David Leonhardt writes about the irrational inflation fears of the Federal Reserve and the enormous human toll of policies driven by such fears. The New York Times headlined his piece “As Economy Sputters, a Timid Fed,” but it may as well have been titled, “Why Do Federal Reserve Officials Hate Working People?“
The recovery looks uncertain, and the job market remains weak. Even if job growth were to accelerate sharply in coming months, the economy would be years away from so-called full employment. But never mind that, the hawks say — rampant inflation is just around the corner.
So let’s ask this directly: Should we be worried about inflation?
Conveniently, there’s a simple three-step test to find out if inflation worries are founded or unfounded.
Step 1: March into your boss’ office. Don’t bother making an appointment, just open the door, walk in and tell him to listen up because you’re in charge here.
Step 2: Inform your boss of the substantial amount of the raise you will be receiving and that this figure is not optional.
Step 3: When your boss blinks in shock at the large figure you just quoted, remind your boss that you have plenty of options. Remind him that you could easily find another, better-paying job by late afternoon. Remind him that in this job market your boss knows very well that he would be hard-pressed to find anyone who could possibly replace you — that you have all the power in this negotiation and he has no choice but to do what you demand.
Now, please note that I don’t think it would be prudent to attempt this simple test at this time. But the convenient thing about this test is that you don’t even have to actually do any of these steps to determine whether or not worries about inflation have any merit at all.
All you need to do is think about doing it.
Perhaps your boss, your workplace, your industry and the economy it operates in are different than mine, but it would seem unwise to try any of the above steps where I work. I don’t need to ask for a raise to know what they’d say.
The point of this test — or of just thinking about trying the three steps of this test — is to gauge how much leverage you have, as an employee, to push wages upward. That’s a function of the number and quality of other options available to you and of the number and quality of other options available to your employer.
When things are clicking along at full employment and companies are desperate to fill multiple job vacancies then you can feel secure in giving your boss an ultimatum — if you don’t pay me more, I’ll go work for someone who will. But when unemployment is high, you and your boss both know that you’re not going anywhere — unless you get laid off, which you’re desperate to avoid because you realize you might never find another job. When unemployment is high, you’re not going to make waves by demanding or begging for or even mentioning a raise.
If you feel like you have all the leverage and that you could demand a raise, then fears about inflation might be valid.
If you feel like you have no leverage and that talk of raises would be reckless and self-destructive, then concerns about inflation make no sense at all.
With unemployment still hovering around 9 percent and nearly 14 million Americans still seeking work without being able to find any, it’s foolish to be worrying about inflation. And it’s cruel. Because the fools shaping policy based on fears of phantom inflation are acting — deliberately acting — to ensure that unemployment remains high so that employees do not come to behave like the worker in our little three-step experiment above.
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