The reason why everyone is grappling towards higher real wage growth but no one is able to implement it is because the stock market (or if you want to be more specific, MAG7 stocks) have effectively captured the US government. All MAG7 CEOs know that if the stock market were to fall 20%, the US would enter an immediate recession (via negative wealth effects for asset owners, reduced Capex, reduced tax receipts/higher bond yields). We saw a glimpse of this after Liberation Day, before the administration pivoted sharply. And we know they (MAG7 ceos) know they have captured the government because we see them making Freudian slips all the time about this - eg see Altman’s comment 2 weeks ago about a govt backstop for AI capex for example.
My point is - in an economy that has become completely financialized and captured by mega cap stocks, the choice is not between higher real wages or recession. The choice is between continually increasing inequality or recession.
In other words, there will come a politician who will finally pull the trigger on higher real wages, with gusto and with no pivot. And he will be successful in his aim to reduce wealth inequality and reduce inflation. But it’ll happen via wealth reductions for everyone, with the largest for the top 1%, not via increases for the bottom 50%, and a collapse in aggregate demand. That’s the lesson of the 1970s and is totally consistent with your thematic ideas of long GLD/short TLT and long GLD/short SPY.
Where I am in the NE USA there are signs everywhere outside of McDonalds saying hiring anyone with a pulse for $17 hr. And Big Mac's are what about $5.50? There isn't any type of retail job even of the lowest kind that seems to pay less than $15 hr in most of the USA.
That's true - but wages have risen on the back of fiscal spend, rather that minimum wage mandates, which seems to have caused all prices to rise - which rather defeats the purpose...
I agree. The actual min wage in America is probably $15-$20 hr. I see signs at Jiffy Lube "$19 hr no experience needed". All my anecdotal experience with gen z relatives says nobody in reality makes less than $15 hr at a retail "no experience needed" starter job, probably more like $17+.
But life is very expensive with rents, utilities, car, food. $17/hr probably lands you still living with mom and dad. I think most of the USA it takes at least $60k a year gross income for a person to have their own small low end 1 bedroom/studio apartment, live a frugal life, just the basics, barely get by. And not save any money after all life expenses paid.
My US state, NH, has the same $7.25/hr min wage as federal, but there's a de facto, market-enforced minimum wage of ~$16/hr ish. You can't hire for less.
Side note, never bring your car to a jiffy lube or any other quick lube place where someone making minimum wage is tasked with working on and not ruining your engine.
Yup...I agree the "defacto" is $16-$18. No one has been paid $7.25 and hr for probably 20 yrs. So the chart showed for big mac index is not accurate. You can still buy 3 big macs with defacto min wage. I'd like to see a long term chart of the "defacto min wage" to median US rent. That would be more interesting.
As stated above, I think a single person needs to make about $30/hr ($60k yr) just to have a basic life of a small 1 bed rental apartment, food, gas, car, insurance, utilities, etc. And save none or little money. And that is one person household, with no family. Living a frugal life of no vacations, rare eating out, etc... Start talking having a family, buying a starter house in a decent neighborhood, saving money, having some luxuries, etc.... - need to be making minimum $150k+ ($70+ hr)
Excellent piece Russell! I just got around to reading Mike Green's excellent piece and it's corroborated what I've seen: 1) circa 1998, one of my closest childhood's friends lost his father to cancer when he was starting middle school; his mother thought of going to work at the post office but decided against it as it'd reduce her overall benefits; 2) in 2023, my wife's employee (a single mother) lost childcare subsidies when she started working (roughly $50K salary). My conclusion from Mike's expose is that long gold, short TLT/cash makes more sense than ever (and fortunately I've been doing that ever since I've started following you/Brumby)
The weird thing is that populist politicians feed of this wage problem, but then seem to to do almost nothing about it once in power. Well done on GLD/TLT
The reason why everyone is grappling towards higher real wage growth but no one is able to implement it is because the stock market (or if you want to be more specific, MAG7 stocks) have effectively captured the US government. All MAG7 CEOs know that if the stock market were to fall 20%, the US would enter an immediate recession (via negative wealth effects for asset owners, reduced Capex, reduced tax receipts/higher bond yields). We saw a glimpse of this after Liberation Day, before the administration pivoted sharply. And we know they (MAG7 ceos) know they have captured the government because we see them making Freudian slips all the time about this - eg see Altman’s comment 2 weeks ago about a govt backstop for AI capex for example.
My point is - in an economy that has become completely financialized and captured by mega cap stocks, the choice is not between higher real wages or recession. The choice is between continually increasing inequality or recession.
In other words, there will come a politician who will finally pull the trigger on higher real wages, with gusto and with no pivot. And he will be successful in his aim to reduce wealth inequality and reduce inflation. But it’ll happen via wealth reductions for everyone, with the largest for the top 1%, not via increases for the bottom 50%, and a collapse in aggregate demand. That’s the lesson of the 1970s and is totally consistent with your thematic ideas of long GLD/short TLT and long GLD/short SPY.
Where I am in the NE USA there are signs everywhere outside of McDonalds saying hiring anyone with a pulse for $17 hr. And Big Mac's are what about $5.50? There isn't any type of retail job even of the lowest kind that seems to pay less than $15 hr in most of the USA.
That's true - but wages have risen on the back of fiscal spend, rather that minimum wage mandates, which seems to have caused all prices to rise - which rather defeats the purpose...
I agree. The actual min wage in America is probably $15-$20 hr. I see signs at Jiffy Lube "$19 hr no experience needed". All my anecdotal experience with gen z relatives says nobody in reality makes less than $15 hr at a retail "no experience needed" starter job, probably more like $17+.
But life is very expensive with rents, utilities, car, food. $17/hr probably lands you still living with mom and dad. I think most of the USA it takes at least $60k a year gross income for a person to have their own small low end 1 bedroom/studio apartment, live a frugal life, just the basics, barely get by. And not save any money after all life expenses paid.
I came to comment the same.
My US state, NH, has the same $7.25/hr min wage as federal, but there's a de facto, market-enforced minimum wage of ~$16/hr ish. You can't hire for less.
Side note, never bring your car to a jiffy lube or any other quick lube place where someone making minimum wage is tasked with working on and not ruining your engine.
Yup...I agree the "defacto" is $16-$18. No one has been paid $7.25 and hr for probably 20 yrs. So the chart showed for big mac index is not accurate. You can still buy 3 big macs with defacto min wage. I'd like to see a long term chart of the "defacto min wage" to median US rent. That would be more interesting.
As stated above, I think a single person needs to make about $30/hr ($60k yr) just to have a basic life of a small 1 bed rental apartment, food, gas, car, insurance, utilities, etc. And save none or little money. And that is one person household, with no family. Living a frugal life of no vacations, rare eating out, etc... Start talking having a family, buying a starter house in a decent neighborhood, saving money, having some luxuries, etc.... - need to be making minimum $150k+ ($70+ hr)
Generally speaking, the coasts pay way above the minimum wage, and the "flyover"states are still at minimum wage...
I do agree with your thesis and overall point Russell.
Don't live in the US but this is the commentary I see. Most people get 15 or so and few people get federal minimum wage.
The MG Article was/is a Masterpiece of Exposing the Lie.
Tomorrow will bring a new Budget here in Blighty.
Where it leads us is yet a mystery.
Stay Strong & Say A Prayer.
Excellent piece Russell! I just got around to reading Mike Green's excellent piece and it's corroborated what I've seen: 1) circa 1998, one of my closest childhood's friends lost his father to cancer when he was starting middle school; his mother thought of going to work at the post office but decided against it as it'd reduce her overall benefits; 2) in 2023, my wife's employee (a single mother) lost childcare subsidies when she started working (roughly $50K salary). My conclusion from Mike's expose is that long gold, short TLT/cash makes more sense than ever (and fortunately I've been doing that ever since I've started following you/Brumby)
The weird thing is that populist politicians feed of this wage problem, but then seem to to do almost nothing about it once in power. Well done on GLD/TLT