Krugman: Are class interests perpetuating high unemployment?

[HomerRamone]

He's finally getting the last piece of the puzzle...

http://www.nytimes.com/2014/04/07/opinion/krugman-oligarchs-and-money.html

monetary experts have long known about the case for moderate inflation, but back in the 1990s, when the 2 percent target was hardening into policy orthodoxy, they thought that 2 percent was high enough to do the job. In particular, they thought it was enough to make liquidity traps — periods when even an interest rate of zero isn’t low enough to restore full employment — very rare. But America has now been in a liquidity trap for more than five years. Clearly, the experts were wrong.

Furthermore, as the latest I.M.F. report shows, there’s strong evidence that changes in the global economy are increasing the tendency of investors to hoard cash rather than put funds to work, thereby increasing the risk of liquidity traps unless the inflation target is raised. But the report never dares to say this outright.

So why is the obvious unsayable? One answer is that serious people like to prove their seriousness by calling for tough choices and sacrifice (by other people, of course). They hate being told about answers that don’t involve more suffering.

And behind this attitude, one suspects, lies class bias. Doing what America did after World War II — using low interest rates and inflation to erode the debt burden — is often referred to as “financial repression,” which sounds bad. But who wouldn’t prefer modest inflation and a bit of asset erosion to mass unemployment? Well, you know who: the 0.1 percent, who receive “only” 4 percent of wages but account for more than 20 percent of total wealth. Modestly higher inflation, say 4 percent, would be good for the vast majority of people, but it would be bad for the superelite. And guess who gets to define conventional wisdom.

[starroute]

1. Link?

[HomerRamone]

2. Whoops...sorry. See edited post nt

[jtuck004]

3. We need more sacrifice. Let's get rid of some banksters. n/t

[Fumesucker]

4. And which class do our legislators socialize with and consider themselves members of?

I don't think it's the 99.9%.

[n2doc]

5. Increased Inflation without wage increases is very bad

Essentially what we have been dealing with this century. Even low inflation is bad, over time, if wages are stagnant.

[Yo_Mama]

8. And that's EXACTLY the problem.

Increasing inflation is mostly impossible now because people don't have the money to spend. Inserting money into the economy the way the Fed is doing is mostly putting money into the hands of the large corporates, and a lot of it is essentially being used for speculation. In the meantime, median household incomes are lower than they were a decade ago.

[badtoworse]

6. That is pure BS. It's not just the 1% who would be harmed by high inflation.

There are many senior citizens in the 99% who are scratching out a meager existence on a fixed income and would be greatly harmed by higher inflation. As for the 1%, they are in position to buy assets whose value will keep pace with inflation (precious metals, land, commodities, etc.) and leave them relatively unscathed. Fixed income people can't do that and would just have to tighten their belts some more.

[Yo_Mama]

7. I think he's got it dead wrong

It is the working class/middle class savers who are so hurt by inflation. The top can easily offset it by purchasing hard assets. Those who have small savings see those savings eroded to infinity. There is no ability to save for a downpayment on a car, a home, or to build an emergency cash fund, much less to conserve retirement funds safely.

I think Krugman's getting senile. If we returned to 4% inflation, wages would not go up fast enough to compensate. So the average earnings would deflate in real spending power, which would then cut inflation.

Labor slack prevents us from inflating - the difference between now and the post WWII period was back then the industrial economy was expanding fast and unemployment was low, so wages did rise with inflation (and somewhat over inflation). If we had an unemployment rate similar to the post WWII period now, we'd already have inflation!
http://research.stlouisfed.org/fred2/series/UNRATE

[reformist2]

9. Yes, there ought to be more jobs, but technology/offshoring mean a different solution is needed.

There will never be enough jobs to go around, this is becoming more obvious every day. The time has come for a permanent basic income, regardless of current employment status or history.

Think of it as the 21st century version of unemployment insurance.

[MaeScott]

10. Krugman...More, please ! nt