Saturday, June 7, 2008

Krugman on the Economy

"Which decade is it, anyway? Not long ago it seemed as if everyone watching the carnage in financial markets was drawing scary parallels with the 1930s. ... You might think, then, that everyone would be congratulating Bernanke and company for their good work. But at an economic conference I recently attended, many of the participants--including people with a lot of influence in the policy world--seemed to be bashing the Bernanke Fed. ... The emerging conventional wisdom, if what I heard is any indication, is that Bernanke has been fighting the wrong enemy all along: inflation, not financial collapse, is the real threat. ... So this seems like a good time to declare that the new conventional wisdom is wrong. We are not watching a rerun of that '70's show--and the misguided belief that we are could do a lot of harm ... But as I said, this time there's no wage-price spiral in sight. ... But where are the unions demanding 11-percent-a-year wage increases? (Where are the unions, period?) Consumers are worried about inflation, but you have to search far and wide to find workers demanding compensation in the form of higher wages, let alone employers willing to accept those demands. In fact, wage growth actually seems to be slowing, thanks to the weakness of the job market. And since there isn't a wage-price spiral, we don't need higher interest rates to get inflation under control", Paul Krugman (PK) at the Houston Chronicle, 3 June 2008.

PK, are you serious? If you want to see your "wage-price" spiral, look at Asia, Vietnam, for example. I disagree with you, PK; we see a rerun of the 1970s, but this time, it will be worse for American workers as real wages in the US continue to fall to third world levels. You want to see unions, look to Asia; wage increases, look to Asia. PK, read a newspaper. As to increasing interest rates, why are commodity prices so high, if not in part due to low interest rates? See my 22 April 2008 post. PK, I think you understand what's going on, but are afraid to tell us.

4 comments:

DiverCity said...

Perhaps I'm misreading your criticism of PK, and I'm no economist (thank God), but we aren't really suffering wage/price spiral inflation, are we? Aren't we here in the West finally experiencing the effects of pure old monetary inflation, which results in higher (and perhaps much, much higher) prices despite stagnant or lowering wages?

The Fed has been creating dollars with abandon for years, thinking it could boost the economy without suffering higher prices. And for a while it worked because Asians labored and produced for a pittance all the while saving 25% of their incomes on average. Now, however, those chickens are coming home to roost because Asians are getting better wages, meaning the era of everyday low prices for us is coming to a screeching halt.

Independent Accountant said...

divercity:
No apology necessary for not being an economist. I disagee with Krugman because there is a "wage-price" spiral, it's just in Asia. Yes, we now see the effects of past monetary inflation in a falling dollar and rising prices.
I disagree that Helicopter Ben (HB) is so stupid he didn't expect rising prices and a falling dollar sooner or later. Ignore anything HB says. I previously quoted a 1979 Barron's comment about the Fed chairman. Yes, dollars are being repatriated which will increase US prices. We saw this in 1973, I believe, when Nixon embargoed the shipment of soybeans to Japan. I've got some posts on this. I'll refer you to them.

Independent Accountant said...

divercity:
Posts of 5 September 2007 and 4 February, 7 and 27 April 2008.

DiverCity said...

I'll check 'em out. Thanks.