The Fed's first QE action was an abandonment of its mandate to cap inflation. The ECB leans in a similar direction but lacks both the political will and legal mechanisms to make big QE waves, hence the Eurocrats' push for full Continental integration. A little inflation can turn into a lot of inflation quickly if central banks don't want to stop it by raising interest rates. The only thing missing from the doomsday device of hyperinflationary policy is a mechanism to enact a constant wage-price spiral.
I'll nominate a new candidate for such a mechanism: minimum wage laws. My awesome city of San Francisco has just increased its minimum wage to $10.24/hour. There is nothing in most locales' minimum wage laws to prevent raising the floor as frequently or as high as lawmakers would like. Raising a minimum wage is politically popular and politicians in other areas are free to play catch-up with SF. High unemployment would normally prevent a wage-price spiral because employers would be free to hire new labor at bargain wages rather than pay existing workers more. Beggar-thy-neighbor minimum wage increases across the country would obliterate that macroeconomic roadblock to a wage-price spiral. The circle would be complete once employers raise their prices to cover higher labor costs.
Economic stagnation has a lot of CFOs worried. Rising wage costs give them one more thing to worry about. This San Francisco action throws a pebble into the American economy that could ripple into more wage hikes, followed by more price increases. This can easily escalate into uncontrolled high inflation. Let's not go there.
I'll nominate a new candidate for such a mechanism: minimum wage laws. My awesome city of San Francisco has just increased its minimum wage to $10.24/hour. There is nothing in most locales' minimum wage laws to prevent raising the floor as frequently or as high as lawmakers would like. Raising a minimum wage is politically popular and politicians in other areas are free to play catch-up with SF. High unemployment would normally prevent a wage-price spiral because employers would be free to hire new labor at bargain wages rather than pay existing workers more. Beggar-thy-neighbor minimum wage increases across the country would obliterate that macroeconomic roadblock to a wage-price spiral. The circle would be complete once employers raise their prices to cover higher labor costs.
Economic stagnation has a lot of CFOs worried. Rising wage costs give them one more thing to worry about. This San Francisco action throws a pebble into the American economy that could ripple into more wage hikes, followed by more price increases. This can easily escalate into uncontrolled high inflation. Let's not go there.
