Lying Flat and measuring all costs
You’ve heard of the Great Resignation, haven’t you? Shortages of truck drivers and restaurateurs in the United States and Europe putting the brakes on the Grand Reopening and screaming that we are about to see wages soar? I thought so.
But have you heard of Lying Flat? If it doesn’t (and we didn’t until a few days ago), then you should.
A big question for economists and markets right now is whether the current episode of high inflation is a temporary phenomenon or a harbinger of something more permanent. And to really know if the price pressures will prove to be more lasting, the most important thing we need to understand is whether there has been a fundamental shift in the dynamics between labor and capital.
Hawks warns that the shortages herald a return to the dreaded wage-price spiral seen in the United States and parts of Europe in the 1970s, where workers’ demands for higher wages sparked price hikes. prices, which in turn fueled new wage demands. Fed Chairman Paul Volcker managed (albeit painfully) to end this momentum by raising interest rates by 10 percentage points, north of 20 percent, in the early 1980s.
Over the decades that followed, he was straightforward on the inflation front. Now, however, with post-pandemic inflation lingering, central bankers (and the financiers who follow them) are monitoring labor market dynamics much more closely than they have ever been since the Volcker era. The Bank of England, for example, featured this chart in its latest Monetary Policy Report:
What gets much less attention at Threadneedle Street and the Fed than the Great Resignation, but which could turn out to be far more important, is a phenomenon that has emerged in China.
It all started in April with an article on Baidu by Luo Huazhong, 26, under the username Kind-Hearted Traveler, explaining why he chose to reject the mad rush that now characterizes the lives of many young Chinese people. Translation below courtesy of Quartz:
Haven’t worked for two years, just hung out and see nothing wrong with it. Most of the pressure comes from peer comparisons and older generation values. These pressures keep coming up. . . But, we don’t have to conform to these (standards). I can live like Diogenes and sleep in a wooden bucket, enjoying the sun. I can live like Heraclitus in a cave, thinking of the “logos”. Since this earth has never had a school of thought that defends human subjectivity, I can develop one on my own. Lying down is my philosophical movement. It is only by lying flat that man can become the measure of all things.
The post struck a chord and was shared tens of thousands of times on Chinese social media, creating a movement known as Tang Ping, or Lying Flat. Lying flat has now become popular enough that Chinese President Xi Jinping last month condemned the move in one of the official CCP newspapers.
If a reprimand from Xi isn’t enough to stem the movement, then a pay rise could be. As Qin Liwen, a freelance writer, pointed out in an episode of her “Poking with Chopsticks” podcast, the reason the movement has grown is that millennials no longer believe they can earn enough money. money to ensure their safety and that of their parents, who – as only children – they are largely responsible for:
The mentality is if I could make more money I would. You know, you get safety and security for your own family or for yourself. If they get paid more, they still work without protesting because they still feel they have a grip on their life. It’s very Chinese. In Europe you can’t understand this because I see people in Europe who would rather have three months of vacation and give up a lot of pay. In China, this is not the case. In China, you need money to take care of your parents. There is no working health insurance. . .
. . . everyone wanted more money. So if their salary keeps going up, people will always strive for it. But this is not the case. This is why they lose the direction.
Qin also notes that while the number of participants should not be overstated – there are many young people willing to stay on the “hamster wheel” – the move reflects a broader “mitigation of hope”.
Maybe Lying Flat will eventually fall flat in the face of repression. We are not experts in the social dynamics of Chinese society (and if you are, we invite your comments in the comments section). But we believe policymakers in the United States and Europe should pay as much attention to Chinese millennials as to labor shortages in their own labor markets.
Since the mid-1980s, the country’s openness and economic development have been, along with globalization, one of the main drivers of inflation dynamics around the world. He was one of the main contributors to the Great Moderation which allowed the central bankers who followed Volcker to control price pressures with relative ease. And while cheap Chinese labor has been far from the only factor limiting the wages of Western workers, with over 800 million people of working age there, it is a factor explaining why decades of low unemployment have failed to raise wages.
Wages in China have already increased rapidly over the past decade. Still, Lying Flat signals that the pace we’ve seen is nowhere near fast enough to meet the wants and needs of the youngest. The 20- to 40-year-olds make up just under 30 percent of China’s 1.4 billion people, and their importance to the labor market is expected to increase dramatically as one-child policy sparks sweeping changes demographic and reduced working-age population in the decades to come.
If these millennials are successful in securing the best deal they want, Lying Flat, not the big resignation, could be the big thing that will finally push global wages and prices up in a more sustainable way.