Really appreciate how you frame this as the next phase in the economic conversation, not just an inflation story anymore. The disconnect between headline price stability and real disposable income growth is the elephant in the room most coverage misses. Ive been noticing this in my own budgeting too, prices arent spiking but purchasing power still feels stuck. Curious to see if Q1 2026 data shows any wage momentum.
Depending on how many people are simply exiting the labor force vs being unemployed, there could be some renewed upward pressure on wages if labor force participation trends up in a meaningful way.
Jobs numbers are a useful thumbnail measure of economic health, because when there is genuine robust job growth, the increased demand for workers is going to create inflationary pressure in wages (which is good).
Inflation is a concern primarily to the degree that price increases outpace wage increases (If prices and wages both rise 10% over the same timeframe, the impact of inflation is functionally nil, because the increased price is offset by the increased income available for consumption). When we are evaluating the health of the economy, the capacity for increased consumption is inherently a function of disposable income, which is in turn a function of wages, which is in turn a function of labor demand.
To get sustainable wage momentum, we need sustainable jobs momentum.
Thank you for a grounded view, Peter. There are three other factors regarding wage and personal income growth that I have not heard discussed much in recent times.
One is that the percentage of the population dependent upon government assistance has soared during my lifetime. Their personal income increase is only a small amount which doesn’t really keep up with inflation. The second factor is that the majority of Boomers have retired now, and their Social Security increases likewise don’t completely keep up with inflation. (The government “says” it indexes for inflation, but sorry, the additional $32 per month I’m getting is NOT cutting it at the grocery store!)
The third factor is that close to half of the Boomers have not retired in a good financial position. I don’t know what the current percentage is, but the figure I heard several years ago was that 45% of Boomers have not saved anywhere close to enough in order for them to retire. And I mean, they cannot retire, and have to continue to work at least part time in order to just pay food and rent. The reality is that those Boomers who inherited money or who were quite financially successful can retire, but the rest are struggling with making ends meet.
So these factors will complicate Trump’s Golden Age goals. It’s going to be very hard to increase the standard of living for a huge percentage of the American population. Peter, can you see any solutions to this? (If so, the White House will be calling you soon!)
There is a fourth factor involving the Baby Boom generation.
Because they are retiring they are by that act of retirement pulling much of their accumulated capital out of the economy.
Families consume most of all. Working individuals without families consume to a lesser degree, but retirees have, overall, the lowest consumption levels of all demographics (with an obvious exception for healthcare costs).
This may be one reason inflation has stabilized 0.5pp higher than pre-COVID. Sustaining the same levels of consumption translates into higher monetary velocities, which is what powers inflation (the one part everyone overlooks in Friedman's monetarist view of inflation is that the driver is not the quantity of money but the velocity).
Between reshoring, re-industrialization, and digesting the Baby Boomer retirements, the next 10-15 years are going to be quite transformative in the US economy no matter what government policies are in play. Much of what will come must come just because of other demographic and geopolitical forces already in play.
Great points, Peter, and I remember your excellent lesson on the velocity of money - which I did not know at the time. Let’s hope that Trump’s economic advisors also understand these factors as you do. The macroeconomics of the coming years must be guided and incentivized properly (since there is no chance in Hell that government will ever just get out of the way).
Really appreciate how you frame this as the next phase in the economic conversation, not just an inflation story anymore. The disconnect between headline price stability and real disposable income growth is the elephant in the room most coverage misses. Ive been noticing this in my own budgeting too, prices arent spiking but purchasing power still feels stuck. Curious to see if Q1 2026 data shows any wage momentum.
There are hopeful signs. Both initial and continuing unemployment claims have come down significantly in recent weeks.
https://fred.stlouisfed.org/graph/?g=1QNaV
https://fred.stlouisfed.org/graph/?g=1QNaC
Depending on how many people are simply exiting the labor force vs being unemployed, there could be some renewed upward pressure on wages if labor force participation trends up in a meaningful way.
Jobs numbers are a useful thumbnail measure of economic health, because when there is genuine robust job growth, the increased demand for workers is going to create inflationary pressure in wages (which is good).
Inflation is a concern primarily to the degree that price increases outpace wage increases (If prices and wages both rise 10% over the same timeframe, the impact of inflation is functionally nil, because the increased price is offset by the increased income available for consumption). When we are evaluating the health of the economy, the capacity for increased consumption is inherently a function of disposable income, which is in turn a function of wages, which is in turn a function of labor demand.
To get sustainable wage momentum, we need sustainable jobs momentum.
Thank you for a grounded view, Peter. There are three other factors regarding wage and personal income growth that I have not heard discussed much in recent times.
One is that the percentage of the population dependent upon government assistance has soared during my lifetime. Their personal income increase is only a small amount which doesn’t really keep up with inflation. The second factor is that the majority of Boomers have retired now, and their Social Security increases likewise don’t completely keep up with inflation. (The government “says” it indexes for inflation, but sorry, the additional $32 per month I’m getting is NOT cutting it at the grocery store!)
The third factor is that close to half of the Boomers have not retired in a good financial position. I don’t know what the current percentage is, but the figure I heard several years ago was that 45% of Boomers have not saved anywhere close to enough in order for them to retire. And I mean, they cannot retire, and have to continue to work at least part time in order to just pay food and rent. The reality is that those Boomers who inherited money or who were quite financially successful can retire, but the rest are struggling with making ends meet.
So these factors will complicate Trump’s Golden Age goals. It’s going to be very hard to increase the standard of living for a huge percentage of the American population. Peter, can you see any solutions to this? (If so, the White House will be calling you soon!)
There is a fourth factor involving the Baby Boom generation.
Because they are retiring they are by that act of retirement pulling much of their accumulated capital out of the economy.
Families consume most of all. Working individuals without families consume to a lesser degree, but retirees have, overall, the lowest consumption levels of all demographics (with an obvious exception for healthcare costs).
This may be one reason inflation has stabilized 0.5pp higher than pre-COVID. Sustaining the same levels of consumption translates into higher monetary velocities, which is what powers inflation (the one part everyone overlooks in Friedman's monetarist view of inflation is that the driver is not the quantity of money but the velocity).
Between reshoring, re-industrialization, and digesting the Baby Boomer retirements, the next 10-15 years are going to be quite transformative in the US economy no matter what government policies are in play. Much of what will come must come just because of other demographic and geopolitical forces already in play.
Great points, Peter, and I remember your excellent lesson on the velocity of money - which I did not know at the time. Let’s hope that Trump’s economic advisors also understand these factors as you do. The macroeconomics of the coming years must be guided and incentivized properly (since there is no chance in Hell that government will ever just get out of the way).