Should a central bank target wage inflation instead of price stability?

Olivier Blanchard’s recent speech at the Brookings Institution event “What’s (not) up with inflation?” encouraged me to write this post.

Blanchard is still my second favourite economist (after Matt Nolan of course 🙂 ). But despite that I felt that some of the important elements of the discussion was missing, and I didn’t fully agree with some of Blanchard’s arguments on GDP inflation being used in the same way as the CPI inflation, which needs a separate post perhaps.

Today I want to discuss wage inflation, price inflation, and central bank targets.

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Retirement savings and tax: Why are we disincentivising green alternatives?

In an earlier post I noted that a partial solution to the climate crisis is large scale investments in capital-intensive green energy projects, particularly in developing countries. This provides an opportunity for middle-aged savers in high income countries, so long as their savings are productively invested.

This is where New Zealand has an issue. 

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When to run the economy hot?

Former Fed Chair Janet Yellen has recently suggested it is a good time to run the US economy hot (in the short-run) underpinned by the argument that the further fall in unemployment rate didn’t drag the inflation up.

The justification behind this is that the Phillips curve appears to have become quite flat.  As a result, stronger demand need not drive up inflation by much – suggesting we have a situation where, even with relatively low unemployment, inflation expectations are strongly anchored. 

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Finance and greenhouse gas emissions

The world faces three particularly awkward economic issues over the next fifty years:  how global living standards can be maintained with lower greenhouse gas emissions; how poor people in countries that still have high population growth rates can be brought out of poverty; and how the impact of population ageing in higher income nations can be managed.

In this post I will discuss how the solution to these three issues can be linked. In a follow up I’ll use the example of New Zealand to show how policy settings may be making the third issue worse than it needs to be.

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Retirement income and the choices of youth

When you get to a certain age, anyone under 35 seems young.

People born after 1984 have different preferences and a different life experience than people born earlier. Their phones are better, their clothes use less cloth, their cars are more fuel efficient, and they probably left home at a later age. They may eat less meat, be more concerned about global warming, and have a longer life expectancy.

Firms design products for these cohorts that are very different to the products they designed for young people a generation or two ago.

Strangely, however, the government obliges these cohorts to use a similar retirement income policy as their parents. Sure, they occasionally argue over small details such as whether the age of entitlement (on young cohorts) will be raised from 65 to 67, but they never ask: is the current system fit for purpose for a new generation?

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Tiwai Point and the government’s role in “transition”

Once again, Rio Tinto is threatening to shut down Tiwai Point in order to gain concessions. Ultimately, government isn’t supporting the smelter because we care about Rio Tinto – but because we care about the workers and their opportunities in life.

This reminds me of a post from 2013 which I would like to repeat here – it was originally posted on interest.co.nz here.

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