06 Dec 2010

Stiglitz Is a Murphyite

Federal Reserve, Financial Economics 8 Comments

Pratik Talole brings this clip to our attention… Start it at 10:35 and you’ll see Stiglitz say that there is no danger of the government defaulting, because it can print money. Then the interviewer clarifies and asks if those dollars will be worth something, and Stiglitz starts laughing, saying that’s a different question.

Now you might think he’s just being cutesy and refreshingly candid, but then listen to him give the serious answer. He says he’s worried that Bernanke’s analysis is leaving out the possibility of a scenario in which unemployment stays high, squeezing wages, while the prices of commodities continue to rise. Where have I heard that before?

8 Responses to “Stiglitz Is a Murphyite”

  1. Daniel Kuehn says:

    Bob – do you think I would be right in interpreting Stiglitz here as not talking about general price inflation, though?

  2. bobmurphy says:

    DK, it’s ambiguous. For sure he’s not talking about absolute wage increases, but he definitely sounds like he’s worried about the plight of the working class. Since they don’t buy copper and aluminum directly, his fear only makes sense if workers have stagnant/falling wages and yet have to pay higher prices for everyday items.

    • Daniel Kuehn says:

      Ya – I agree its ambiguous, but I feel like we’ve been hearing in the media (well – I should clarify that we’ve been hearing in the non-Fox mainstream media) more about those sorts of commodity prices, so I wasn’t sure if Stiglitz was just saying firms are pressed with high commodity prices so they continue to squeeze workers where they have mroe leverage.

      Stiglitz is always an interesting guy to listen to, and you see this a lot, where he’s with the Austrians on several points at least. This stands out pretty strongly in his testimony with Russ Roberts as well – the two agree on about 75% of it, which is more than can be said for a lot of other non-Austrians. It’s that lurking Post-Keynesian/Austrian love-hate harmonization I guess 🙂

    • AP Lerner says:

      “his fear only makes sense if workers have stagnant/falling wages and yet have to pay higher prices for everyday items.”

      Of course, for everyday workers to have to pay higher prices, this implies corporations have pricing power. And currently, since the consumer balance sheet recession continues, corporations have little pricing power. With corporate margins at all time highs, and little pricing power, the squeeze will come in the form of margin compression, not higher consumer prices.

      Higher consumer prices will only lead to demand destruction.

  3. Blackadder says:


    I have a question. A lot of your comments seem to suggest that massive price inflation is pretty much unavoidable given the actions of the Fed over the last few years. Yet other comments of yours seem to suggest that this is not inevitable, or even necessarily all that likely, but that it is a possibility that hasn’t been considered by the establishment and/or that even a small risk of such a scenario isn’t worth it.

    My question is, how likely do you think it is that something like the Murphyite scenario will occur? 10%? 60%? 99.99%?

  4. von Pepe says:

    Since we are discovering little gems in this piece:

    1. At 6:40 Stiglitz says low interest rates casued the housing bubble.

    2. The fed caused the problem in the first place. He says it failed in its role as regulator (not of banks, etc.) of monetary policy. (at 7:45)