Krugman Sees No Wage Inflation Spiral

A Return of That ’70s Show? (Paul Krugman)

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

There's no sign whatsover of the wage-price spiral? First, and most importantly, the stagflation of the 1970s was not isolated to America. It was a global problem.

China officials hike wages, threatening boost to inflation

If companies are told to pay higher wages, they may have to raise their prices to stay out of the red, the economists argued, warning this could be the beginning vicious cycle.

I bring Chinese wages up because unlike the 1970s, "Made in China" seems a very popular sticker these days. We send China our paper dollars and they send us back actual goods. Their workers now want raises? No problem. We can print more money to appease them in the exact same way we printed more money to appease ourselves (tax rebate checks).

Divided Over Trade (Paul Krugman)

We’re buying a lot more from third-world countries today than we did a dozen years ago, and the largest increases have come in imports from Mexico, where wages are only about 11 percent of the U.S. level, and China, where wages are only 3 percent of the U.S. level. Trade still isn’t the main source of rising economic inequality, but it’s a bigger factor than it was.

We can also print more money to appease Mexico if need be. This would be in addition to the Mexican government's monetary printing press of course.

Mexico's poor get food cash boost

Governments around the world are under pressure to intervene to help the poorest cope with the sharp food price rises.

Bad for the Country (Paul Krugman)

About the trade deficit: These days the United States imports far more than it exports. Last year the trade deficit exceeded $600 billion. The flip side of the trade deficit is a reorientation of our economy away from industries that export or compete with imports, especially manufacturing, to industries that are insulated from foreign competition, such as housing. Since 2000, we've lost about three million jobs in manufacturing, while membership in the National Association of Realtors has risen 50 percent.

Those three million lost jobs in manufacturing led to cheaper goods. I think that deflationary ship has just about run its course. Now we're looking at an iceberg (as seen here).

The trade deficit isn't sustainable. We can run huge deficits for the time being, because foreigners - in particular, foreign governments - are willing to lend us huge sums. But one of these days the easy credit will come to an end, and the United States will have to start paying its way in the world economy.

What are they going to do? Stop selling us goods? It seems far more likely they'll just raise prices. Of course, if they raise prices and we continue to buy anyway (think oil), then the trade deficit doesn't really get all that much better. Does it?

To do that, we'll have to reorient our economy back toward producing things we can export or use to replace imports. And that will mean pulling a lot of workers back into manufacturing. So the rapid downsizing of manufacturing since 2000 - of which G.M.'s job cuts are a symptom - amounts to dismantling a sector we'll just have to rebuild a few years from now.

The "free (lunch)" deflation we imported over the last few decades would be undone? I can't argue but it does sound expensive. I think I'll remain a stagflationist if you don't mind.

Zimbabwe: 'RBZ Money Printer Will Run Overtime'

"Government has slowly been pinching away the nation's savings through very low interest rates, well below inflation," Robertson said.

The Macro Wage Curve and Labor Market Flexibility in Zimbabwe

The main cause of falling real wages in Zimbabwe is reduced economic activity.

Other than the magnitude of the potential problem, how is Zimbabwe's inflationary path all that much different than ours? I doubt very much Zimbabwe's wage-spiral can be blamed when their unemployment is 80%.