Saturday, April 16, 2011

Krugman Boldly Dumb

There's nothing wrong with making bold statements when you know what the hell you are talking about, but when you make such statements in the face of strong indications that you are wrong, it's another thing.

In today's NYT, Paul Krugman concludes a post:
....there’s nothing here to suggest any reason to consider inflation a problem.
Mark this date down, April 16, 2011 and Krugman still sees no price inflation problem.

In the post, Krugman discusses inflation in emerging markets, but when he comes to the United States, he pulls out the chart of wages and shows there is no wage spiral. As I have discussed before, this doesn't mean money is not entering the economy, it is. (Krugman may have heard of the source, QE2).

The key though is that the money is not hitting the wage market, yet. The money is showing up in capital gains, corporate profits and Wall Street bonuses. The operators on the non-wage side are seeing their incomes explode, and they are the ones that are pushing prices higher. Eventually it will get to the wage earners as the money works its way through the economy, but the prices will be up first, then wages will follow. That is why inflation is often called a hidden tax. The price inflation doesn't reach everyone at the same time. Some get the money in advance of price increases, but the many don't see wage increases until after the price increases.

Krugman's chart of non-spiraling wages doesn't impress me as an indication that inflation isn't occurring. For me it's an indication that the average wage earner is being screwed once again by being the last to get the money that Krugman's former-Princeton buddy, Ben Bernanke, continues to print for the elite.

And I hasten to add, that though some of the money Bernanke is printing via QE2 is getting into the system, most of the QE2 money continues to end up as excess reserves. This means that even if there is no QE3, there is literally a trillion plus dollars in excess reserves that could hit the economy.

Krugman is so off base so late in the game that it is quite amazing, for me it's just one more quote to tuck away to demonstrate down the road that Krugman's understanding of the economy is nothing but total Keynesian confusion.


1 comment:

  1. but why can't we just get along with one another?
    Instead of having to say hate words like Keynesian.

    Not everybody was born Austrian you know.