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Flawed WSJ Editorial: Wages Are a Price, Too

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by

mwkruse
in , ,

Economics Professor Mark Perry has an interesting post about an opinion piece in the Wall Street Journal called Inflation May Be Worse Than We Think that includes this graph:

Wsj

As Perry points out, this graph makes a serious error:

David Ranson is way off-base on his inflation analysis and has made a serious and fundamental error: he has assumed that income remains constant for 30 years and all other prices increase annually by 4%. That's pure nonsense and nitwitery.

Reason? Wages are just another price, the price of labor. And inflation affects all prices, including wages, see chart below:

Cpi

Oops! Nitwitery indeed. ("Nitwitery" … a new economics term to add to my vocabulary.)

Comments

3 responses to “Flawed WSJ Editorial: Wages Are a Price, Too”

  1. Kathy Avatar
    Kathy

    Good point, however, if we’re talking about purchasing power, then $100,000 dollars doesn’t buy as much as it did 30 years ago.
    Of course people get cost of living raises, but if you were making $100,000 dollars and got a 2% cost of living raise, you’d be making more than $100,000 dollars–so you could no longer use $100,000 as your benchmark. And if inflation was 4% you still wouldn’t be keeping up.

    Reply
  2. Michael W. Kruse Avatar
    Michael W. Kruse

    All very true. The error made in this article is to assume someone’s compensation stays at a constant dollar amount while everything else incresases in cost. Most people get repeated raises and cost of living incresases as the progress over a thirty year period. It dosen’t fit with the narrative of the story he is telling.

    Reply
  3. Michael W. Kruse Avatar
    Michael W. Kruse

    BTW, Kathy. I checked out your blog. My wife is an ISU grad class of ’79. I knew there was something I liked about you. 🙂

    Reply

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