Eddie Lazear Should Do Better than This...
Daniel Gross is annoyed:
Daniel Gross: October 01, 2006 - October 07, 2006 Archives: NOMINALLY SILLY: Allan Hubbard, director of the National Economic Council, and Edward Lazear, chairman of the president's Council of Economic Advisers, take to the op-ed page of the Wall Street Journal as part of an effort to convince Americans their wages haven't been falling--and that if they haven't, it's not the administration's fault, anyway. From Hubbard, one expects such junk. But Lazear, a respected academic economist, now shows signs of succumbing to the same tendency that struck his respected-academic-economist predecessors Gregory Mankiw and Glenn Hubbard: retailing intellectual garbage in an effort to make their boss look better....
Finally, there's this one: if you just ignore inflation, or the cost of the things whose cost has been rising, everything is hunky-dory.
Recently, nominal wages of production workers have also grown considerably. At an annualized rate, nominal wage growth has been about 4% so far this year, faster than at this point in the last economic expansion. Nominal wages are now growing faster than the past couple of years and are growing at about the same rate as they were in the late 1990s.
The difference between this economic expansion and the last expansion is that higher-than-expected energy prices have consumed much of this strong nominal wage growth. Inflation-adjusted wage growth without the increase in energy prices is similar to past economic expansions. The issue here is energy prices, not wage growth. Workers' paychecks are going up, but they have had to use much of that increase for energy purchases like gasoline.
The recent news on energy prices is good for workers. Nationwide gasoline prices have fallen by about 65 cents per gallon since early August and market data suggest that inflation will fall below the levels of the past few months. This decline, coupled with the nominal growth rates that we see in both compensation and wages, means that workers should enjoy more real earnings in the months ahead.
This last bit is the most pernicious and intellectually dishonest one. What's the point in comparing nominal wage growth in an economy where inflation is growing at 3.8 percent (i.e. today's) to nominal wage growth in an economy where inflation was growing at 2 percent or less? Do people pay their bills and mortgages with nominal dollars or with real ones? I'm wondering if you asked Hubbard and Lazear whether, they'd prefer (a) having a 4 percent nominal raise in a year when inflation rose 3.8 percent; or (b) having a 3.6 percent nominal raise in a year when inflation rose 1.6 percent; they'd choose (a) as being equivalent or better. But that's precisely what they're asking their readers to do.