The Wages of Inflation

It can’t be a coincidence that we’re seeing so much labor strife around the country at a time when inflation is waxing. That doesn’t make it any less dramatic. On Sunday, employees of Kellogg cereal will vote whether to end a strike of more than two months and get back to work. The 1,400-strong Kellogg workforce had rejected decisively the prior contract proposal, and in consequence management almost fell into their Frosted Flakes.The 3 percent raise offered by management wasn’t enough, the Guardian reports. The cereal giant responded with a threat to fire the striking laborers and replace them with new hires. President Biden said that idea left him “deeply troubled,” and he called it “an existential attack on the union.” Kellogg has instead sweetened their offer, which shows “the workers really have the upper hand at this point,” Ileen DeVault, a labor history professor, tells Reuters.The producers of Froot Loops and Apple Jacks might have had their eye on another acrimonious strike that ended in mid-November — the one at Deere & Company. That strike lasted just more than a month. After two rejected proposals, it ended with 10 percent raises for more than 10,000 employees. The trouble at Kellogg’s also follows an earlier strike at a Kansas Frito-Lay plant and a walkout in five Nabisco locations across the country.Employees “have been emboldened to ask for more this year,” CBS News says, pointing to “worker shortages” and to the idea that “workers didn’t always feel appreciated while working long hours during the pandemic.” Then again, too, Mr. Biden has vowed “to be the most pro-union President leading the most pro-union administration in American history.” Yet we can’t help feeling that it would be a mistake to overlook the role that inflation is playing in all this acrimony over wages.Today’s high inflation means salaries aren’t keeping pace with the growth in prices. “Real wages” — salaries minus price increases — are actually in negative territory, Federal Reserve data show. For November, real wages, far from rising, were down 2.3 percent from last year. No wonder the Deere workforce held out for big raises. They need them just to break even as household expenses keep rising. It calls to mind the old adage: Inflation is the silent thief.“A vicious cycle of expectations,” is how economist Judy Shelton recently put it. As she explains it, employees are demanding raises to be able to afford products on store shelves. Companies in turn have to raise prices to pay the higher salaries. Yet the wage increases are being offered by companies without any boost in productivity in return from the workforce. That’s a recipe for the so-called stagflation that plagued the American economy in the 1970s.Beating stagflation required political heroics by President Reagan and the chairman of the Federal Reserve, Paul Volcker. It was “a triumph of economic policy,” Robert Samuelson recently wrote. “Volcker imposed a ferocious credit squeeze, and Reagan supported this wildly unpopular policy.” Interest rates soared to 21 percent. Unemployment spiked at more than 10 percent. Bankruptcies ensued. “The triumph over inflation was bought at a huge personal and social cost,” Mr. Samuelson writes.It’s hard to imagine any politician today able to take the heat for such an economic course. Then again, too, few if any politicians in history have been in a league with Reagan when it comes to articulating economic principles. Mr. Biden has been but a cheerleader for striking workers. He lacks an appreciation of a warning Volcker once articulated for Mr. Samuelson: “Don’t let inflation get ingrained … there’s too much agony in stopping the momentum.”__________________Image via of Wikimedia Commons.

The Wages of Inflation

The Wages of Inflation

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