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Friday, March 14, 2014

Paul Krugman: Fear of Wages

The labor market is a long way from being full healed:

Fear of Wages, by Paul Krugman. Commentary, NY Times: Four years ago, some of us watched with a mixture of incredulity and horror as elite discussion of economic policy went completely off the rails. Over the course of just a few months, influential people all over the Western world convinced themselves and each other that budget deficits were an existential threat, trumping any and all concern about mass unemployment. The result was a turn to fiscal austerity that deepened and prolonged the economic crisis, inflicting immense suffering.
And now it’s happening again. Suddenly, it seems as if all the serious people are telling each other that despite high unemployment there’s hardly any “slack” in labor markets ... and that the Federal Reserve needs to start raising interest rates very soon to head off the danger of inflation. ...
Over all...., the prudent thing would surely be to wait ... until there’s solid evidence of rising wages, then wait some more until wage growth is at least back to precrisis levels and preferably higher.
Yet for some reason there’s a growing drumbeat of demands that we not wait, that we get ready to raise interest rates right away or at least very soon. What’s that about?
Part of the answer, I’d submit, is that for some people it’s always 1979. That is, they’re eternally vigilant against the danger of a runaway wage-price spiral, and somehow they haven’t noticed that nothing like that has happened for decades. ...
Then there’s sado-monetarism: the sense, all too common among in banking circles, that inflicting pain is ipso facto good. ...
Finally, although the current monetary debate isn’t as openly political as the previous fiscal debate, it’s hard to escape the suspicion that class interests are playing a role. A fair number of commentators seem oddly upset by the notion of workers getting raises, especially while returns to bondholders remain low. It’s almost as if they identify with the investor class, and feel uncomfortable with anything that brings us close to full employment, and thereby gives workers more bargaining power.
Whatever the underlying motives, tightening the monetary screws anytime soon would be a very, very bad idea. ...
Is wage growth actually taking off? That’s far from clear. But if it is, we should see rising wages as a development to cheer and promote, not a threat to be squashed with tight money.

    Posted by on Friday, March 14, 2014 at 01:20 AM in Economics | Permalink  Comments (77)

          


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