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Labor's Sweet Revenge

Written By Christian DeHaemer

Posted August 23, 2023

Here is a chart of M2 that attempts to gauge how many dollars are out there. As you can see, it formed a hockey stick in 2020 and is just now pulling back.

m2 chart

And if you are wondering what M2 is, here is the blurb from the Federal Reserve:

Beginning May 2020, M2 consists of M1 plus 1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions, and 2) balances in retail MMFs less IRA and Keogh balances at MMFs.

M2 is basically cash or anything that can be quickly converted into cash. It is also seasonally adjusted. The Fed changed the formula after 2020, which is when it coincidentally created and spent about $13 trillion.

The point here is that the government created a lot of money, which led to inflation. If you have more of something, it becomes less valuable, even if that something is dollars. Inflation destroys savings and purchasing power while it increases the value of hard assets like cars, housing, and copper. And once it turns into a wage-price spiral, it is very hard to stop.

Wages are going up dramatically.

CNBC reports:

The amount of money most workers want now to accept a job reached a record high this year, a sign that inflation is alive and well, at least in the labor market.

According to the latest New York Federal Reserve employment survey released Monday, the average “reservation wage,” or the minimum acceptable salary offer to switch jobs, rose to $78,645 during the second quarter of 2023.

That’s an increase of about 8% from just a year ago and is the highest level ever in a data series that goes back to the beginning of 2014. Over the past three years, which entails the COVID-19 pandemic era, the level has risen more than 22%.

If you were alive and paying attention in the last high-inflation era of the 1970s, you know when people demand higher wages, companies turn to automation. The late 1970s was a time of mass layoffs, outsourcing, and the advent of robotic assembly lines. It also signaled the decline of the labor unions.

The thing is that robotic, computerized automation in factories has been going on for over 40 years. What happens going forward will be more of the same. Industrial robots are expected to have a compound annual growth rate of about 14% for the next decade. They have also gotten cheaper over the years, so the ROI increases.

Now toss into the mix AI that can code or do administrative tasks, and that $78,645 a year workers are demanding seems a little much, especially to companies that are seeing costs go up across the board. Business owners start to think about how much a new automated AI system costs. What would be the five-year ROI?

These systems can be divided into separate fields like digital twins or spatial computing, each created to reduce overhead and head count while increasing productivity and margins. But don’t take my word for it — find out for yourself and learn how to profit with this free research presentation.

All the best,

Christian DeHaemer Signature

Christian DeHaemer

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Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.

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