Getting Cause and Effect Straight

(Don Boudreaux)

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Here’s a letter sent last week to the New York Times:

Editor:

Among the reasons listed by Ezra Klein for why inflation might soon ease is that “real wage growth has turned negative” (“Why a Middle-Class Lifestyle Remains Out of Reach for So Many,” July 17). Mr. Klein is mistaken.

Real-wage growth has turned negative because of high inflation, as rising prices reduce nominal-wages’ real purchasing power. This decline in real-wage growth, being caused by inflation, will not reduce inflation.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

…..

And moreover, if and to the extent that real wages are falling because of reduced worker productivity, any resulting pressure on the price level would be, not downward as Klein presumes, but upward.