NYT: Paul Krugman, "The Phantom Menace".

[necso]

It appears that this editorial was not previously posted. (I tried various searches.) But it warrants a read. (I won't link to it, but think: "usual suspects".)

"Over the last few weeks monetary officials have sounded increasingly worried about rising prices. On Wednesday, Richard Fisher, the president of the Federal Reserve Bank of Dallas, declared that inflation "is running at a rate that is just too corrosive to be accepted by a virtuous central banker."

I'm worried too — but not about recent price increases. What worries me, instead, is the Fed's overreaction to those increases. When it comes to inflation, the main thing we have to fear is fear itself."

...

"The classic example of embedded inflation is the wage-price spiral — better described as wage-price leapfrogging — of the 1970's. Back then, whenever wage contracts came up for renewal, workers demanded big raises, both to catch up with past inflation and to offset expected future inflation. And whenever companies changed their prices, they raised them by a lot, both to catch up with past wage increases and to offset expected future increases.

The result of this leapfrogging process was that inflation became a self-sustaining process, feeding on itself. And ending that self-sustaining process proved very difficult. The Fed eventually brought the inflation of the 1970's under control, but only by raising interest rates so high that in the early 1980's the U.S. economy suffered its worst slump since the Great Depression."

[happyslug]

1. The Pittsburgh Post-Gazette ran his column on Saturday

Which is Normal for the post-Gazette. anyway, the article goes on and mention that they will NOT be such wage-price jumps for unemployment is a lot higher than the present Unemployment rate indicates.

I discussed this with my Sister and she pointed out that those that have money, are spending, but those that don't are NOT. The last time that Happened was in the late 1920s and early 1930s. This was the days of the Dusenberg and other high end cars. If you had money during the during the 1930s you could make a mint, if you did not you starved.

I suspect the same thing is occurring now, a slow decline over a couple of years. While October 29, 1929 is considered the start of the Great Depression, it started in the farm community in 1927 and you saw a steady decline till 1938 (The peak of the Depression). The real bad part was 1930-1932 where you had a couple of Sucker rallies on the Stock market do to a couple of short "booms" followed by even more decline. This declined continued under FDR, but at least he was addressing the problem of getting help to the lower classes (Unlike the GOP who even then supported Trickle Down economics).

Now the American People still support the GOP for they are NOT hurting enough. Sooner or later it will get so severe that you will have a reversal of the positions of the Parties as in 1932 IF THE DEMOCRATS CAN RECLAIM THE PROGRESSIVE MOVEMENT AS FDR DID DURING HIS FIRST 100 DAYS (Reforms advocated by Democrats since the Nomination of William Jennings Bryan in 1896 and opposed by the GOP since 1896).

Hopefully enough people have been hurt so that the Democrats can gain control of the Congress this fall like it did in 1930 and then use that control to get a progressive Democrat elected in 1932.

[On the Road]

2. Well, That's Interesting

It almost sounds like Krugman is endorsing the deunionizaiton of America. Or at least arguing for its benefits.

Which I don't necessarily disagree with -- it is true that downward pressure on wages dampens inflation.

The problem is that when prices rise and wages don't keep up, the rich get richer and the poor get poorer.

[necso]

3. I don't think that Professor Krugman is

endorsing deunionization (although as a "free trade liberal" -- which I seem to recall him saying that he is -- implicitly, perhaps, he really is doing so), but rather arguing against the Fed worrying unnecessarily about inflation.

Relative to wages and inflation:

"The point is that wage increases can be a major driver of inflation only if workers consistently receive raises that substantially exceed productivity growth. And that just hasn't been happening."

This is a little too "textbook" for my taste (but if you substitute "should" for "can", I can live with it), as it really comes down to how the price-setters respond to higher wages, even where these increases don't exceed the gains of higher-productivity. Indeed, in our day, deflating (decreasing) wages (eg, givebacks, offshoring, "inshoring" cheap labor) adds another prominent element to the game (at least on the current scale). And the price-setters can probably be expected to complain about labor costs, and to use these complaints (real or imaginary) to leverage policy, whenever labor costs aren't at rock-bottom.

The game is about profits, and American corporate-management has a most short-term, narrow-minded, and profit-convenient mindset.

[necso]

4. What we have to fear now from inflation

is the Fed fearing inflation.

The kind of inflation we're experiencing is not wage-driven inflation, and raising interest rates is unlikely to have useful effects; indeed, it may be broadly inflationary itself (eg, raising the cost of business loans: ie, the cost of doing business).

Moreover, with the large percentage of nontraditional mortgages in the housing-market, and with credit card monthly payments increasing as interest rates do, any increase in interest rates will further pressure those who are already hurting.

But, of course, the "textbook" approach calls for raising interest rates to battle inflation (as measured by various inutile indices), so that interest rates can probably be expected to go up.

Inflation is an area where peoples' ("market") expectations play a role in instantiating these expectations: that is, this is an area where perception and perspective influence (the completely-artificial) reality. And if the Fed gets people (the "market") worried about inflation (and interest rate hikes), then this worry itself could be broadly inflationary.

As long as we can sell government securities, then there is no great need to raise interest rates. And if inflation is a concern, then coming to a peaceful resolution with Iran -- and otherwise easing speculator worries -- is a better way of dealing with it, through setting the stage for lower oil prices.

Of course, some federal fiscal-responsibility would also be nice, but this seems unlikely with the neocons in power, which they'll do everything in their power to see remains the case (vote suppression, voter manipulation, media-control, popular-focus misdirection, etc, are their constant endeavors).

Now, there is inflation, and in particular areas it's grievous. But a wrong move could trigger greater harm, and relying on the kind of thinking that got us into this mess to get us out is just stupid.

[benfranklin1776]

5. Link to whole article

A good read. Of course the real enemy in the eyes of those crowing like Chicken Little about runaway inflation is wage growth amongst the vast majority of us that toil for a living. That they view as the real enemy. God forbid workers wages should keep up with the cost of living. :sarcasm:

http://64.226.238.78/PA/pk/pk212.shtml

[Jack Rabbit]

6. Thanks for the link

It is bookmarked.

[benfranklin1776]

7. You are most welcome.

An indispensable site that is these days.