Pyle Thu, 17 Sep 2009 13:26:57 +0000 @ Alexis:

I’d be interested in the same information. Any idea how to aquire good data to construct that correlation?

By: Daniel Hess Thu, 17 Sep 2009 02:57:46 +0000 What I haven’t seen talked about in any major press is the risk of sudden inflation stemming from the fact that government bond auctions around the world are largely controlled by what may be termed non-economic players. That would be sovereign governments through their central banks, automatic retirement funds, insurance funds, and our own social security system trust fund among others. These non-economic pools just show up to buy whatever dollar amount of bonds they are supposed to buy, regardless of price. An overwhelming majority of bond purchases happen on literal autopilot, in systems built on the assumption that the bond market is basically efficient (which it plainly is not when the biggest buyers have become these non-economic players).

Unlike in the past, when bond vigilantes could set prices by going on strike when they saw interest rates they did not like, today’s players are not acting like bond vigilantes at all.

The present circumstance appears to be a lull where many, including central bankers, are deceived by successful and even oversubscribed debt auctions. But in reality this is only saying that the demand for bonds presently exceeds supply, not that the price of these bonds is appealing. As noted, price is not being considered by most buyers. Supply and demand for bonds can shift rapidly, with the biggest source of the shift likely being private and public retirement funds in much of the aging developed world, which are going from being bond buyers to bond sellers.

Whereas in the past, undersubscription could be cured by a simple uptick in the interest rate offered, the next time that a sovereign debt auction comes up significantly undersubscribed, we are likely to find that new buyers are not suddenly drawn in. The majority of buyers will have been non-economic buyers who are tapped out. They were not waiting on the sidelines, bond vigilante-style, for an uptick in interest rates, for they were on autopilot and will have purchased their quota already.

Belief in efficient markets seems to still run strong at central banks. In fact, even if actively managed bond funds have some skill, they cannot set prices if the market is dominated by non-economic players.

The result will likely be a sharp inflationary flare-up that takes many by surprise, including our very own Ben Bernanke.

By: Alexis Nicasio Thu, 17 Sep 2009 00:35:43 +0000 @RH Pyle

Good point; it only makes me MORE interested to examine the relationship between mean wages and productivity. It could be that wide-scale layoffs function to increase correlation between wages and productivity. Of course, I keep saying ‘could be’ or ‘might’ and really have nothing to show for it, but these questions make me feel like just looking at wages, nominal or real, leaves us with still not as good of data as we’d like.

By: RH Pyle Wed, 16 Sep 2009 21:08:04 +0000 Responding to Alexis Nicasio:

In my case, I was retained while employees with greater senority were laid off. Ultimately though I had to be sacrificed before someone with greater senority turned a lawyer loose on the company. (Know how good that made me feel?)

To this day, I feel that the company I worked for acted ethically and compassionately. The remaining employees have been required more of but their compensation has not been molested. All because of good corporate stewardship and decency.

Thanks for the addition though. I used to think that only the dead wood was cleared. I think differently now.

By: Alexis Nicasio Wed, 16 Sep 2009 20:39:19 +0000 In addition to @RH Pyle’s point, it might also be worth examining the relationship of wages to productivity. Quite obviously, the first workers to be laid off are the comparatively less productive ones, which will probably have some correlation to their wages. It may be possible that as the less productive workers who are also paid somewhat less are fired, the relatively productive workers remaining in the workforce bring the mean wage per time up, even if the mean wage per production drops. It’s even feasible that the workers still employed have received a nominal wage cut as a group within the larger group of people employed before the economy went to crap.

By: Jon H Wed, 16 Sep 2009 17:30:07 +0000 FWIW, my employer is giving no 2009 raises to employees who make over $60k. And, any raises at all (and the evaluation process) have been pushed back until early 2010, rather than the prior schedule which had them taking place in the summer with pay increases kicking in in September.

It seems unlikely that they’ll give raises twice in 2010, so it’s entirely possible my salary may be stuck at 9/08 levels until 2011.

And of course my income is lower, in non-inflation-adjusted terms, than it was in 2001.

By: micromeme Wed, 16 Sep 2009 17:24:51 +0000 Felix,
dean baker might be worth a glance on this one: the_press_archive?month=09&year=2009&bas e_name=leonhardt_gets_it_wrong_on_wag

By: Cezmi Dispinar Wed, 16 Sep 2009 14:30:09 +0000 Not wages, but the effective demand determines Production and employment in an economy, wrote Keynes. And he is Right.

By: Mick Weinstein Wed, 16 Sep 2009 14:28:23 +0000 And what a pleasure it is that Leonhardt can actually link out from his columns to other sites and primary material, despite the fact that his column resides outside the blog ghetto of

By: RH Pyle Wed, 16 Sep 2009 13:39:24 +0000 I’ve noticed that the only unemployed folk in my region who landed a job lately are those who will work for minimum or slightly above wages with no benefits.

Sure looks like we’re being groomed for our new owners,,,the Chinese! It’s not so bad for the beneficiaries of taxpayer bailout money. Worst possibility for those fat cats is a bruised ego, not living under a bridge and eating from garbage cans.