Krugman Admits There Has Been No Deflation

Paul Krugman, who has been screaming about the deflation threat in his NYT columns, blog posts and during television interviews, in a meandering comment on Sunday, centered around Hicks and Keynes, admitted that there has been no deflation (and that the Krugman-favored (p.484) Phillips Curve model isn't forecasting correctly either). He seems to have given up on deflation as a threat in this business cycle, after warning about the threat for years.

One big problem has been the absence of deflation. The “accelerationist” Phillips curve that used to be standard — inflation depends on unemployment and lagged inflation — seemed consistent with the experience from previous big slumps, which were associated with large declines in the rate of inflation. Specifically, we used to cite the “clockwise spirals” one saw in unemployment-inflation space as evidence for something like the Friedman-Phelps theory of the natural rate.

But what worked in the 70s and 80s doesn’t look so good for recent experience...

Why didn’t the sustained high unemployment after 2008 push us into deflation?

Here's Krugman in 2011 on CNN warning about the deflation threat (starts at 4:35),




-RW