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June 15, 2014

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Posted: 15 Jun 2014 12:06 AM PDT

'You Can’t Have A Wage-Price Spiral Without Wages'

Posted: 14 Jun 2014 09:05 AM PDT

Paul Krugman:

You Can't Have A Wage-Price Spiral Without Wages: There was a fairly characteristic argument over dinner last night about when the Fed should tighten. I'm in the camp that says it should wait until we see wages rising at least at pre-crisis rates. The other side says that wages are a lagging indicator, and if it waits that long the Fed will be behind the curve.
My answer to this is that I'm much more worried about a slide into a Japan-style trap of low or negative inflation than I am of a return to 70s-style stagflation, and that the big risk is that the Fed will tighten much too soon.
One thing should be clear: there is no sign of wage pressure... — and also no hint that we've been closing the gap between actual and potential output.
So my plea to the Fed: hold your fire.

That's my pleas as well.

'Does the Right Hold the Economy Hostage to Advance Its Militarist Agenda?'

Posted: 14 Jun 2014 09:05 AM PDT

Dean Baker:

Does the Right Hold the Economy Hostage to Advance Its Militarist Agenda?: That's one way to read Tyler Cowen's NYT column noting that wars have often been associated with major economic advances which carries the headline "the lack of major wars may be hurting economic growth." Tyler lays out his central argument:
"It may seem repugnant to find a positive side to war in this regard, but a look at American history suggests we cannot dismiss the idea so easily. Fundamental innovations such as nuclear power, the computer and the modern aircraft were all pushed along by an American government eager to defeat the Axis powers or, later, to win the Cold War. The Internet was initially designed to help this country withstand a nuclear exchange, and Silicon Valley had its origins with military contracting, not today's entrepreneurial social media start-ups. The Soviet launch of the Sputnik satellite spurred American interest in science and technology, to the benefit of later economic growth."
This is all quite true, but a moment's reflection may give a bit different spin to the story. There has always been substantial support among liberals for the sort of government sponsored research that he describes here. The opposition has largely come from the right. However the right has been willing to go along with such spending in the context of meeting national defense needs. Its support made these accomplishments possible.
This brings up the suggestion Paul Krugman made a while back (jokingly) that maybe we need to convince the public that we face a threat from an attack from Mars. Krugman suggested this as a way to prompt traditional Keynesian stimulus, but perhaps we can also use the threat to promote an ambitious public investment agenda to bring us the next major set of technological breakthroughs.

Another 180 on Piketty

Posted: 14 Jun 2014 09:04 AM PDT

Since we are looking at models of how to respond to one's own errors:

Another 180 on Piketty's Measurement: ...yes, I'm doing another 180. It seems clear that the bulk of the evidence suggests that the FT, not Piketty, is guilty of sloppiness. Piketty's response is convincing, and all-told, his book (with its thoughtful discussion, meticulous footnotes, detailed online technical appendix, freely-available datasets, etc. -- see his fine website) remains a model of careful social-science measurement as reported for a lay audience. ...

Honorable and impressive. Waiting for Chris Giles to act as a model...

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