U.S. Consumer Price Increases Are Eating Away Worker Wage Gains

For the second month in a row, annual inflation fully offset workers’ average hourly wage growth

For a second month in a row, annual inflation fully offset average hourly wage growth in June, leaving workers’ real hourly earnings flat from a year earlier despite falling unemployment and a generally strong economy. Production and nonsupervisory employees, a category which includes blue-collar workers, saw their real average hourly wages fall 0.2% in June from a year earlier after a similar slip in May.

.. While workers made up for higher prices by working slightly more hours per week, the stagnation of Americans’ purchasing power underscores questions about the extent to which workers are benefiting from an economy that by many other measures is booming.

.. “Wage growth remains surprisingly weak,” said David Kelly, chief global strategist at J.P. Morgan Asset Management, in a note to clients earlier this week. “The remarkable ability of firms to lure more workers back into the labor force and get stronger productivity gains from them without raising wages is a clear positive for profits.”

..  in June, Fed “participants generally agreed that the economic expansion was progressing roughly as anticipated, with real economic activity expanding at a solid rate, labor market conditions continuing to strengthen, and inflation near the Committee’s objective,” according to meeting minutes released last week.

Economists said Thursday’s data generally supported their view that inflationary pressures are gradually picking up.

.. The impact of those tariffs, should they take effect, won’t be negligible, economists say.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the goods subject to the proposed tariffs account for almost 6% of the core CPI, meaning that a 10% levy would lift the index by up to 0.6 percentage point.

.. “The Fed can’t stand back and ignore a hit of this size, given the tightness of the labor market,” Mr. Shepherdson said in a note to clients dated Thursday. “People will seek to be compensated for the squeeze on their real incomes as a result of higher prices, and their chance of being able to force employers to pay up is better now than at any time since the crash.”

Will Mexico Get Its Donald?

Mexicans are mad as hell at a system they see as self-dealing, under-performing and corrupt. That should sound familiar to Americans — not to mention Italians, Britons, and those in every other nation swamped by the populist tide. In Mexico’s case, they’re largely right.

.. Enrique Peña Nieto, the outgoing incumbent, came to office promising to cut the crime rate in half. Instead, Mexico suffered more than 25,000 murders last year, a modern record. He promised an end to corruption. His administration is suspected of spying on anti-graft investigators, and his wife was caught buying a $7 million mansion from a government contractor. He promised economic growth of 6 percent a year. It hardly ever got above 3 percent. The average wage fell by about $1,000 during the Great Recession and hasn’t recovered since.

.. American president, who is also on record saying he couldn’t care less whether his policies hurt them. If AMLO wins, Trump will deserve him.

.. AMLO’s popularity rests on the belief that he will end corruption, bring down crime, and redistribute ill-gotten gains to the people. How, exactly? Just as Trump declared at the 2016 Republican convention that he “alone” could fix a broken system, AMLO seems to have convinced his base that he can just make things happen. “Everything I am saying will be done” is how he punctuates his pledge

.. It’s the way of demagogues everywhere.

.. Trump promises to build border walls, win trade wars, keep us safe from terrorism, and end Obamacare, all at the snap of a finger

..  AMLO promises to fix social inequities that date back 500 years in a single six-year term.

.. compares himself to Benito Juárez, Mexico’s answer to Abraham Lincoln.

.. The idea of steady improvement and gradual amelioration isn’t for him. In Mexico’s current anger he seems at last to have found his moment.

.. it isn’t clear whether the softer rhetoric is anything more than an attempt to allay the fear (which factored heavily in his previous defeats) that he’s a Mexican Hugo Chávez.

.. It especially doesn’t work out well when populist policies collapse (as they generally do) on contact with reality. What typically follows isn’t a course correction by the leader or disillusionment among his followers. It’s an increasingly aggressive hunt for scapegoats: greedy speculators, the deep state, foreign interlopers, dishonest journalists, saboteurs, fifth columnists, and so on.

That’s been the pattern in one populist government after another, from Viktor Orban’s Hungary to Recep Tayyip Erdogan’s Turkey to, well, Trump’s America. Now Mexico risks being next.

Can the Euro Be Saved?

Across the eurozone, political leaders are entering a state of paralysis: citizens want to remain in the EU, but they also want an end to austerity and the return of prosperity. So long as Germany tells them they can’t have both, there can be only one outcome: more pain, more suffering, more unemployment, and even slower growth.

.. The backlash in Italy is another predictable (and predicted) episode in the long saga of a poorly designed currency arrangement, in which the dominant power, Germany, impedes the necessary reforms and insists on policies that exacerbate the inherent problems, using rhetoric seemingly intended to inflame passions.
.. Italy has been performing poorly since the euro’s launch. Its real (inflation-adjusted) GDP in 2016 was the same as it was in 2001.
.. From 2008 to 2016, its real GDP increased by just 3% in total.
.. the euro was a system almost designed to fail. It took away governments’ main adjustment mechanisms (interest and exchange rates); and, rather than creating new institutions to help countries cope with the diverse situations in which they find themselves, it imposed new strictures – often based on discredited economic and political theories
.. The euro was supposed to bring shared prosperity, which would enhance solidarity and advance the goal of European integration. In fact, it has done just the opposite, slowing growth and sowing discord.
.. Emmanuel Macron, in two speeches, at the Sorbonne last September, and when he received the Charlemagne Prize for European Unity in May, has articulated a clear vision for Europe’s future. But German Chancellor Angela Merkel has effectively thrown cold water on his proposals, suggesting, for example, risibly small amounts of money for investment in areas that urgently need it.
.. In my book, I emphasized the urgent need for a common deposit insurance scheme, to prevent runs against banking systems in weak countries.
.. The central problem in a currency area is how to correct exchange-rate misalignments like the one now affecting Italy. Germany’s answer is to put the burden on the weak countries already suffering from high unemployment and low growth rates.
..  The alternative is to shift more of the burden of adjustment on the strong countries, with higher wages and stronger demand supported by government investment programs.
.. Matteo Salvini, the party’s leader and an experienced politician, might actually carry out the kinds of threats that neophytes elsewhere were afraid to implement. Italy is large enough, with enough good and creative economists, to manage a de facto departure – establishing in effect a flexible dual currency that could help restore prosperity.
.. Whatever the outcome, the eurozone will be left in tatters.
.. It doesn’t have to come to this. Germany and other countries in northern Europe can save the euro by showing more humanity and more flexibility. But, having watched the first acts of this play so many times, I am not counting on them to change the plot.

Merkel’s Comeuppance is Europe’s – and the World’s – Misfortune

No one who was paying attention to Greece’s predicament three years ago should be surprised by the position that German Chancellor Angela Merkel and Europe find themselves in today. But only a dangerous fool would celebrate.

.. today’s defenders of the European status quomust fight on two fronts: against Trump’s encroachments and, within Europe, against the likes of Matteo Salvini and Luigi di Maio, the rising stars of Italian politics who, despite their parliamentary majority, were denied the right to form a government by the country’s besieged pro-establishment president.

.. Just as it is Trump’s aim to overturn the global system from which Germany has benefited for decades, Salvini and di Maio see the disintegration of the euro as a welcome development and a boon to their anti-immigration campaign.
.. If you insist on policies that condemn whole populations to a combination of permanent stagnation and humiliation, you will soon have to deal not with Europeanist leftists like us but, instead, with anti-Europeanist xenophobes who see it as their vocation to disintegrate the European Union.”
.. Germany’s establishment media are now referring to the Italian economist whose appointment as finance minister was vetoed by the president as “Italy’s Varoufakis.” That moniker obscures a fundamental difference: I wanted to keep Greece in the eurozone sustainably and was clashing with Germany’s leaders in favor of the debt restructuring that would make this possible. By crushing our Europeanist government in the summer of 2015, Germany sowed the seeds of today’s bitter harvest: a majority in Italy’s parliament that dreams of exiting the euro.
.. Trump understands one thing well: Germany and the eurozone are at his mercy, owing to their increasing dependence on large net exports to the US and the rest of the world. And this dependence has grown inexorably as a result of the austerity policies that were first tried out in Greece and then implemented in Italy and elsewhere.

.. a condition of agreeing to bailout loans for distressed governments and banks. Then note that this pan-European austerity drive took place against the backdrop of massive excess savings over investment.
.. large excess savings and balanced government budgets necessarily mean large trade surpluses – and thus the increasing reliance of Germany, and Europe, on massive net exports to the United States and Asia.
.. In other words, the same incompetent policies that gave rise to the xenophobic, anti-Europeanist Italian government also bolstered Trump’s power over Merkel.
.. the US will aim to force China to deregulate its financial and tech sectors. If it succeeds, at least 15% of China’s national income will gush out of the country, adding to the deflationary forces that are breeding political monsters in Europe and in the US.