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das monde:
A larger amount of money, especially if it comes from higher wages, leads to more intense consumer competition and hence to higher prices - or so they say.

How does that work? With the exception of essentials like housing, which seems to be a special case, can't consumers buy more stuff, and different kinds of stuff, rather than competing for the same stuff?

Rather, a much simpler explanation is that entrepreneurs "routinely" included raising costs (of higher wages) into the higher prices, trying to keep their profit share.

This seems rather more plausible.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Sep 2nd, 2009 at 09:18:51 AM EST
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ThatBritGuy:
Rather, a much simpler explanation is that entrepreneurs "routinely" included raising costs (of higher wages) into the higher prices, trying to keep their profit share.

This seems rather more plausible.

But what compelled entrepreneurs to raise wages (in those 'the last months of the boom, when indeed wages started to raise')?

The West won the world not by the superiority of its ideas or values or religion, but rather by its superiority in applying organized violence.

by marco on Wed Sep 2nd, 2009 at 09:53:28 AM EST
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If an entrepreneur raises his prices - either because he can, (since he has pricing power), or because he must (since costs have risen) - is that not by definition "inflationary"?

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Wed Sep 2nd, 2009 at 10:15:03 AM EST
[ Parent ]
das monde and ThatBritGuy seem to be agreeing that the cause of inflation is entrepreneurs raising prices and blaming it on the increasing costs of rising wages they have to pay.

But das monde wrote that prices in the Baltics did not increase until the last months of the boom, which means (if I understood correctly) that wages did not rise until the last months of the boom either (even though expanded credit 'increased their nominal wealth and monetary volume enormously' -- I guess 'their' includes both entrepreneurs and workers).

So what I do not understand is what forced entrepreneurs, after a long period of not raising wages, to do so at the end of the boom like that?

The West won the world not by the superiority of its ideas or values or religion, but rather by its superiority in applying organized violence.

by marco on Wed Sep 2nd, 2009 at 10:33:42 AM EST
[ Parent ]
what forced entrepreneurs, after a long period of not raising wages, to do so at the end of the boom like that?

Entrepreneurs really started to feel shortage in competent and reliable workforce. Economic emigration to the West was already in full force, and then the credit boom made the old wages laughably not worth working for.

There was also big disparity in wages: construction workers were paid very well (although the West were already in the West), while public workers like teachers were under-appreciated.

Wages in the Baltics were very stagnant because econoy through the 90s was still not good. In the beginning of 2000s, entrepreneurs were not raising wages unless they were "forced" to. Additional "envelope" (behind the counter) wage payments were also widespread.

by das monde on Wed Sep 2nd, 2009 at 10:10:27 PM EST
[ Parent ]
das monde:
Additional "envelope" (behind the counter) wage payments were also widespread.

A minor scandal erupted when it became clear that swedish banks had in the Baltics allowed people to borrow against their behind the counter income. Blew over quickly though.

Did any of the Baltic countries tax authorities crack down on this habit of behind the counter pay? That could also explain an increase in open wages.

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by A swedish kind of death on Fri Sep 4th, 2009 at 07:14:07 AM EST
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