Are Wage Pressures Structural?

We vote both cyclical and structural.

When it rains, it pours.  The COVID and Ukraine shock has ripped the veil from the “Wizard of Oz” economy.   Follow the crypto brick road. 

Deglobalization Cometh

Americans are beginning to experience what a world feels like as its moves toward autarky.  You know, “let’s re-shore the supply chain” and the notion that erecting trade barriers will protect some American workers from foreign competition but punish all with higher inflation.  Almost all structural disinflationary forces that have powered the global economy for the past 25 years are reversing.   

All hope and bets are now placed on automation and Roberta the Robot. 

We vote both cyclical and structural.

When it rains, it pours.  The COVID and Ukraine shock has really ripped the veil from the “Wizard of Oz” economy.   Follow the crypto brick road. 

The West Has A Demographic Problem

The following chart illustrates the shrinking share of the U.S. population of prime-age workers — 25 to 54 year-olds — and the spiking senior population.   

We never really internalized the demographic-deflation argument, and we believe just the opposite. 

Fewer productive workers shift the long-term aggregate supply left, which causes higher inflation and slower potential economic growth. 

Japan’s Pensioners Wiped Out After Bubble Burst

We believe Japan is a terrible example, as the savings and pensions of their aging population were obliterated after the country’s asset bubble burst on New Year’s Eve 1989,   

[More than thirty years on from its all-time high, the Nikkei Stock Average is still languishing about 40% below the peak of 38,915 scaled on Dec. 29, 1989. The Japanese stock market’s uphill climb to regain lost ground is the longest in the history of any major economy.

The bursting of Japan’s wild asset-price bubble left a nation of disillusioned and embittered individual investors. – Nikkei Asia

The Nikkei index still sits 33 percent below its peak of over 32 years ago.

Imagine the demand destruction of a generation of American retirees if the S&P500 was at the Nikkei equivalent of 2785 in 2054.   Simply unfathomable!

We are still working on our labor market piece, which we hope to post on Memorial Day, and are not ready to submit the above to a peer-reviewed economic journal.   Not yet. 

 Stay tuned.