Amazon is not a macro phenomenon
I noticed a new post that pushed back against my claim that slow NGDP growth explains slow wage growth:
Amazon Has Become A Macro Phenomenon
. . . There is no shortage of explanations on why low unemployment isn’t sparking any wage (and subsequent price) inflation, for instance, here are two of the most common explanations:
- Low productivity growth
- Low nominal growth and hence low inflation expectations
. . .
More convincing is Scott Sumner’s explanation that it is simply the result of low inflationary expectations, which keep wages in check. We see this even more in Japan, where the labor market is arguably considerably tighter but wages simply fail to take off.
The Amazon effect
But there could be another explanation, which centers around the huge size and growing influence of the online (and increasingly offline) behemoth called Amazon (AMZN).
Perhaps like Wal-Mart (WMT) before, Amazon exerts downward pressure on both wages and prices by its sheer scale and efficiency.
There are three problems with this explanation. First, while rapid productivity growth in retailing might hold down inflation (if the Fed were targeting NGDP), it would not hold down wage growth. Second, the Fed is targeting inflation, so rapid growth in productivity should boost NGDP growth, not reduce inflation. And third, productivity growth is actually quite slow. Although Amazon is an impressive company, it’s just a tiny share of GDP.
The economy is really, really big. Don’t use micro reasoning to think about macro phenomena.
I keep going back to NGDP. NGDP (i.e. monetary policy) explains the slow wage growth. Period. End of story.