Core wage growth is now running slightly faster than it was in the late 1990s and in 2005-2007. Put another way, wages are rising about 2-3pp faster than in the pre-pandemic period. The apparent steady state of ~5% yearly wage growth does not have to be inflationary. If workers save more, they would (partly) break the link between wages and spending, which would relieve some of the pressure on businesses to ration finite quantities via higher prices. And if businesses can ramp up output sufficiently to meet demand through productivity gains, inflation would be muted relative to spending growth. There are reasons to be optimistic about both factors, but it is too early (for me) to have much confidence about how this will play out.
- Date Posted:
- February 2, 2024
Can we get out of this mess the way we got into it? We could revert to pre-2001 law, but we can’t change the past. A lot of the costs were temporary (wars, COVID relief, TCJA). Pre-2001 law means way higher taxes for everyone – higher rates, smaller credits, more taxpayers, ¼ of taxpayers on AMT. Pre-2001 law means no Medicare drug benefit, big military cuts, no homeland security dept, big domestic cuts, etc. We could revert to pre-2001 levels, but with more seniors & higher health costs, per-person Social Security & Medicare benefits would have to be cut dramatically. Taxes would have to go up >15% a big tax hike.