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What really caused Japan's Lost Decade? | 54 comments (54 topical, editorial, 0 hidden)
Re: What really caused Japan's Lost Decade? (none / 0)
ThatBritGuy:
But for consumers, there's very little practical difference between wage inflation and asset inflation.

Not quite. Assets inflation benefits asset owners who see their net worth grow (along with the income they can earn), while everything a consumer spends money for is not necessarily an asset: food, clothing, transportation and utilities...
Wage inflation rather than asset inflation is actually much more useful for these everyday expenses, and this is precisely where the gap has grown over the past decades, partly covered by growing debt: Assets have grown. Wages have not.
by Bernard (bernard) on Tue Mar 23rd, 2010 at 04:52:21 PM EST
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Re: What really caused Japan's Lost Decade? (4.00 / 3)
Assets inflation benefits asset owners who see their net worth grow (along with the income they can earn)

The most important function of asset prices is for valuing the assets as collateral for debt. Owners don't benefit from the income they can earn so much as from the leverage they can put on their assets. Add limited liability and you're set.

The brainless should not be in banking -- Willem Buiter

by Carrie (migeru at eurotrib dot com) on Tue Mar 23rd, 2010 at 05:13:08 PM EST
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Re: What really caused Japan's Lost Decade? (4.00 / 4)
That's why I said for consumers - whether they're on the wrong end of asset or wage inflation, they see rising prices and falling spending power.

They can compensate for wage inflation by attempting to increase their wages. Wage control rhetoric is structured to make this seem plausible, and also to limit it 'for everyone's good.'

There's no equivalent narrative for asset inflation. A house price bubble is labelled an opportunity, not a tragedy.

As Mig says, the other critical difference is leverage - assets can be leveraged to increase their nominal value, consumer goods and services can't.

Politically, the difference leads inevitably to plutocracy - or possibly it starts with plutocracy and leads inevitably towards its maintenance.

Effectively, power is defined by discretionary spending. Asset inflation squeezes discretionary spending, which in turn squeezes the political and economic power of consumers while enhancing the spending power of the ownership class.

Wage 'inflation' has the opposite effect. With generous discretionary income, consumers have more choices about how to spend their time, and aren't limited to 'productive' work.

Another relevant point is that historically, wage inflation has never been the cause of hyper-inflation. Although it's not often stated explicitly, there's often the implication that wage inflation will lead to a run-away inflationary death spiral.

In reality, hyper-inflation always happens for other reasons.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Mar 23rd, 2010 at 07:23:54 PM EST
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What really caused Japan's Lost Decade? | 54 comments (54 topical, 0 editorial, 0 hidden)
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