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Kuros
Joined: 27 Apr 2004
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 Posted: Tue Jun 03, 2008 6:19 pm Post subject: Krugman: We need not worry about a 70s inflationary cycle |
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Today Is Not a Return of that 70s Show
| Krugman wrote: |
The emerging conventional wisdom, if what I heard is any indication, is that Mr. Bernanke has been fighting the wrong enemy all along: inflation, not financial collapse, is the real threat. And to head off that threat, the critics say, the Fed has to reverse course and raise interest rates � never mind the risks of recession.
So this seems like a good time to declare that the new conventional wisdom is all wrong. We�re not watching a rerun of that �70s show � and the misguided belief that we are could do a lot of harm.
It�s true that the soaring prices of oil and other raw materials have led to public anguish over the rising cost of living. But this time around there�s no sign whatsoever of the wage-price spiral that, in the 1970s, turned a temporary shock from higher oil prices into a persistently high rate of inflation
Here�s an example of the way things used to be: In May 1981, the United Mine Workers signed a contract with coal mine operators locking in wage increases averaging 11 percent a year over the next three years. The union demanded such a large pay hike because it expected the double-digit inflation of the late 1970s to continue; the mine owners thought they could afford to meet the union�s demands because they expected big future increases in coal prices, which had risen 40 percent over the previous three years.
At the time, the mine workers� settlement wasn�t at all unusual: many workers were getting comparable contracts. Workers and employers were, in effect, engaged in a game of leapfrog: workers would demand big wage increases to keep up with inflation, corporations would pass these higher wages on in prices, rising prices would lead to another round of wage demands, and so on.
Once that sort of self-sustaining inflationary process gets under way, it�s very hard to stop. In fact, it took a very severe recession, the worst slump since the 1930s, to get rid of the inflationary legacy of the 1970s.
But as I said, this time around there�s no wage-price spiral in sight. |
Krugman is placing his bet that inflation is not the worst of our problems. Does anyone know about the Japanese meltdown in the 90s? Were there wage locks in place there, too? |
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Kuros
Joined: 27 Apr 2004
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| Posted: Sat Jun 21, 2008 11:29 pm Post subject: Krugman addressing the Japanese crisis |
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| I found an answer to my Japan question! Sort of. From Krugman himself. |
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Zenas
Joined: 17 May 2008
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| Posted: Sun Jun 22, 2008 12:37 am Post subject: |
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As usual, Krugman has his head up his posterior region.
"But as I said, this time around there�s no wage-price spiral in sight."
Damn right there isn't. This time around there aren't any strong unions to demand wages keep up with monetary inflation. But it's the unbridled printing of the fiat currency that produces inflation, not wage price demands. This time around the worker isn't going to be able to keep up with inflation.
And this time around the Fed dare not raise interest rates to stem inflation or the US economy will collapse. That is what the ECB said here:
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/16/bcnecb116.xml&CMP=ILC-mostviewedbox
Any one who listens to Krugman is going to be handed his head.
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Sun Jun 22, 2008 8:42 am Post subject: |
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| Zenas wrote: |
| And this time around the Fed dare not raise interest rates to stem inflation or the US economy will collapse. That is what the ECB said here: |
No, the ECB like the Economist is pointing out that the Fed has to choose between inflation and a deeper recession. When Morgan Stanley talks of a 'catastrophic' event it doesn't mean an economic "collapse" in your shrill hyperbolic exaggeration but that their gravy train might dry up. |
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mindmetoo
Joined: 02 Feb 2004
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| Posted: Sun Jun 22, 2008 8:49 am Post subject: |
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| mises wrote: |
| Zenas wrote: |
| And this time around the Fed dare not raise interest rates to stem inflation or the US economy will collapse. That is what the ECB said here: |
No, the ECB like the Economist is pointing out that the Fed has to choose between inflation and a deeper recession. When Morgan Stanley talks of a 'catastrophic' event it doesn't mean an economic "collapse" in your shrill hyperbolic exaggeration but that their gravy train might dry up. |
Zenas believes the jews control everything:
http://keruxreplies.blogspot.com/
Trying to debate him rationally in economics is like trying to debate him rationally in evolution, 9/11, or whether or not the bible allows the races to mix. He's a klansman. |
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Zenas
Joined: 17 May 2008
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| Posted: Sun Jun 22, 2008 2:46 pm Post subject: |
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| Quote: |
| the ECB like the Economist is pointing out that the Fed has to choose between inflation and a deeper recession. |
That's exactly what I said Ludwig. And the Fed dare not choose to fight inflation, because it's understated inflation for so long, that if it started fighting inflation it would reveal that they've been lying about inflation. But inflation is already baked into the economy and will emerged with a rage in the next 112-18 months no matter what the Fed does.
And the Fed can't lower rates, they are already too low. And their printing money 24/7 and the 'stimulus package' of $600 bucks monopoly money was a joke and most people know it. Hell, even my 84 year old mother laughed. If $600 was good, why not $6000 or $60,000 or $600,000 to each American?
The ECB is breaking ranks because inflation is the bigger risk in Europe. The Germans are pissed off at the Euro losing value due to inflation and many Germans want the Mark back. Now that Ireland has rejected the Lisbon Treaty the entire EU is at risk, because Germans - the backbone of the EU - may just bail out too. That's why ECB has to fight inflation.
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