My comments on Thoma's Economist's View blog today: http://economistsview.typepad.com/economistsview/2011/04/paul-krugman-the-intimidated-fed.html#tpe-action-replied-6a00d83451b33869e201538e34ff2c970b
Last I heard inflation is the cheap way to pay down enormous debt -- and isn't inflation the way to "painlessly" reduce the real price of real estate; the classic way severe housing slumps (caused by burst bubbles) end? ******
First and foremost is inflation the cheaper and quicker way out of federal (Chinese) debt and out of our busted housing bubble (historical average time to get out I just read in one of David McWilliams' books: 5-7 years)? Which busted bubble is threatening us with a lost decade or two. Is it or is it not; let's get the giant positive(s, plural) established before we weigh the trade offs.
Is it or isn't it?
Second, if we had an adequate safety net we would only have to worry about some retired people living a little less enjoyably versus pulling out of two economic tailspins that threaten to crash us fatally. But since as a country we never worried about adequate safety nets before why start now?
We work people for less and less and less every year for the same work even as average outputs doubles (since 1968 -- back when the minimum wage was $10/hr adjusted and the median wage was but 20% lower than today's average person's wage) and then we set them out to pasture -- or should I say to sleep in the street. Minimum SS and maximum food stamps together come to about $900/mo -- eat or stay indoors, your choice.
Why start worrying about the elderly now? ???
******
What the great majority of workers in the American labor market -- not the European -- suffer is a total collapse of economic bargaining power along with the necessarily concomitant loss of political muscle -- Americans not Europeans.
Which has left in its wake a federal minimum wage that is now $1/hr below Eisenhower's (really senate majority leader LBJ's) 1956 minimum wage and $3/hr below LBJ's 1968 minimum wage -- following the "big" 2007 raise! !!! Meantime the median (average person's) wage has grown 25% since 1968. All the above while average income grew 100%! !!!
15% of income share shifted from the bottom 90% to the top largely 1% -- disproportionately to the top 1/10 of 1%. I think we can agree that the doubling of per capita output over two generations is brought about by (maturing not brand new) technologies (what tripped up Malthus) and not by 25X better paid linebackers, TV news readers or even CEOs. Just my amateur guess but shifting that 15% back could cause 30% inflation over whatever time period with the back and forth adjustments: a perfect place to start, killing every bad bird with one stone?
Across the better paid OECD world and even in the second (Argentina) and third (Indonesia) worlds there is a DECADES OLD answer to America's race-to-the-bottom: legally mandated sector-wide labor agreements -- an elegant theory that unarguably works.
Ask your favorite progressive economist about sector-wide as the answer to the race-to-the-bottom. You will have to ask I am afraid; they will not volunteer the knowledge. They have understood the benefits and hopefully the absolute necessity of sector-wide agreements all their professional lives (started in post-war Germany to moderate a potential labor race-to-the-top -- works just as well opposite polarity) but they will never tell anybody -- too lost in diagnosing today's symptoms, they never ponder or at least never mention out loud the easy cure.
You know, 10 MLKs would not have gotten the 1964 Federal Civil Rights Law past the murderous US Senate of the time with JFK or Obama president. LBJ (not known as a giant intellectual policy wonk) got it through because he had the fire in his belly -- he told Senate nothing else was ever going to happen until that bill passed and he meant it -- he out waited the filibuster 84 days (also passed Medicaid, Medicare, $10/hr minimum wage, etc., etc.).
Supermarket and airline employees would kill for sector-wide agreements: good place to start (try German heavy or Canadian lite).
MORE FROM THE SAME THREAD:
"i am not so fond of "inflating our way out" myself. i prefer "taxing our way out" and paying our bills."
Not when the overseas debt becomes so large it is building a vicious cycle-potential tail spin from which we may not be able to recover -- we are said to be approaching that trap; ask a Republican.
Not when the economy may be stuck in doldrums for another 5-7 years if our housing over-supply/prices-stuck-too-high trap is not resolved (by inflation one way or the other -- slow or fast); people have to get back to work. I'm not worried about paying back the Chinese in discounted dollars -- the Chinese have been pegging the yuan artificially low to increase their exports forever. Manipulating currency is standard operational procedure for all nations.
Must be noted here that the first $4 trillion of recent deficits were Bush II tax cuts for the rich -- which bankers who got the trillions from people who couldn't even spend it used it fuel the housing bubble -- all the while Republicans rashly deregulated banks so they would have no trouble at all getting all that cash out of deposits to people who could not even pay back. Whence the burst bubble forced Democrats to go more trillions into national debt to avoid a depression.
Inflation caused by shifting 15% of income share back to the lower 90 percentile earners (causing price rises from pay raises) could end up killing all three giant birds (great wage depression is number three) with one stone.
What exactly is the big need for under 2% inflation anyway? Most of my long life until recently inflation has run between 3% and 5% a year -- except for the double digit inflation of the late 70s. What's the big harm?