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thank god for the complacent workforce

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Krugman in the NY Times today:

But as I said, this time around there’s no wage-price spiral in sight.

The inflation hawks point out that consumers are, for the first time in decades, telling pollsters that they expect a sharp rise in prices over the next year. Fair enough.

But where are the unions demanding 11-percent-a-year wage increases? (Where are the unions, period?) Consumers are worried about inflation, but you have to search far and wide to find workers demanding compensation in the form of higher wages, let alone employers willing to accept those demands. In fact, wage growth actually seems to be slowing, thanks to the weakness of the job market.

And since there isn’t a wage-price spiral, we don’t need higher interest rates to get inflation under control. When the surge in commodity prices levels off — and it will; the laws of supply and demand haven’t been repealed — inflation will subside on its own.

Still, why not raise interest rates a bit, as extra insurance against inflation?

Part of the answer is that the financial crisis, which seems to be in remission right now, could flare up again if money gets more expensive.

And even if the financial crisis doesn’t come back, higher rates would further weaken an already weak real economy. Never mind whether we’re technically in a recession: it feels like a recession to most people, and higher interest rates would make it worse.

The bottom line is that while expensive gas and food are inflicting real harm on American families, they aren’t setting off a ’70s-type inflationary spiral. The only thing we have to fear on that front is inflation fear itself, which could lead to policies that make a bad economic situation worse.

In other words, due to the evisceration of unions and, above all, a serious shift rightward in the borders of the thinkable, in the politico-ideological horizons, the American worker herself is eating this crisis – or, that is to say, not eating through this crisis. Notice, notice, Krugman doesn’t have lots to say about this fact.

He seems to have, it is sad to report, returned to form in the last few months.

Written by adswithoutproducts

June 2, 2008 at 1:16 pm

Posted in economics

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