{"items": [{"author": "David German", "source_link": "https://plus.google.com/111229345142780712481", "anchor": "gp-1520213886947", "service": "gp", "text": "Colombia?", "timestamp": 1520213886}, {"author": "Bruno", "source_link": "https://www.facebook.com/jefftk/posts/930174720282?comment_id=930175254212", "anchor": "fb-930175254212", "service": "fb", "text": "The preferred spelling is 'Colombia' :)
Brazil had something roughly similar in the 80s, I might be able to tell you a few things about how that worked if it interests you.", "timestamp": "1520213976"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/930174720282?comment_id=930175254212&reply_comment_id=930178113482", "anchor": "fb-930175254212_930178113482", "service": "fb", "text": "→ Fixed spelling; thanks!", "timestamp": "1520215733"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/930174720282?comment_id=930175254212&reply_comment_id=930178253202", "anchor": "fb-930175254212_930178253202", "service": "fb", "text": "→ I'd definitely be interested in hearing what Brazil did! Was it directly inflation based, or was it via a number that the government could choose? (Or, I guess, it could have nominally been #1 but actually been #2.)", "timestamp": "1520215792"}, {"author": "Bruno", "source_link": "https://www.facebook.com/jefftk/posts/930174720282?comment_id=930175254212&reply_comment_id=930233252982", "anchor": "fb-930175254212_930233252982", "service": "fb", "text": "→ Okay, so the story is this: in the 80s we were hyperinflating. It didn't get Zimbabwe bad, but still inflation was often a few thousand percent a year. In fact, we used to report inflation on a *monthly* basis because that was easier to grasp.
Also, in 1988 we made a new Constitution. It laid out what the minimum wage was supposed to buy (which is a lot, on paper) and forbade the kind of indexing that you found out happens in Colombia \u2013 linking prices to the value of the minimum wage. However, prior to the constitution that might have happened.
What did happen was the \"inflation trigger\": many ways were set up in such a way that, whenever the inflation since the last wage increase reached a certain level, the wage itself would be increased by that much. So this was an attempt at preserving the real purchasing power of workers.
The 1988 Constitution also forbade interest rates above 12% a year. (That has fortunately been amended out.) Since this was a tiny fraction of inflation, we came up with a workaround called \"monetary correction\". So things like bonds, taxes and utility bills were adjusted for inflation, and then any interest was added on top of that. What this and the wage inflation trigger did was make it very hard for inflation to fall.
In 1986, the government froze every single price in the economy, in the hopes this would contain inflation. They also redenominated the currency. However, because they were populists, they also increased all the wages by 20%. This obviously didn't work, and inflation kept on growing.
It was only in 1994 that we finally solved this problem. The government created a \"parallel currency\", called the \"unit of real value\". This tracked the dollar exchange rate, denominated in the old currency. Wages and contracts were supposed to be denominated in the new one. Then, after about six months, the old currency was phased out; one \"real unit of value\" became one real, for which brand new coins and banknotes were produced; and the central no continued keeping the real at parity with the dollar (a \"crawling peg\"). Combined with more standard macroeconomic measures, this succeeded in bringing down inflation to normal levels.", "timestamp": "1520252094"}, {"author": "Jeff Kaufman", "source_link": "https://plus.google.com/103013777355236494008", "anchor": "gp-1520215708519", "service": "gp", "text": "@David German\n fixed", "timestamp": 1520215708}, {"author": "Christopher", "source_link": "https://www.facebook.com/jefftk/posts/930174720282?comment_id=930190024612", "anchor": "fb-930190024612", "service": "fb", "text": "That is an interesting system.", "timestamp": "1520219657"}, {"author": "Kleber", "source_link": "https://plus.google.com/114937925666302803969", "anchor": "gp-1520220254045", "service": "gp", "text": "Not exactly related, but NPR's Planet Money podcast did a great story about the origin of the Brazilian currency the \nReal,\n which you might enjoy. \nhttps://www.npr.org/sections/money/2010/10/04/130329523/how-fake-money-saved-brazil", "timestamp": 1520220254}, {"author": "Wolf", "source_link": "https://www.facebook.com/jefftk/posts/930174720282?comment_id=930203472662", "anchor": "fb-930203472662", "service": "fb", "text": "No fractions?", "timestamp": "1520225699"}, {"author": "Ben", "source_link": "https://www.facebook.com/jefftk/posts/930174720282?comment_id=930209211162", "anchor": "fb-930209211162", "service": "fb", "text": "https://en.wikipedia.org/wiki/Unidad_de_Fomento", "timestamp": "1520228228"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/930174720282?comment_id=930209211162&reply_comment_id=930238981502", "anchor": "fb-930209211162_930238981502", "service": "fb", "text": "→ Looks like that is explicitly linked to the CPI?
(One thing that makes me very interested in the Colombian system is it seems like there's an extra monetary policy knob, and I'm curious how that works out.)", "timestamp": "1520255909"}, {"author": "Nicole", "source_link": "https://www.facebook.com/jefftk/posts/930174720282?comment_id=930210902772", "anchor": "fb-930210902772", "service": "fb", "text": "I've heard that some union contracts in the US are based on/influenced by the minimum wage, but I don't have a good source for that.", "timestamp": "1520228749"}, {"author": "Peter", "source_link": "https://www.facebook.com/jefftk/posts/930174720282?comment_id=933172702302", "anchor": "fb-933172702302", "service": "fb", "text": "Far from being a powerful tool this probably reduces the government's ability to intervene in the economy. Worse, it risks totally destabilizing the economy in the same way returning to the gold standard would.
The simplest problem is that it no longer lets the government try and improve the lot of poor workers (maybe a plus?) by raising the minimum wage since relative compensations all stay the same so all you get is inflation. Worse, if it becomes pervasive enough the government actually losses the ability to loosen it's monetary policy to evade recessions/depressions.
I mean consider the limiting case where absolutely ALL jobs are indexed to the minimum wage and, given the incentive to avoid being exposed to minimum wage changes, eventually all contracts, loans, bank accounts and prices are as well. Instead of buying something for 5 dollars you would buy it for 1 minimum wage day. Thus the effect of this is to manufacture a new currency the 'minimum wage day'.
But f everything is denominated in minimum wage days then the government no longer has the option to increase inflation to head off a recession. In effect the whole country is bound to a labor standard rather than a gold standard but with all the same disadvantages.", "timestamp": "1521619755"}, {"author": "Peter", "source_link": "https://www.facebook.com/jefftk/posts/930174720282?comment_id=933172702302&reply_comment_id=933172772162", "anchor": "fb-933172702302_933172772162", "service": "fb", "text": "→ Of course this was a limiting case. In actual fact Columbia isn't anywhere near having a minimum wage hour based currency but the more things so denominated the fewer levers the government has to pull when things go bad.", "timestamp": "1521619821"}]}