Paul Krugman

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We'll need to watch this, and maybe discount what the surveys — as opposed to financial markets, where people are putting money on the line — say. Key point: the Fed should not slam the brakes because of phantom inflation fears 15/
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If partisan ads get more people to tell pollsters that they expect permanent high inflation, will this translate into actual wage and price increases? That is, will it affect perceptions that inform economic decisions, as opposed to those that might affect voting? Doubtful 14/
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But even if ads do raise what consumers *say* about expected inflation, will it have any real economic significance? There's already a striking disconnect between what people say about the state of the economy and what they say about their own finances 13/
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I'm a bit skeptical, because consumers are already so barraged it's hard to know whether the ads will make a difference. CNN has become the Inflation News Network; and what do you think people see on Fox? 12/
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Now, Goldman Sachs is making a curious argument (no link): That inflation expectations will rise because of "the coming barrage of political advertisements highlighting high inflation ahead of the midterm elections" 11/
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Crucial: not claiming that consumers or markets have special information. The question isn't whether they're right; it's whether inflation has gotten entrenched. All the evidence says no 10/
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Cleveland Fed similar 9/
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Others telling similar story. St. Louis Fed uses inflation swaps to conclude that markets expect inflation to fade fast 8/ stlouisfed.org/on-the-economy…
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Oh, forgot to mention that there was also a brief scare over breakevens, but it went away 7/
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Here's 1 and 5 year expected inflation in 1980, from Michigan survey, and in 2022 from both that survey and bond market breakevens 6/
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At this point every measure I'm aware of suggests that the public expects inflation to be high in the near future, but then fade away. Big contrast with 1980, when Volcker was bringing on the pain 5/
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So there was a big fuss when the long-standing Michigan Survey seemed to show a jump in 5-10 inflation expectations — Powell cited it in justifying the latest Fed hike. But it was a false alarm. Most of the bump has been revised away. 4/
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And getting entrenched inflation down probably requires a sustained period of above-normal unemployment. So we want to know if inflation is entrenched in expectations — something we try to judge not by 1-year expectations (which are mainly gas prices) but by medium term 3/
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Why do we care about expected inflation (as opposed to actual, current inflation)? Because it's central to stories about stagflation. In a world in which everyone expects 10% inflation, prices will tend to rise by 10% a year even if overall supply and demand are in balance 2/
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Given the crisis of American democracy, it seems almost wrong to write about inflation expectations. And the economy may be less central to the midterms than seemed likely just a week ago. But life and macroeconomics go on, and there have been some important developments 1/
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Though U.S. inflation has been unexpectedly high, inflation swap data indicate that longer-term inflation expectations haven’t seen a similar shift upward. This suggests that the market believes the Fed will get inflation under control ow.ly/XGVR50JGP6g
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So not only can it happen here; it *has* happened here. The difference is that this time a similar movement may soon control the federal govt; it already controls the Court. 6/
The seamless melding of conspiracy theorizing and financial grift — the new KKK was as much multi-level-marketing scam as political movement. And so on. And for a while the KKK controlled several states 5/
The closest parallel I can find — and it's a stunningly close parallel in a number of ways — is the rise of the KKK in the 1920s, which was a new movement, not the post-Civil War terrorist org. It was all there: nativism, anti-intellectualism, hatred of "elites" ... 4/
WW1, hyperinflation, Depression don't justify what happened, but to help explain it. But the GOP went mad at a time of peace and prosperity. Are there any other examples of that happening? Well, yes 3/
Which raises the question of how that can have happened. I don't think it's at all unfair to call much of the GOP fascist (certainly a lot fairer than the R insistence that Ds are Marxists). But classical fascism, if u can call it that, arose after national catastrophes 2/
When did you first realize that the GOP was becoming an extremist, anti-democratic cult? For me it was way back in the 90s; people forget how many Rs refused to accept Clinton as legitimate and the proliferation of conspiracy theories 1/
Worth stressing that at every juncture over last 20 years the America “alarmists” have been right. Downplaying the enormity of what’s happening, or reassuring us that it’s not that bad, is the same as surrender.
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This week we learned major details about an all-out GOP attempt to overturn a lost election and a GOP court essentially banned both abortion (yes, a national ban is coming) and gun control. So are the midterms really going to be about gas prices?
And whaddya know, this bump just got mostly revised away 3/ twitter.com/RenMacLLC/stat…
And I suggested that people not freak out about the one number which maybe, possibly, suggested an upward break in these expectations: 2/
Well, in today's column I argued against the view that inflation expectations were getting unanchored and would require a Volcker-style depression to get things back under control 1/ nytimes.com/2022/06/23/opi…
“Inflation is a real problem, and tighten the Fed must,” @paulkrugman writes. “But it will be tragic if the Fed listens to people who are in effect demanding a much deeper slump than the economy seems to need.” nyti.ms/3tXdFwL
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You know whose gun control laws the Supreme Court just ruled unconstitutional? Just about every town in the Old West, Dodge City included smithsonianmag.com/history/gun-co…
There was an incredible amount of vituperative commentary from center-left economists condemning any suggestion that price-gouging might be contributing to inflation. Certainly not the main cause. But research now indicates that it was *a* cause nytimes.com/2022/06/22/opi…
And of course the belief that savers deserve to be rewarded with a decent return — even if the world is awash with more savings than it knows what to do with 6/
If you have a few spare hours, read the speech about money in Atlas Shrugged — the one Paul Ryan says told him all he needed to know about money to get a sense of this mindset 5/ slate.com/news-and-polit…
Part of it, I suspect, is like the old joke about the Germans — that they consider economics a branch of moral philosophy. There are always a number of people out there who just can't accept the idea of fiat money as a technocratic tool of economic management 4/
To be honest, I kind of forgot that when writing this piece, thinking of it as straightforward analytical stuff and about as apolitical as I get. But there's something about money ... 3/
Say that the GOP has become a fascist party, and readers shrug. Say that low rates made sense after 2008, or quantitative easing wasn't inflationary, and the invective flies. Oh, and say something negative about cryptocurrency ... 2/
Reactions to yesterday's newsletter confirm something I've observed many times in the past: Nothing sets people off, inspires as much rage, as talking about monetary economics 1/ nytimes.com/2022/06/21/opi…
The evidence so far doesn't point to the latter story, although it sure sounded as if that was what Larry Summers was saying. But I understand that the Fed wants to make sure that we don't get to that point 8/
The point is that it matters a lot whether we're just overheated, needing a cooling off of demand and a modest rise in unemployment, or we need years of punishment until morale improves — sorry, until expected inflation comes down 7/
So far we don't seem to be in that situation. Much hyperventilating about a rise in the Michigan number for long-term inflation expectations, but that was one month's number — not matched by NY Fed survey, which also shows modest wage expectations 6/
Notice that this is actually a wage-wage spiral, not a wage-price spiral. Anyway, the point is that once you're there you need to break the spiral somehow to get inflation down — say, with a massive multi-year Volcker-type bulge in unemployment 5/
It's a real slog to read, but Phelps argued that with staggered wage and price setting, persistent inflation would become self-perpetuating. Here's the key passage 4/
The ur-reference here is the 1968 Phelps paper on inflation — actually a better model although much worse writing than the famous Milton Friedman analysis — about how expectations could get "built in" 3/
The real concern is self-fulfilling inflation — inflation not driven by demand exceeding supply, but simply everyone raising wages and prices because they expect others to be raising wages and prices 2/
OK, I thought everyone in the biz knew this, but anyway a real response. Part of the problem is that "wage-price spiral" is a really bad term for what we're really worried about 1/ twitter.com/JStein_WaPo/st…
Lots of interesting parallels but also contrasts between the dotcom bubble and crypto. Will write more about all that soon. 2/
As of this morning BTC is experiencing a modest rally. Probably just a dead crypto bounce. But anyway I thought some history might be relevant 1/
Actually this is pretty impressive too
OK, folks, this is getting impressive
What all this suggests to me is that the Fed may now be overreacting, with harsh tightening in the face of a not-so-severe underlying problem. 7/
Beyond the politics, what will it take to get underlying inflation down? Economy needs to cool off. But how much? Recent events suggest the Phillips curve is relatively steep when the economy is running hot, but shouldn't that be true on the downside as well as the upside? 6/
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