One of These Things is Not Like the Others

I try to like the NYTimes Economics Reporting. I really do. Heck, any place that publishes Uwe Reinhardt can’t be all bad.

But David Leonhardt, as he does often enough that I hesitate to read his work, again goes beyond the pale today, and clearly does so deliberately. The offending paragraph:

Twenty-two months after the start of the mid-1970s recession, real weekly pay was down 7 percent. For the early 1980s recession, the decline was 4 percent. Today, thanks to moderate pay growth and scant inflation, pay is 1 percent higher than when the Great Recession began in December 2007.

Let’s (1) remember that wages are sticky and (2) look at this declaration.

Both of the previous recessions are cited as being about 16 months. The current one probably ran 18 for economists’s purposes, and is in its 23rd month for the rest of us. But let’s give him a pass on that.

Note, however, the careful phrasing at the end of the paragraph: “thanks to moderate pay growth and scant inflation.” What does that mean? Well, let’s look at the Annual inflation Rate (CPI) for the actual recessions under discussion:

Gosh; quite a difference! I wonder if Leonhardt is aware of it.

A finger exercise below the fold.

Just for fun, let’s look at the wage changes over those periods. Now, unlike Leonhardt, I’m not going to use real wages. Let’s see if we can figure out what the nominal change in wages is for each of those periods.*

1973-1975 Average Inflation Rate: 10.75. Real wage loss: 7% Wage increase in period: 3.75% (including the residual effects of wage and price controls)

1980-1982: Average Inflation Rate: 7.5% Real wage loss: 4% Wage increase in period: 3.5%

2007-present: Average Inflation Rate: 1.8% Real wage gain: 1% Wage increase in period: 2.8%

I don’t know about anyone else, but I wouldn’t be celebrating the wage “gains” of the current era. (And let’s not even talk about actual wages received, since Barry Ritholz has that territory well-covered and then some).

*If you want to make the case that I should be using real wages, as Leonhardt does, please demonstrate (a) that all wages are renegotiated during a period of inflation, (b) that all parties are able to estimate inflation—even when at relatively unprecedented levels—accurately, and (c) that such negotiations were legally and commercially allowed during the period.

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