That’s the claim by two prominent names. I respectfully disagree.
The lead chart shows the percent change in hourly earnings for production and nonsupervisory workers from the same quarter a year ago.
That change is 3.53 percent. If we use percent change from the same month ago and we use all workers instead of production workers it’s 3.15 percent.
I use production and nonsupervisory wages because the all workers data series only dates to March of 2006.
I use quarterly averages for smoother numbers.
The Claim
Statements and Brief Bios from X
- Cullen Roche: “Wages simply aren’t growing fast enough to cause sustained high inflation.”
- Edward Dowd: “Correct. It’s not the 70’s where we had the boomers entering the workforce.”
- Cullen Roche is Founder & CIO Discipline Funds and author of Your Perfect Portfolio & Pragmatic Capitalism
- Edward Dowd is founder Phinance Technologies and author of Cause Unknown: The Epidemic of Sudden Death in 2021 & 2022.
I had to stop and think about this for quite a while because I respect both of them and follow their work
My first thought was the statements sound like disproved theories about the Phillips Curve.
The Phillips Curve is an economic theory stating an inverse relationship between unemployment and inflation.
Although Dowd specifically mentioned the boomer workforce, their statements do not logically require a Phillips Curve relationship where wages or employment growth cause anything.
Yet, I still have several problems with both sets of statements.
Three Problems with Roche-Dowd Theories
- This easily could be like 1970, minus the boomer workforce.
- Roche’s says “Wages simply aren’t growing fast enough to cause sustained high inflation.” OK but what if something else is? And is Roche’s statement even true at all?
- Overall, the discussion smacks of another disproved or at least disputed theory of wage-price inflation. I suggest that theory is backward. That is, wages are more likely to follow inflation rather than lead it.
Let’s explore those three problems in pictures.
CPI, PCE, Hourly Earnings Percent Change from Year Ago
The six highlighted periods are occasions when inflation was substantially above wage growth.
CPI, PCE, Hourly Earnings 1972-1981
Wages lagged inflation. This is indisputable.
We had a price-wage spiral, not a wage-price spiral. The latter idea was always potty.
Neither Roche nor Dowd gave a satisfactory answer why that won’t or can’t happen again.
CPI, PCE, Hourly Earnings Percent Change from Year Ago Detail
In the 2021–22 surge, CPI and PCE turned up first and more sharply.
Hourly earnings followed with a lag, peaked lower, and then declined more slowly.
This sequence matches the “prices lead, wages catch up” pattern that happened 1972-1981.
Questions of the Day
- Is the strait open?
- Is the oil spike over?
- Are we in the declining part of another wage lag about to turn up?
- What will mass boomer retirements do to PCE health care costs?
- Will productivity rise due to AI or fall due to experienced workers retiring?
- How much will budget compromises increase the deficit (military spending vs social spending – more of this for more of that)?
- Copper demand for AI?
- Utility costs for AI power?
- Lumber spiking due to more tariffs? Tariffs in general?
- Recession?
I do not have the answers to those questions and nor does anyone else.
Regardless, there is so much more to the inflation discussion than a wage growth is falling argument to support disinflation theories.
I am not saying disinflation is impossible. Rather, I am saying the reasons presented by Roche and Dowd are woefully weak.
Secular Low in Inflation
My take is that a secular low in bond yields is in the distant rear view mirror.
The Fed had global wage arbitrage, just in time manufacturing, and a huge internet productivity boom as tail winds.
The Fed now has tariffs, trade wars, inadequate rare earth elements, increasing medical expenses due to retiring boomers, decreasing productivity to retiring skilled boomers, and military spending as headwinds.
The major tail wind is AI productivity, assuming it happens.
The Best Argument for Disinflation
Q: What’s the best argument for disinflation?
A: A credit bust wipeout accompanied by a stock market plunge.
To understand how, let’s review some discussion points.
July 31, 2026: How Much Did AI Spending Contribute to Second-Quarter 2026 GDP?
Five charts show the AI impact for every quarter starting 2025 Q1.
AI Contribution to Overall Real GDP
- 2025 Q1: Undefined Due to Negative Numbers
- 2025 Q2: 32.17 percent
- 2025 Q3: 12.12 percent
- 2025 Q4: 222.73 percent
- 2026 Q1: 85.47 percent
- 2026 Q2: 52.75 percent
That is both unsustainable and overheating.
August 3, 2026: Copper Imports Surge the Most in 12 Years in Tariff Front-Running Move
The US copper stockpile is the biggest in history.
Construction Spending
Construction spending details are a real eye opener.
August 5, 2026: What Is Leading US Construction Spending? Hint, It’s Not Manufacturing
Construction spending details are a real eye opener.
If we have a credit bust (deflationary by definition), accompanied by a stock market plunge (also deflationary to spending), we are going to have not disinflation but deflation in my book.
That is nearly guaranteed at some point, but the question is when.
And I don’t know.
A second, more important question is how long will disinflation/deflation last when it happens?
I can answer that question in general terms. The odds are strong that Congress and the Fed will attempt to inflate out of the debacle like they always do.
But this time the Fed has long-term inflationary headwinds blowing in its face. So, good luck with that.
The Blame Game
Q: Who will get the blame for the next bust?
A: That’s easy. The Fed will get widespread blame for hiking instead of cutting or perhaps for holding instead of cutting.
However, the real problem is neither the Fed nor Congressional spending. Rather it’s conditions that support unsustainable actions by the Fed and Congress.
Total Credit Market Debt Owed vs GDP
TCMDO vs GDP 2026 Q1
- TCMDO: 115.556 Trillion
- Nominal GDP: 31.866 Trillion
- Real GDP: 24.180 Trillion
On August 15, 1971 president Nixon temporarily suspended redeemability of gold for dollars.
It turned out to be permanent. Since then, there has been no constraints on the expansion of money, national debt, or trade deficits.
Credit vs GDP Between 2020 Q1 and 2026 Q1
- TCMDO rose from 81.519 trillion to 115.556 trillion, up 34.037 trillion
- Nominal GDP rose from 21.751 trillion to 31.866 trillion, up 10.115 trillion
- Real GDP rose from 20.709 trillion to 24.180 trillion, up 3.471 trillion
In the last six years, debt has risen 10 times faster than real GDP and the curve is accelerating dramatically.
Nixon Shock
When Nixon ended gold convertibility in August of 1971, there were no brakes on either monetary policy or fiscal policy. Fiscal deficits and trade deficits soared.
Tariffs cannot fix the problem. Nor can loose or tight Fed policy. This is why we have boom-bust cycles of increasing amplitude over time.
Asymmetrical Fed policy to prevent recessions and to fuel growth adds to the problem. So do demographics and fiscal policy.
For discussion of Nixon Shock, please see How Much Credit Growth Does It Take to Expand Real GDP?
Here’s the shocking answer in several pictures.
Final Question
Q: Does the total credit chart look disinflationary to you?
A: Me either.
Yet, a temporary credit bust is the real reason to be thinking about disinflation, not wages.
My memory isn’t the best in the world, but doesn’t anyone else remember free money being dished out in a crisis? I suppose it was the GFC in year 2008 that I remember. As I recall it, it was called a tax refund. We had it here in Australia, and I’m sure you had it in the U.S.A. as well.
Do you think they did that because they were feeling generous? They did it because the system was seizing up, and the boys in charge considered that a bit of lubricant would help.
It seems to me that with modern electronic money, they could very well reverse the process and take money out of everyone’s account if inflation started to get beyond what they wanted. (Inflation is the government’s way of defaulting on its debts.) That wouldn’t be nearly as politically popular, but it could be done.
Meanwhile, a barrel of WTI crude oil costs $83 bucks (regular gas $4.59) and with Trumps cluster fuck in the Middle East, it is likely to head far higher. This inflation is “In Your Face” everyday as you pay to drive or transport anything.
I bought my farms diesel usage forward at fixed prices through October 30th, 2026 and will be hit with fuel that costs almost $2.00 per gallon more after that.
Similar thing with fertilizers!
Farmers that supported Trump are getting monkey hammered and are starting to question and defect from the MAGA public displays of support. They will probably vote republican anyhow given the church influence on their voting.
MAGA voters are rather bizarre in their ability to deceive themselves.
they are morons who have hate in their hearts.
Corn Belt farmers, those with better yields and have reasonable machinery cost per acre costs are doing well and buying land. land values are increasing due to a few buyers. aI and other tech are increasing yields. We have too many farmers. A simple equation.
Those with the slowest access to capital (lowest wage earners & retirees) get their wage increases late in an inflationary cycle. Often it does not keep up with inflation and they fall closer to insolvency and/or homelessness.
When they get their wage or benefit increases, they are inflationary.
I have seen significant wage increases for restaurant employees and construction workers. My farm workers received 10% across the board this year and that was my way to retaining the excellent team I have been building. The contractor that is building my agricultural building has had to give a 12% wage increase to retain his crews.
The notion that wage inflation is only 3% is pure bullshit ~ IMO.
We are now living in an asset bubble, a dangerously over-leveraged asset bubble.
COLA, anyone? (cost-of-living adjustment)
Yes, usually prices (of living) may increase first and then many employers give a corresponding wage adjustment to their employees. So wages follow prices.
But there’s a reason it’s called a price-wage spiral. Since this process usually continues on. To think most employers give a wage increase and then keep their prices the same and eat the reduced profits, is not reality. After increasing wages, businesses are incentivized to increase their prices – which adds back to the cost of living.
Whether you call this process wage-price or price-wage is essentially irrelevant after decades of inflation. Once it starts (however it starts), the spiral tends to keep it going generally. That’s what these pundits are discussing – the current power of the spiral effect.
“…is always and everywhere a monetary phenomenon.”
The working class getting shafted and the asset owning class getting richer. Water is wet.
Doesn’t the Bible say something about the fool returning to his folly? If you don’t follow me, that’s you. Socialist ideas have been disproved many many times. People like Hayek and von Mises have illustrated that they can’t work in theory. Efforts to put them into practice have shown that they lead to general poverty.
Inflation is determined by how easy it is to have a credit request approved/funded by money creation. That is something that leads wages, not something that follows wages. Speaking mathematically, Inflation is the independent variable, and wages are the dependent variable. Dowd, et al are effectively claiming it is the other way around.
That’s 19th century economics, when loans were backed mostly by deposits.
Money creation means new money, for which no deposits exists. Are you saying that Dowd, et al are basing their arguments on 19th century economics?
Just look at Redbook. Spending growth is outpacing wage growth by a large margin.
“Is the oil spike over?”
I think the flow from Hormuz will remain crimped. But strategic reserves have so far really taken the edge off the shortage. China’s is massive, and they have chosen to use, presumably because 1/5 its GDP are exports and they realize their customers will be destroyed by $130 oil.
Indeed, $130 oil for a period of time might well induce a precipitous Yen carry-trade unwind. And then whole world will realize they are poorer than they thought. And China’s exports would plummet.
Bastiat was right after all. Free markets didn’t destroy the authoritarian CCP as we hoped, but it did give them a strong vested interest in the continuation of trade.
A very interesting post, Mish. I agree with you that inflation is ultimately caused by money/credit creation. I suspect Dowd does too in spite of those few words implying otherwise.
It is worth noting that when price inflation exceeds wage growth, companies’ real cost of production is falling–a process one might associate with the curative effects of recession. That real labor cost fell in 2022 and 2023 might have played a role in preventing the recession you and I have thought might be in the offing.
Most of the blue states are increasing their minimum wages over time. It would be interesting to know how much of the current wage growth is simply due to mandated minimum wage increases. Maybe market forces are no longer increasing wages like we think they are.
If market forces don’t justify increasing wages, then raising minimum wages will simply cause unemployment.
50% of consumer spending is by top 10%, who remain awash in paper gains in the stock market, housing market, commodities. etc. I recently read that travel to Europe is at record levels. The stock-wealthy people I know are flying back and forth between their multiple homes whenever social commitments or sporting events move them going on cruise after cruise, sure their portfolios will be up 18% again this year.
The Fed having allowed the financial system to become so dependent on easy money and government profligacy that any withdrawal of support for that will result in the system’s collapse ensures that this will go on until it becomes absolutely unsustainable.
Knowing this intuitively, the top 10% treat those paper gains like money in the bank,
That wages are rising at only about the rate of inflation makes no difference to these folks who account for 50% of consumer spending.
correct. my experience, too. all my boomer pals in FIRE businesses have more money to waste on nihilist frivolous pursuits while applauding the corporate fascism that mussolini invented. they don’t care about much. pure nihilists. i will repeat, an old wisdom truth. democracy works. assholes elect assholes to do asshole things. been true since ancient greeks and iroquois democracies.
“The Fed having allowed the financial system to become so dependent on easy money…”
The Fed CAUSED the system to become dependent on easy money. They create all the seed money and have substantial control of the fascistic banking system that amplifies it (the Monetary Base).
Well those top 10% own the country and the government. They’re not about to let the bottom drop out of anything. Regardless of how much they have to devalue your wealth.
The top .01% is in control in a fascist state.
The top 10% controls almost nothing. They do have higher living standards and perhaps own land outright with no debt.
Imo since Reagan it seems to me power seems to be consolidating with the ultra wealthy and corporations. Esp since citizen united.
Sure they still need the people to vote but thats theater.
Not just the us but world. Wealthy and corporations do not have nations and borders these days. Unless it benefits them. Watch if there becomes a tax on the very wealthy. Thirst thing they will do is threaten to jump ship.
Prob the top 1 percent control the us while the top ten percent are ok benefiting from it.
Pondering trumps recent exc order on vaccines. The uneducated got their vaccines reduced. ( for the health of the children) While trump has weakened emissions / Pesticides / water quality and a host of other rulings unfriendly to business. Will that trickle down to lower cost for the consumer or up to more profits.
The pollutants will trickle into the air and water supply to enhance corporate profits. Hurting the children in every way.
Who does Trump work for?
Regarding Citizens United? Citizens United has nothing to do with citizens and everything to do with corporations owning our government. Literally the worst Supreme Court decision ever IMO as it makes corporate ownership of government a certainty.
When corporations own the government and corporate media it is called Fascism.
by the late 1930s, after being in power since early 1920s, mussolini’s italy government owned more industry than all nations except USSR
We have had fascism, in the sense of political economy, ever since the election of Franklin Roosevelt. Given that Herbert Hoover was also an interventionist, I suppose you could say we have had it since he was elected.
Your pick of the vaccine topic is an odd choice since the US executive order was simply mirroring Japan and most European countries which was breaking up the shots, spacing them out and shared decision making on a few other shots (eg flu and covid).
I wouldn’t break up the DPT shot. All three very dangerous to young children. Should vaccinate as soon as possible.
As for the MMR – measles dangerous, mumps less so, rubella can wait till later
Tetanus was rapidly declining before the tetanus vaccine. This was due to the lower need of horses which are vectors for spreading Clostridium tetani, the Tetanus bacterium. So the Tetanus vaccine would definitely be a candidate for later.
I thought the bureaucracy owned the country and the government. I assume that “conspiracy theories” are correct and that very bright entrepreneurs (such as the new technology lords) are part of the gang, too. But as C. S. Lewis said (in his essay “The Inner Ring”) those sorts of gangs change over time. People can get pushed out of them.
The bureaucracy is controlled by the President & Congress. In order to run for elected office you need massive amounts of money. Corporations and the ultra-wealthy provide that money. Elected officials need to follow the dictats of those who provide the money, or they will almost never be elected. The largest shareholders (the ultra-wealthy) control corporations and the media. Nobody controls the ultra-wealthy.
The chart of TOTAL CREDIT vs GDP is an eye-opener
i think we all know what will happen the next time there is a monetary and/or financial, panic. the fed and treasury will bail out the bankers and foreclose on the middlebrows.
they don’t have to spill ink or use paper. just electronic currency using the zero cursor at the NYFED. what’s an unknown to me, is how much crypto is being used as “currency” in the world markets from bodegas to big institutions and private citizens……..
And those who have benefited from the policies of the last forty years will swoop in and clean up before the prices drop diwn to where the responsible middle can benefit.
most likely correct.
And the only one that matters.
This problem is easily solvable. Banks have access to every loan account. What if we started with zeroing out every individual loan with electronic funny money. The system doesnt balance anyway so what’s a few electrons between friends. Lol
Loans were created out of thin air and can as easily go back to thin air.
Loans were created to capture leveraged assets…
Beware AI and the loss of hundreds of thousands of upper middle class jobs.
It will gut the stock and housing market once again and the banks will capture more of the housing stock. Wash, rinse, repeat…
What will fuel the next boom cycle?
WWIII, that is, the war waged by the US against the rest of the world refusing to recognize its self proclaimed hegemony status.
bingo. amerikans lefties and righties have wanted to rule the entire globe for many decades now.
CPI and PCE are consumption inflation issues as opposed to investment inflation like real estate, stocks & bonds. Wage growth can’t lead inflation, because wage earners don’t control their wages, their employers do. A good employer will top up wages at some point in the year to compensate employees for lost purchasing power, but only after the loss has happened.
Consumption inflation is controlled by those same employers. The primary cause is the belief by the employer that they can raise prices without a significant loss of customers, market share and therefore profits.
The circumstance that leads to that belief is market control due to supply constraints. If there is a perceived supply constraint, and competition constraint, then employers can raise prices with little consequence. Money and credit supply have only a marginal influence. That’s because the vast majority of money and credit growth end up in investment inflaton.
Our consumption inflationn today is a result of constraints in worldwide chip manufacturing due to the loss of vital materials from the Persian Gulf, increased prices from international tariffs, the loss of labor for building due to immigration control, and the loss of world petroleum supplies due to the Iran War. Supply constraints are always the issue with inflation, not money supply or credit growth. Money supply is a function of credit growth which is a function of investment growth.
If you want to control consumption inflation, the government must minimize all forms of monopoly to increase competition, invest heavily in infrastructure to maximize the usefulness of investment, insure an adequate labor supply in the areas needed, and direct investment to areas with looming production constraints.
In Today’s environment, Inflation is driven by the dilution and destruction of the dollar through govt/fed policy, and originates in asset prices. It once worked to talk about “stocks and flows”, but today it’s all about the “stock” part because the means of production are in such few hands, hands that don’t care about inflation. 10% of population is 70% of gdp
Electronic money is infinite in today’s world. There is infinite liquidity relative to all the normal measures in macroeconomics. This is a problem bc it means the money supply is no longer in control of the Fed or Treasury.
The money supply has been under control of the banks since they were invented. Or do you think that all those redeemable notes were 100% backed by assets?
Its no longer in control of the banks. Electronic money is created everyday and GIVEN to some people. The banks have lost control of the money supply.
That’s nonsense.
Where do you and I get our money from to spend? It’s not infinite.For every credit, there’s a debit.
No, for every credit there is a debit plus the fees and interest pocketed by Wall St.
Sure, those profits for services (fees and interest) go from the debtor to the creditor. That’s the way it’s been historically ever since the first loan was created.
Point still stands that money (including e-money) is not infinite.
I dunno about you. What I’m seeing in tech is money is getting handed out via stock and it barely makes a dent in anything on the balance sheet of the company. Please note I said on a relative basis. This is all that really matters. Inflation is out of control b/c most money is now electronic and simply “exists” on paper. Eventually the dam is gonna break.
If “My definition of inflation is an increase in money supply and credit with credit marked to market. Deflation is the opposite.”
Preposterous Falsehoods From Gary North Regarding the Inflation/Deflation Debate – MishTalk
If the above is true, then earning or paying wages has to be in some way increasing money supply or credit. I think a better way of thinking about is the definition is correct and once inflation has been generated, its effects can be seen by laborers’ wages or owners’ return on assets. That suggests inflation always leads wages.
Yes even a disgraceful $7.25 an hour minimum wage could not contain inflation. Increased wages are a reaction to inflation, not the cause of it.
Whether wage increases lag inflation, precede inflation or move along with it, isn’t the issue the size of the wage increases? It seems to me – an admitted ignoramus – that if wage growth is at or below the inflation rate, it’s not causing inflation, but if wage growth exceeds the inflation rate it will spur inflation.
The only factor missing in your line of thought is time, or when the wage increase or decrease happened relative to when the prices increased or decreased, which might change your conclusion about the direction of future inflation.
Hmm,the peasants are doing their duty as stabilizers of prices, and payers of tariffs? Next thing I hear, they will be first loss-takers in a financial crash!
Might as well grant them ridiculous burdensome child vaccine plans, to remind them of their place. And head back for some rounds of golf with cronies.
Hopefully our new AI overlords will sort all this.
Do you remember how bad GFC felt as the bust came on? And when we looked at TCMDO at the time we thought ‘thi is a Minsky Moment, and we can’t let debt get this outsized (say Vs GDP YoY if nothing else) as it’s unsustainable. Now by God that TCMDO THEN looks like nothing compared to now!
Some part of the lookback comp aspect is just the change in scale – say population, GDP per capita, or such. Stiil, the number and chart is outsized now. However, the inverse is true as well as GDP change per change in Fed Debt is continually declining. I published on this in the 2000’s! (And the issue never went away. Always declining returns to scale.)
NOW, speaking of inflation. I’ve been watching and wondering for years now “we are in need of a new secular driver of real and nominal rates as we have ridden the refi wave down 30+ yrs of declining rates since the modern era peak circa ~2080.”
To me to get a cycle (secular or cyclical) requires some autodynamic/autoregressive circular feedback loop that becomes self-reinforcing in responding to either a exogenous or internal inititial inflation shock. To me it’s still an open question if:
TBD!
Pardon typos.
A bad one called “rates since the modern era peak circa ~2080.”.
Clearly meant 1980. Oops!
TCMDO is a stock quantity whereas GDP is a flow, so isn’t this comparison a bit misleading?
I am not comparing the two. I am saying look at how much credit expansion it takes to grow GDP. Exponential
Good point Mike. At the individual or family level, look how much credit expansion it takes to buy even a used car, or used house; both of which have physically deteriorated since new.
We could have almost unlimited credit expansion, and still not have inflation if credit was constrained to production enterprises rather than asset speculation.
Our economy was devolved into a planed shopping, and service based economy, and such was viewed as advancement. This was done through where credit was allowed to flow, and how such flows had tremendous tax advantages.
The current economic system of unlimited lending for non productive reasons is toast. The bread got stuck in the toaster decades ago, and no one wants to stick a knife in the toaster to free the bread. Smoke is pouring out and father is fanning the smoke alarm with a newspaper to get it to shut off. I hope he doesn’t throw his back out in the process.
Not sure from your example why you’re so concerned with this “credit expansion”.
In last 50 years, since 1970s, nominal cost of an average car has increased by about 10X, but so has the nominal average income. So yes, if you’re not paying cash for the car, you may have to borrow 10X as much, but you’re earning 10X more.
In relative terms, why are you so worse off?
It is not that credit is expanding, it is where the expansion is being spent. Average income is a hoax. One high income earner can make a thousands of poor saps look like they are doing really good. Also high income earners have access to more, and cheaper borrowed money to leverage. Inflation is nothing more than leveraged money. The wealthy have excess money to short the dollar through leveraging. Leverage is Inflation…Inflation is Leverage. Finkle is Einhorn…Einhorn is Finkle
“Inflation is nothing more than leveraged money.” So that’s the only mechanism where inflation comes from?
You should start your own new for-profit college with this as the standard-bearer for the economics degree. I’m sure you’ll make a killing LOL
Yes leverage is the mechanism of inflation. Every dollar is borrowed into existence. If money is not continually borrowed in ever increasing amounts, there would not be sufficient funds to pay off the interest and principle. If every loan were paid off there would be no dollars left. Our economy is based on shorting the dollar by leveraging borrowed money to buy something that will hopefully be worth more over time than the combined principle and interest of the loan. This is our collective economy in a nutshell. Of course some individuals will not swim in this current, but the school of humanity as a whole operates at this basal level.
Portlander’s point is a good one.
When readers see a graph with chronologically-determined lines and the word “vs” in the title, they will assume the lines (and their origins) are being compared.
And if one asserts credit expansion is causing GDP to grow (and not the other way around), analysts oftentimes use stock-to-stock or flow-to-flow comparisons (unless there’s a valid rationale for why the stock specifically impacts a flow)
Converting that TCMDO line graph to a flow variable (how much new debt is created each year) would make it not exponential and would probably track the GDP lines very closely