April 6, 2012
WRONG, OF COURSE, BUT IN AN IMPORTANT WAY:
Not Enough Inflation (PAUL KRUGMAN, 4/06/12, NY Times)
For at least three years, right-wing economists, pundits and politicians have been warning that runaway inflation is just around the corner, and they keep being wrong. Do you remember the tirades about "debasing the dollar" around this time last year? Do you remember the scorn heaped on Mr. Bernanke last spring when he argued that the bulge in inflation taking place at the time was just a temporary blip caused by gasoline prices and would soon recede? Well, he was right. At this point, inflation is once again running a bit below the Fed's self-declared target of 2 percent.Now, the Fed has, by law, a dual mandate: It's supposed to be concerned with full employment as well as price stability. And while we more or less have price stability by the Fed's definition, we're nowhere near full employment.
Actually, we're still too far above the historic norm for full employment. What we are below is the inflated labor force participation rate (see below) that we temporarily accepted as white men hired women and minorities for social rather than economic reasons over the last 40 years.
As those men retire, their successors are making the economy more efficient by choosing among such employees--often at the expense of the white males--rather than simply hiring excess labor. These efficiencies both drive the labor participation rate back down to where it has always been and drive down prices. Thus, those on the Left who obsess over employment are just as wrong as those on the Right who obsess over inflation.
What Mr. Krugman is basically arguing for is that we add back those makework jobs, which would indeed make things more expensive. You'd think a Nobel laureate economist would celebrate improved productivity/efficiency and reduced costs of living instead.
The big economic question is not how to add more jobs--we'll have fewer jobs going forward--but how to distribute the increased wealth that our work produces.
Posted by Orrin Judd at April 6, 2012 6:26 AM