The Fed has a dual mandate, written into law, from Congress: maintain stable prices and achieve maximum employment. The graph above shows the track record for the first part of the mandate, which is what we focus on here. Now, the interpretation of what “stable prices” means has changed over time, but the Fed’s current inflation target is about 2%. And, indeed, it looks like the Fed has done a pretty good job since the 1980s compared with previous periods. What about before that?
First, the Fed didn’t exist until 1913; and the pre-Fed period had wild swings in the inflation rate, as well as long periods of deflation, which some consider very problematic. Between the world wars, inflation was quite erratic, too, with some bouts of deflation. But Fed policy wasn’t driven by an inflation mandate at that time, but rather by a gold standard. From World War II up until the 1970s, the U.S. had a couple of episodes of high inflation, but there was no inflation mandate then either. In fact, there was also quite a bit of federal government intervention in monetary policy. Obviously, this short list oversimplifies the history of inflation in the U.S., but it looks like having a clear objective may have helped the Fed focus on and achieve this particular metric.
How this graph was created: Start at the NBER’s Macrohistory Database. Select the index of the general price level and click “Add to Graph.” From the “Edit Graph” panel, use the “ADD LINE” option to search for and select CPI. Change units to “Percent Change from Year Ago,” and click “Copy to all.”
Wages are in the news, so we take the opportunity to see how they’ve evolved recently. In the graph above, wages are separated into three large categories: the goods-producing sector, the service-providing sector, and government. Two notions are clear: Wages are generally trending upward, which should come as no surprise because they haven’t been adjusted for inflation. And the most growth is in the service sector and the least is in government.
The graph below adjusts for inflation using the consumer price index (CPI) and looks at the year-to-year change for all three series. This inflation adjustment makes it clear that wages are not always increasing in real terms. In fact, service sector real wages increase more frequently than government real wages, which is how the gap in the first graph can be explained. Of course, this analysis is at a very high level; our Employment Cost Index release tables offer much more detail.
How these graphs were created: From the Employment Cost Index release tables, select Table 2, then check the series you want, and click “Add to Graph.” For the second graph, click on “Edit Graph” and do the following for each line: add series “CPI,” apply formula a/b, and select units “Percent change from year ago.”
Living on the farm is always subject to the vagaries of nature. If you’re farming to earn income, life is also subject to changes in the marketplace and in the policy realm. This graph follows the fortunes of farmers who own their farms. The proprietors’ income series shown here, for farms, is adjusted for inflation and tracks revenue that farm owners receive from their investment in land, machinery, and structures as well as the fruits of their own labor. (NOTE: When you want to divide national income into labor income and capital income, you’re left with a chunk you can’t attribute: proprietors’ income. That’s because they earn both kinds of income but don’t pay themselves a salary.)
The graph shows that proprietors’ income in the agricultural sector is quite volatile. Moreover, recessions have been particularly tough on farmers—their income almost reaches zero in 1983:Q3! But clearly other shocks also affect their income. In fact, one senses there’s a long-term downward trend here. It’s possible that the conditions of a relatively small number of (smaller?) farms may be driving this trend. Even if average farm size has grown over time, it seems that average farm income has not.
How this graph was created: Search FRED for “farmer income” and choose the relevant series. From the “Edit Graph” menu and then the “Customize data” feature, search for and add “CPI” and apply the formula a/b*100.
