While we’ve written in the past about the perils of deflation, we’ve also noted that the Federal Reserve Board’s target of 2% inflation is random and dangerous, as the Fed would be unlikely to hold inflation to a specific target level for long.
We’ve also noted that, even with a low inflation target, household income has not kept up with inflation and still has not recovered from its drop during the Great Recession. So consumers can be grateful that the Fed has been so inept at meeting its inflation target; until recently, of course.
Now Mike Shedlock, writing on Zero Hedge, noted that the boost in personal income that allegedly was a factor in the Feb. 5 drop in the stock market was more illusion than reality – and that consumer buying power has actually decreased.
Zero Hedge argues that the Fed’s actions since the Great Recession have contributed to income inequality and hurt many Americans, because housing prices have increased more rapidly than personal income. The median wage rose from $14.15 in 2005 to $17.81 in 2016, a 25.9% increase. The median new home price, though, increased by 46.9% over the same period, from $228,300 to $335,400.
At the same time, Shedlock wrote, real wages have increased for top earners, while falling for those at the bottom of the income scale.
“Congratulations to the top 10 percent, whose real wages rose eight times in 11 years,” he wrote. “It’s simply too bad for the median and bottom twenty-five percent whose real wages fell seven times in 11 years.”
Shedlock blames three parties for the growing wage discrepancy:
- Blame Nixon for closing the gold window in 1972 that allowed Congressional deficit spending at will.
- Blame the Fed for insisting on 2% inflation in a technological price-deflationary world.
- Blame Congress for massive fiscal deficits every year.
In other words, government caused the problem, not capitalism and not free markets.