Richard Fisher Declares Class War. Dallas Fed Chief Warns Wages Rising Faster Than Prices

A Benjamin Cole post

Like a lot of Americans, I tend to shrug off class warfare. Not for us. I want to make my money in boom times. Bring on Fat City.

And like most people who think about economics, I prefer the lightest taxes and regulations on productive behavior possible, and I am dubious about public programs for anything, from welfare to overseas occupations.

And so like most Market Monetarists, I am puzzled by the peevish fixation, the monomaniacal hysteria displayed by many influential right-wingers regarding inflation.

The right-wingers should be our allies. Why not?

Fisher Explains Why Tight Money

Like a dead mackerel in the moonlight, we have Richard Fisher, Dallas Fed President, to set me straight. You see, tight money is not about economics, tight money is about class warfare.

Well, call me “Mr. Chump.”

Fisher, a successful former money manager, has been going round-robin on press conferences of late, in a rising fever that wages in Texas are rising faster than inflation.

This led to the lamentable lead paragraph in the The Dallas Morning News that reads, “Richard Fisher, president of the Federal Reserve Bank of Dallas, is worried that wages are growing faster than price inflation in Texas.”

Egads. And the preferred alternative is?

Fisher then drew some inflation statistics out of a magic hat, as they do not exist anywhere except at the Dallas Fed. Fisher reported that Texas inflation was running at 2.5 percent and wages were running up by 3.5 percent, annually. The horror of it all.

Except for one problem: Such statistics do not exist at the Bureau of Labor Statistics. Reuters called the Fisher figures “Fed estimates.”

There are some CPI-U figures for Dallas and Houston, the biggest cities in the Lone Star State. Dallas is running a CPI-U at 1.2 percent in August year-over-year and Houston at 2.6 percent. The BLS “South” region, of which Texas is the largest part, is reporting a CPI of 1.7 percent. And the CPI runs about 0.5 percent higher than the PCE, the Fed’s preferred inflation measuring stick.

There is a BLS estimate for employment costs for the “Southwest Central” district that includes Texas, Arkansas, Oklahoma and Louisiana. It is up by 2.0 percent ending June 2014.

Fisher appears to be off-base.

So Why Fisher?

The spectacle of Dallas Fed President Fisher exaggerating inflation, and then fear-mongering and condemning wage growth, is undeniable. Is this why?

Labor Gets Thumped, 1982-Present

Labor Share BCole

As we can see from the above chart, labor is getting thumped. The labor losing streak started when Fed Chairman Paul Volcker famously went to tight money in the early 1980s.

Is that it? Is there a sense among the influential that tight money tilts the playing field against labor? And for the upper class, a fatter piece of a smaller pie tastes all the sweeter? That by squeezing the money supply, we now see 62 cents of business income dollar go to labor, and not 72 cents? And when that gets down to 52 cents, all the better?

Well, I hate to think the modern right-wing has sunk to this.

Obviously, U.S. owners/management have prevailed against labor in the last three decades (a most rarely discussed statistic), and the demand for labor has been tamped down continuously by the secular war on inflation waged by the Federal Reserve. A war ongoing, btw, as the Fed makes the rubble bounce.

And we have the Richard Fishers of the world to pose this question: “Well, you wouldn’t want wages to outpace inflation, would you?”

9 thoughts on “Richard Fisher Declares Class War. Dallas Fed Chief Warns Wages Rising Faster Than Prices

    • James—many thanks. Certainly labor has done more than its share in the war on inflation—but then all wars are like that.

  1. I was under the belief that wages rising faster than prices might have historically led to things like mass prosperity and workers who are able to buy lots of stuff. Nice of Richard Fisher to explain how dreadful that all was …

  2. Some investors fear that if workers get higher wages then profit margins will suffer. This may be true. Profit margins are at record highs. Of course, this fear misses the point that sales growth is low to negative, and will remain depressingly, recessionly, so unless we get stronger nominal growth.

    The share buyback mania is actually a further symptom of this sad state of affairs. Margins are so high, but sales growth so feeble, there is no point in firms investing for non-existent growth. It would be irrational for them to do so.

  3. I am not certain that there is any rational logic to his argument, which is probably some mixture of politics and ideology – preaching to the inflation nutter choir gets lots of brownie points because there seem to be no shortage of them in Texas. It’s sad that he stoops to intellectual dishonesty in order to stroke his own ego; and if for no other reason he should be severely disciplined by the profession, up to and including hounding him out of office.

  4. James and Dajeeps—I am beginning to wonder if I am just naive. I keep thinking these important public figures have sound reasons for their behavior and statements. Even if I disagree with the reasons, they could be valid or reasonable.

    But the more I read the tight-money crowd, the more I think they are just nuts, confused or incredibly cynical. Unfortunately, I am beginning to suspect the latter.

  5. I have a lot of smart colleagues with a wide range of views about macroeconomics. A few do have a genuine, deep-seated, quasi-religous economic fundamentalism that wants to see a purge of all the bad stuff. It is like some of the stuff we hear from the scary clerics of today in many churches around the world. On the other hand, often they are also the epitome of Keynes’ practical people. They’ve thought once and feel it would be wrong, or unmanly, to now change their mind – but they are “usually the slaves of some defunct economist”.

    Fisher and Plosser are clearly of this ilk. We have two like that on our own MPC. But their day is coming to an end, the world is moving on. The Bullards and the Haldanes do seem to increasingly get it, and their bosses, too. And most importantly, the market consensus is driving a policy of implicit NGDP forecast targeting. The current market turmoil really is the market disciplining the central banks for too much early tightening talk, and are forcing a retreat. It’s not perfect, but Market Monetarism is getting there. The last bastion is the ECB, but forecasts for a German slowdown will see it fall, too – or we will see more advances for anti-Euro parties and the Euro will break up.

    It remains a tragedy that this is all taking so long, as “in the long run, we are all dead!”

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