16 Apr 2011

Krugman on Inflation and Wages

Inflation, Krugman 71 Comments

In the past on this blog, I’ve been chastised for suggesting that Keynesians nakedly assert that high unemployment and high price inflation are incompatible. Today (in a post I largely agree with), Krugman said this:

And taking the longer perspective, you can’t have a wage-price spiral if wages refuse to spiral; and all indications are that wages are being held down by high unemployment, never mind gas and food prices…

So yeah, I suppose Krugman can explain the case of Zimbabwe by saying, “In that situation, ‘all indications’ did not show that wages were being held down by their 90% unemployment rate,” but I think I can be forgiven for saying that Krugman et al. repeatedly claim that we in the US are safe from price inflation because we have high unemployment.

But please tell me why I am wrong, Daniel Kuehn…

71 Responses to “Krugman on Inflation and Wages”

  1. David S. says:

    Are you serious? We are safe from core inflation as along as we have high unemployment and are still below economic capacity.

    If we were overheating the economy, that is had been at full employment, but continued to core inflation rise, then at some point, unemployment could increase as expected future economic growth declined due to unsustainable demand.

    • Jonathan M. F. Catalán says:

      Whatever happened to ‘stagflation’?

      • David S. says:

        The difference is exactly what I mentioned. Unemployment is high and we haven’t been at full capacity. We’re coming out of massive asset deflation and a a lot of core disinflation and even deflation. It’s where we are and are coming from. Inflation would only be a problem now if we get to full-capacity, with full employment, but continue to have core inflation above the current target which seems to be about 2%. Unless and until then, we can run core inflation at maybe 5 or 6% and be fine. In fact, that’s what we should be doing.

        This is basic stuff.

        • Captain_Freedom says:

          Why do we have to be at “full capacity” before printing money raises prices?

          Money printing doesn’t necessarily have to affect the operations of idle resources. They can affect the prices of already mobilized resources and raise their prices.

          How can you even claim we have deflation? Almost everything is increasing in price.

          Catalan is right. During the 1970s there was high unemployment, and yet inflation was high as well. You claim that high unemployment implies inflation cannot get high. History and economic science refutes you.

  2. Daniel Kuehn says:

    Do you think, or do you think anyone else thinks, that inflation in Zimbabwe has anything to do with the wage bargaining process?

    Much of your “Krugman Kontradictions” seem to boil down to the presumption that Krugman or other Keynesians think economic phenomena have a single cause, all the time, everywhere.

    • Jon O. says:

      Most economic forecasts use the wage-inflation, excess-capacity issue to dismiss potential U.S. inflation concerns. I’ve heard from a number of people – who should know better – that you CAN NOT have general price inflation without stagnant wages. That’s simply not true.

      Obviously people like Krugman know that but when they keep using the wage-inflation reason to dismiss potential U.S. inflation it comes off as kind of fatuous considering all the historical expamples – in the U.S. and elsewhere – where inflation was not caused by wage pressure(or tight capacity or excess demand). Especially when we have extreme levels of monetary accomodation, large deficits, global trade/capital imbalances, major geo-political shifts and the potential for people to take basically limitless leveraged posiitions against soveriegn entities.

    • Jon O. says:

      *obviously I meant with stagnant wages.

    • Yancey Ward says:


      Krugman creates this impression deliberately. You will rarely see him cite the possibility of different causes/different possible outcomes in a single article. This is why his contradictions, when you find them, are so jarring, and it is why I never trust a single thing he writes anymore. Take this essay as an example- I could literally predict that he would cite high unemployment as a reason to not worry about inflation in US, and he does this because worrying about inflation doesn’t fit the political ideals/goals he advocates at the moment. Krugman always writes with a false certainty about things economic- something I don’t think economists have a right to do anymore.

    • bobmurphy says:

      Argh!! Daniel you drive me crazy. (But I can’t resist reading your comments…)

      Krugman’s whole point in this blog post is that the people worrying about inflation in the US are wrong. That’s why he concludes: “But there’s nothing here to suggest any reason to consider inflation a problem.”

      So if price inflation takes off here for some other reason than a wage-price spiral, then at best Krugman is making an invalid argument in this blog post. It would be like me saying, “There’s nothing in this house to suggest that a burglar can get in. I checked half the doors and they are all locked.”

      • Daniel Kuehn says:

        If you just think of a simple AS-AD model (I know it hurts for Austrians, but try!), inflation has three obvious causes: demand-pull, supply shocks (cost push), and monetary. If you think of a more dynamic model, you can add expectations.

        Krugman has amply covered what he thinks about the prospects of demand-pull inflation. Nobody is raising any real supply shock story, Krugman, Sumner, and others have amply covered why they think monetary policy has been entirely insufficcient and certainly poses no inflation risk yet, and now here Krugman talks about the expectations argument – the wage-price spiral.

        That seems to me like if you read Krugman regularly, he’s checked three doors and the fourth door (supply shocks) has been boarded up for a while and nobody is worried about that one.

        Thinking that the issues he raises in this one post exhaust what he thinks on an issue makes about as much sense as reading a post about demand deficiencies and thinking that he only thinks recessions happen because of demand deficiencies.

        • bobmurphy says:

          What’s the difference between a demand-pull and a monetary episode of (price) inflation?

          And in ZImbabwe, wasn’t the “supply shock” caused by the printing of money? Or if not Zimbabwe, interwar Germany?

        • David S. says:

          Krugman has covered it all well. The problem is Austrians don’t understand macroeconomics and are the equivalent of flat-earthers. Try explaining how even primitive laws like Newton’s law of gravity can be applied to earth when they don’t even accept the earth is a sphere. lol

          Murphy and the rest don’t even understand Krugman’s simplest posts and never will as long as they cling to that religion of theirs.

          If you haven’t seen this, Luskin, whom I disagree with on many things, nonetheless gets it nearly exactly right here.


      • David S. says:

        Bob, you may as well worry about what will happen when Jesus Christ comes back to bring about the end of the world. That’s more likely to happen than high inflation any time in the near future.

        • Daniel Kuehn says:

          re: “That’s more likely to happen than high inflation any time in the near future.”

          I wouldn’t go that far.

        • Robert says:

          Is it at all embarrassing that inflation is dramatically rising even as we speak?

          “On an unadjusted basis, prices for finished goods moved up 5.8% for the 12 months ended March 2011, the Bureau of Labor Statistics is reporting.

          This is the second month in a row that the BLS is reporting year-over-year inflation greater than 5.0%. The February rate came in at 5.6%.

          Even more alarming, for the 12 months ended March 2011, prices for intermediate goods climbed 8.9%. ”

          • Jon O. says:

            That’s true but there are about a handful of official metrics you can use to look at price inflation. On the other hand the PCE deflator, core CPI, Cleveland Fed median and trimmed mean measures are more subdued.

            It’s really a mixed bag and allows people to cherry-pick the data that fits their views. Although looking at everything (official metrics, private metrics, UofM inflation exp, commodities, financial asset prices, TIPS, inflation swaps etc.) there has been a significant uptick in price inflation and inflation expectations.

            An interesting metric is the new MIT Billion Prices Project @ http://bpp.mit.edu/daily-price-indexes/

            • Robert says:

              The MIT BIllion Prices Project shows an enormous increase in price inflation over the past 12 months as well.

              • Blackadder says:

                I took a look at the Billion Project just now and according to it, price inflation over the past 12 months has been… 3.3%.

                Not what I’d call enormous.

              • Robert says:

                Excellent contribution Blackadder.

          • David S. says:

            No and I don’t think you even know what inflation is.

            • Sandre says:


              Why are you here, if everyone here are complete idiots as you claim? Why waste your time here, wouldn’t that be better spent somewhere else, where people know what inflation, or economics is?

            • Robert says:

              Well at least you are on record as saying that even when every metric possible for measuring price is showing higher than average gains, this does not constitute inflation to you. Good luck on having anyone take anything you have to say even remotely serious from now on!

              • David S. says:

                Coming from an inflation Chicken Little, that’s a compliment.

  3. Jon O. says:

    In Jan 2002 the unemployment rate of Argentina was 25% while CPI was -1% y/y. One year later the unemployment rate was 21.5% and CPI was 40% y/y.

    In Jan 1993 the Russian CPI was ~ 2300% y/y. Considering half the population was in abject poverty at the time and the economy had been destroyed its tough to argue it was a demand/wage problem.

    In 1975 U.S. Core CPI was 11.5% y/y and unemployment was almost 9%. In 1980 Core CPI was 13.5% y/y and unemployment was 7.5%

    Price inflation comes in many forms and can be caused by a number of things. The fact that so many people believe high unemployment protects an economy from high levels of inflation is pretty scary. What do you think would happen if the the BOP system forcing capital west broke down? Answer: treasury market collapse, USD collapse, skyrocketing unemployment.

    • David S. says:

      In the first case, Argentina abandoned its dollar peg. That’s the convenient little detail you left out, which is actually the entire story.

      In Russia you’re talking about a nascent capitalist dictatorship rising from the wreckage of a collapsed communist empire, without a sufficient budget(hence our spending our money to help secure their nukes), and which didn’t even have the beginnings of credibility on monetary stability, even before they demonstrated gross irresponsibility.

      And in ’75 in the US, you had a supply shock vis-a-vis OPEC oil and Nixon having pressured Burns to over-stimulate the economy to help him win re-election. It was caused purposely. Add to that the spiraling inflation expectations due to the adherence to the old Philip’s curve model, and you have high inflation.

      Of course, the big difference there was there actually was high inflation and the evidence was everywhere. This is a very different situation from those above and the fact that you even mentioned them means you don’t know the first thing about what you’re talking about.

      • Jon O. says:

        So what you’re saying is that inflation can arise when unemployment is high and capacity is not constrained? Ok, thanks for confirming that.

        I’m aware of what caused the inflations I mentioned, the point was that the slack in employment, capacity, and demand DID NOT prohibit elevated rates of inflation. The point was: there are a number of mechanisms that can create inflation when there is slack. You described three such mechanisms!

        Since we’re tying to forecast where inflation will go the facille observation that there is mild price inflation now matters little. No one is saying that there is high core inflation now, but there could be in the future.

        See, things change, and the future is different from the present.

        • David S. says:

          The sun could also explode tomorrow.

        • David S. says:

          The point is you have to be on the other side of the hill, and we aren’t close. First, we have to climb out of this hole and stimulate beyond the point of full-employment and start seeing wage inflation really taking off. That’s when you have a problem.

          But, we’ve had a Fed obsessed with controlling inflation since Volcker such that they’ve even changed the mechanism by which they’ll cool down the economy, which is via reserve requirements. The Philips curve model-driven inflation is long gone and there’s no evidence Obama’s pressuring the Fed to do more. In fact, he didn’t even care enough to get his people on the FOMC for before more than a year had passed after taking office.

          The Fed is under-stimulating now and people are worried that our Treasury will collapse and they’ll start printing money to pay government debt service and other obligations.

          • Jon O. says:

            It’s kind of funny that Bob is getting criticized for over-simplifying the mainstream view of inflation mechanics and you are doing exactly what Bob was criticizing in the first place. It’s like you wanted to post vicariously through Bob’s original caricature of Krugman and somehow managed to snatch defeat from the jaws of victory.

            “The point is you have to be on the other side of the hill, and we aren’t close.”

            No, the whole point is you don’t have to be on the other side of the hill. You do if you’re looking for demand driven inflation but there are a number of ways inflation can manifest. Which is what most of us in these comments have mentioned. You fail to grasp that.

            Its quite a leap to make the current FOMC out to be hawkish. We have negative real rates at the short end, their balance sheet has more than tripled, they have back-stopped everything save Lehman, Bernanke has implied he’s targeting equity prices, they drove mortgage rates to historic lows, they are directly monetizing the belly of the curve, they are letting banks Arb free money from the rate strucutre, and – except for a few irrelevant members and non-voting regional bank presidents – they continue to talk future rate expectations down.

            What would make you happy? For the fed to start paying people to borrow? Maybe they should drop the pretense and just start taking down the entire treasury auction?

            • David S. says:

              I never said that there aren’t other sources of inflation. I’m only referring to inflation via too much monetary stimulus.

              And when it comes to the hawkish Fed, who does the market say is right so far? It sure ain’t you.

              • Jon O. says:

                Well if you you ignore the shift in implied libor (eurodollar curve), the yield curve, the recent move in nominal and fixed-floating swap rates, real rates, inflation swaps, TIP break-evens, inflation floorlets, dollar index, equity prices, energy prices, metal prices, and food prices you’re correct.

            • David S. says:

              Had to reply up here.

              is this the yield curve?


              Are you talking about these inflation swaps?


              Dollar index?


              Select the Euro and compare and you’ll see that it is a large factor in the dollar index decline, given that the Euro is about 57% of the dollar index.

              And the various commodities, eh?

              Now compare the dollar index to oil:


              While you’re at it, notice the stark differential price run up in some commodities versus others, like some ag or metals versus oil.

              lol You don’t know the numbers, and/or you don’t know how to interpret them and I doubt you’ve ever made even a dollar as an investor. If you have, pull your money out now while you’re ahead. because you’re clueless.

              • Jon O. says:

                How you can look at the yield curve(it used to be inverted), inflation swaps(they were negative at one point), TIP break-evens(they were negative at one point), commodities ,forex value of the dollar (against almost any currency) – and everything else i mentioned – and not see a serious shift in inflation expectations is mind-boggling. LOOK AT THE CHARTS YOU POSTED! If the markets thought the fed was hawkish(thats what we are discussing) these markets would be heading to where they were in 2008 not back to where they were pre-crisis.

                On a side note: its ok for you to be ignorant of this stuff, I don’t expect most people to get it ( I mean, how many people know what an inflation floorlet is?) But to be so brazen, and insulting, in doing so says a lot.

                My guess: you’re a sophmore or junior at a second-tier college who’s taken a few courses, read a few blogs and has it all figured out? Am I close?

          • bobmurphy says:

            David S. wrote:

            “First, we have to climb out of this hole and stimulate beyond the point of full-employment and start seeing wage inflation really taking off. That’s when you have a problem.”

            OK Daniel Kuehn, can you at least agree with me that David S. (who presumably is not really Paul Krugman writing under a pseudonym, I grant you) just said that we won’t see rising prices until we get full employment and wages start rising? I mean, he literally just said that, and there’s no confusing the context of the discussion. He has been reading what you and I have been talking about.

            So please tell David S. that he’s totally wrong and is engaging in a caricature of Krugman’s views.

            • David S. says:


              I’m referring to uniform inflation caused by excessive monetary stimulus, not supply-side, etc.

              And my views have nothing to do with Krugman and obviously only represent me.

            • Daniel Kuehn says:

              Sure – I’d say he’s too focused on employment and wages.

              Practically speaking he’s probably right. I doubt we’re going to run into other factors (loose monetary policy sufficient for generating high inflation, for example) until we do see full employment again. He’ll probably end up being more right than you, but sure – given his emphasis on full employment exclusively on here I’d say “caricature” works.

              • David S. says:

                Employment was merely an example. More generally the output gap will have to close first. lol

                Keep trying to parse though.

              • bobmurphy says:

                DK wrote:

                Practically speaking he’s probably right. I doubt we’re going to run into other factors (loose monetary policy sufficient for generating high inflation, for example) until we do see full employment again.

                OK at this point, DK, can you do a blog post on this? And please spell it all out for us Austrians, since we’re slow on the uptake.

                It looks to me that Bernanke dumped a trillion+ in high-powered money into the system, it immediately drove up many asset and commodity prices, and over time it is working its way into all other prices.

                So please explain how you fit that type of thing into your model. (Or a standard Keynesian model, if you want to state it without claiming you personally adhere to it.)

                I mean, the very champions of QE2 etc. say that it raised inflation expectations. So it seems to me that we’re arguing over a matter of degree, not kind.

                I truly don’t understand why you draw a distinction between cost-push and demand-pull inflation, on the one hand, and inflation driven by loose monetary policy, on the other.

                So can you spell it out, all in one spot, so that if I have a problem with your argument, you can’t just say, “Well I didn’t cover all the bases”? I’m not saying that sarcastically, I’m serious.

  4. AP Lerner says:

    Sorry folks, the piece of the puzzle you are missing on hyperinflation is the central government’s inability to collect taxes. Let’s be very clear, hyperinflation is a political event and the result of a central government losing its ability to enforce tax collections. Once I no longer have to pay taxes with USD, why would I hold USD? They are worthless. Taxes are the one and only liability I have that MUST be settled with the currency issued by the US government. This is what gives the currency value (I know the Austrians are hyperventilating right now…but this is the world we live in)

    No matter how many reserves the Fed creates, it cannot result in hyperinflation on its own. Outside of speculative asset bubbles that temporarily raise inflation expectations, reserve creation won’t even result in meaningfully sustainable price inflation since it does not push demand higher than the output potential of the economy.

    Now, if the US government becomes completely dysfunctional and the population no longer fears not paying its tax liability, then all hope is lost and hyperinflation will take hold. But sorry, Ben Bernanke, no matter how many reserves he creates, cannot create hyperinflation on his own.

    • Bob Roddis says:

      I can’t believe that you people haven’t learned your Mosler MMT lessons yet.

      “Taxes function to regulate aggregate demand, not to raise revenue per se. In other words, the government taxes us, and takes away our money, to prevent inflation, not to actually get our money in order to spend it. Restated one more time: Taxes function to regulate the economy, and not to get money for Congress to spend.” Page 30.


      I can’t believe that no one gets this yet. What could possibly be more self-evident?

      • David S. says:

        Mosler’s right there, but I’m not an MMT guy.

        • Bob Roddis says:

          In 1980, Abba Lerner (1903-1982), the Godfather of MMT/Functional Finance, was concocting a ghastly and barbaric Rube Goldberg system where one would be precluded from raising (setting) one’s one prices without trading the right to do so with somebody else under penalty of statist law:

          Initially he toyed with various administrative wage and price control policies, but he found those lacking and soon gave them up. He replaced them, first, with a tax based incomes policy and ultimately, a market based[!!!] incomes policy in which property rights in prices are set and individuals have to buy the right to change prices from others who change their price in the opposite directionn. It was this idea that formed the basis of our market [!!!!!!] anti inflation (MAP) book. (Lerner and Colander 1980) Under MAP, rights in value added prices would be tradable so that any firm wanting to change its nominal price would have to make a trade with another firm that wanted to change its nominal price in the opposite direction. Thus, by law, the average price level would be constant but relative prices would be free to change [page 12]


          Apparently, inflation was more of a problem within the fiat flick-of-a-keystroke system of theft and fraud than the MMTers have acknowledged. If taxes cure inflation, why was this insane system proposed near the end of Lerner’s life?

          BTW, if it ever appears that I am saying something positive about Keynesians, Keynesianism and/or MMT, I’m probably joking.

          • David S. says:

            It looks like you don’t understand MMT.

    • David S. says:

      Countries have to work very hard to create hyperinflation. Zimbabwe essentially didn’t even have a treasury anymore when they started with hyperinflation.

  5. Bob Roddis says:

    Let’s recall what Hayek said about his friend Lord Keynes, his double-talk and how his double-talk became so influential:

    Now notice several things. Keynes was a genius, but a genius who spent only a fraction of his time on economics – one of the busiest men I ever knew. But he knew very little economics except particularly the Cambridge tradition, and he was much more concerned to influence policy at a particular moment than develop a true theory. In fact, the last time I talked to him was after the war. I knew him very well. When I asked him wasn’t he getting alarmed about what his pupils who swallowed all this theory were doing after the war when the danger was clearly inflation, his answer was:

    “Oh, don’t mind. My theory was frightfully important in the 1930s [to bring down artificially high British wage rates]. Then, we needed an expansion to correct a situation. Do trust me. If this theory becomes dangerous, I’m going to turn public opinion around like this”.

    Six month later, he was dead. And as usual, what happened is that the very doctrine – pupils of this man did apply to completely different situation a theory which was designed to influence policy in a particular situation


    It was entirely ad hoc. He was one of the most fascinating men I knew, but the personal magnetism of this man not only persuaded the younger generation of economists. And If I had been a much younger man and a student, I probably would have been swept off my feet as were most of the people.

    Mr. Buckley: Like Nixon.

    Mr. Hayek: No, no. (laughter).


    Mr. Hayek: You’re perfectly right, but I’d like to add one thing. You see, another political element was that, of course, politicians just lapped the argument and Keynes taught them if you outspend your income and run a deficit, you’re doing good to the people in general. The politicians didn’t want to hear anything more than that – to be told that irresponsible spending was a beneficial thing and that’s how the thing became so influential.


    • David S. says:

      That’s interesting. Have you seen Friedman’s similar comments on Keynes?


      You might want to skip to the :50 mark.

      • Bob Roddis says:

        The most outstanding explanation of this episode is in a book by some guy named Robert P. Murphy called “The Politically Incorrect Guide to the Great Depression and the New Deal”:


        The lesson of the book is basically wondering how anyone could have ever thought that Keynesian and/or New Deal policies ever cured anything or ever created anything other than misery and poverty.

        • David S. says:

          Nah. Austrians don’t know anything about history. I’d do as well to read about Shirley McClaine’s past lives.

    • Daniel Kuehn says:

      I’ve always heard that Hayek was a nice guy, but he came across as pretty nasty in these interviews. Ever since I first listened to them, I’d been impressed that he managed to get such a “nice guy” image. Perhaps it’s simply relative to Mises. I’m not saying Hayek was completely terrible, but he clearly wasn’t above cheap shots.

      • Bob Roddis says:

        Is there a nice way of saying, “It’s all your fault, you and your double-talking BS”?

        The essence of Hayek’s theory was that most everything we experience as horrible in the world of economics can be attributed to Keynesian-style policies in the broad sense that government spending and money dilution are at the root of most evil. In other world, it’s all your fault. (I refuse to get into a pissing contest of guessing whether Keynes would have or would not have supported money dilution and/or unpayable debt as a solution to a Keynesian boom/bust).

        The Austrian critique existed in its almost full fledged glory PRIOR to the anything Keynes ever wrote. Except for two off-handed paragraphs that do not identify the Austrian theory (and which demonstrate a complete lack of comprehension), there is no mention of the Austrian theory in “The General Theory”. Neither Keynes nor his acolytes EVER bother to identify, much less refute, basic Austrian concepts which are axiomatic to human existence. For starters, the entire Keynesian scheme is defective ab initio due to THE KNOWLEDGE PROBLEM.

        Further, the essence of the Keynesian theory is that prior economic theory could not and did not explain depressions such as the Great Depression and therefore markets need the guiding hand of the omniscient magic bureaucrat. That is a lie and a complete falsehood because the Austrian theory explained the cause of depressions but that explanation was purposefully and meticulous ignored by Keynes. That Keynesian dog and pony show continues to this day.

        Considering that Keynes pulled a dishonest end-around regarding Hayek, I think Hayek’s level of courtesy is almost super-human.

        • Daniel Kuehn says:

          re: “For starters, the entire Keynesian scheme is defective ab initio due to THE KNOWLEDGE PROBLEM”

          I must be pretty dense, then, because somehow I’ve managed to take both Keynesianism and the knowledge problem seriously. Clearly I’m missing something.

          • bobmurphy says:

            I must be pretty dense, then, because somehow I’ve managed to take both Keynesianism and the knowledge problem seriously. Clearly I’m missing something.

            Admitting you have a problem is the first step to recovery, Daniel. We’re all proud of you.

  6. Bob Roddis says:

    Pater Tenebrarum has a blog post in a similar vein, Risk is Growing like a Weed –Money Printing and Rising Prices:
    Given that Ben Bernanke himself has stated that pushing up stock prices and lowering risk premia more generally in order to create the so-called ‘wealth effect’ was one of the policy’s goals, some people argue that ‘success’ has been achieved. One person so arguing is none other than Paul Krugman, who now calls the rising stock market the ‘new monetary policy transmission mechanism’, which is supposed to have ‘replaced housing’ as the ‘transmission mechanism’ of yore. Krugman wisely left a back door open by stating that he is unsure of the sustainability of the recovery.


    He quotes “one perceptive reader” from Krugman’s comments section:

    “Since economies don’t have or need “traction”, your Krugmanite model is silly, worthless and misleading. We always know what the “transmission mechanism” for money dilution is: Theft of purchasing power from those holding the existing money and other Cantillon Effects. If the new spending was based on an increase in stock prices, no new “wealth” was created. Instead, the Fed’s manipulations merely shifted existing purchasing power to those purchasing or owning stocks. The rise in stock values did make the owners of those stocks richer in the short run vis-à-vis people who lost purchasing power and induced them to spend more than they would have without the artificial grant of stolen purchasing power.”

    The “perceptive reader” is not identified, but due to my superior sleuthing skills, I’ve identified him:


  7. Dan says:

    Yep us stupid Austrians keep buying gold and silver to protect against inflation. Boy do we have egg on our face. What morons Jim Rogers and Marc faber have been telling people to buy commodities since the late 90’s. They must not read Krugman and David S.

    • David S. says:

      Yes, Rogers and Faber are morons and if you’d actually check market data, you’d understand that US inflation’s not even a factor to be considered in the rise of gold and silver prices, except where it’s led to expected continued economic recovery.

      For example,


      At least Rogers acknowledges some non-inflation related supply/demand dynamics.

      • Dan says:

        Darn those morons for making me money on gold and silver. I’ve been kicking myself as I watch silver go up about 140% in the past 10 months. I only bought them because I was concerned about inflation eventually becoming rampant from the Bernank money printing spree. What a moron I was to do so. I mean I knew there were plenty of other reasons to buy gold and silver besides as an inflation hedge but my biggest concern was inflation. I’m just a lucky dolt I guess but I’m sure David S will laugh last when gold and silver come crashing down to never rise again. If only I would have stayed in the dollar. Argh… I just realized that stocking up on all the essentials months ago was a bone head move. What a waste of money. No chance we see prices rise to justify having done these moronic things to prepare for inflation.

        • David S. says:

          Apparently, you’re incapable of understanding even the simplest of points, which is why you listen to these idiots you mention. Any idiot can see that supply hasn’t kept up with demand for commodities for around ten years. I guess you don’t understand there’s such a thing as being right for the wrong reasons.

          And at this point, if you’re not wealthy, then you have no idea what you’re talking about, because you should’ve been in derivatives this whole time.

          • Dan says:

            Hmm… I wonder if the increase in demand for commodities like gold and silver might be because people are concerned about inflation? Doubtful, China’s central bank must be buying all that gold to make jewelery. Well an idiot like myself just can’t figure this complicated stuff out. I just follow idiots like Jim Rogers. I mean what does that guy know about commodities? Well thankfully I keep getting right for the wrong reasons.

            I bow to the brilliance of David S. Aren’t you the same guy who paid for one of Dr. Murphy’s classes just to mock it? You should’ve bought some silver with that money for the wrong reasons like I do.

          • Sandre says:

            Why don’t you play with derivatives instead of being an annoying little twit on this blog? What do you get out of all these comments directed at people who don’t understand anything you are commenting about?

            • David S. says:

              Well, another example of irrelevancy. Some moron spends a billion on gold to hedge against inflation when the gold supply’s been falling for 10 years. Did he mention that? Put this against exploding retail and industrial demand in the developing world and you have most of the explanation for the rise in gold prices.

              Maybe you didn’t even bother to read what I linked to above, which wouldn’t be surprising since you apparently don’t read anything relevant anyway.

            • David S. says:

              Well, when you retire young, it gives you time to play with the natives.

              • Sandre says:

                If you are so good, why don’t you reveal your true identify, Many here post under their real full name. If you have so much to say, why don’t you publish it under your real name. Why don’t you do something fun & productive with your real time, instead of doing things that are obviously(from your comments) raising your blood pressure.

            • David S. says:

              Reveal your full name first, and maybe I’ll reveal mine. I hesitate to give some of you whacked peasants any hope of trying to assault me, even though you probably couldn’t get into my neighborhood.

              • Dan says:

                I used to work with a guy who would “accidentally” drop a magnum condom out of his wallet when talking to girls. You remind me of him.

          • Dan says:

            Wow! These idiots bought gold for the wrong reason too. I can’t believe how many idiots are buying gold to hedge against inflation. Man, we are lucky we keep getting it right for the wrong reasons.


            • David S. says:

              Well, another example of irrelevancy. Some moron spends a billion on gold to hedge against inflation when the gold supply’s been falling for 10 years. Did he mention that? Put this against exploding retail and industrial demand in the developing world and you have most of the explanation for the rise in gold prices.
              Maybe you didn’t even bother to read what I linked to above, which wouldn’t be surprising since you apparently don’t read anything relevant anyway.

  8. AP Lerner says:

    “It looks to me that Bernanke dumped a trillion+ in high-powered money into the system,”

    The concept of high powered money is nonsense. Banks never need reserves before lending. Never. In fact, reserve requirements are met AFTER all profitable loans have been up to the banks capital position. The increase in the monetary base is has ZERO impact on a banks lending decisions, and will not lead to credit creation, and will not lead to a wage-spiral. Please see the recent Fed data on consumer lending. It continues to collapse.

    “it immediately drove up many asset and commodity prices”

    These is from the portfolio re-balancing channel. Side bet: when QE2 runs it course, commodities stop rising. Some of the speculative money will move on. We are already starting to see that in today’s market activity.

    “and over time it is working its way into all other prices.”

    Smart money says no. And as austerity makes its way through the private sector, we’ll be talking about disinflation/deflation again very soon.

    • bobmurphy says:

      AP Lerner wrote:

      These is from the portfolio re-balancing channel. Side bet: when QE2 runs it course, commodities stop rising. Some of the speculative money will move on. We are already starting to see that in today’s market activity.

      Well I wouldn’t take that side bet, since it is my position that Bernanke has been driving the increase in asset and commodity prices. I’m glad you agree with me. I felt lonely with all these nutty Keynesians telling me different!

      • David S. says:


        If you think it’s probably Bernake driving the increase in commodity prices, why such the discrepancy in the rates of increase commodity-to-commodity?

        Click on the various commodities in that link below and compare the rates of growth in prices. Be sure also to compare their price levels to mid-’08.


        And why are commodity prices overall still well below their mid’08 levels, as reflected in commodity futures indexes, like this one?


        Is being about 26% below the mid-’08 high significant? lol

        Yes, QE has helped drive commodity prices up some, but primarily through increased US demand with inflation at just over 2%.

        Your claims are absurd and this is one reason you apparently still have to work for a living.

        • Captain_Freedom says:

          If you think it’s probably Bernake driving the increase in commodity prices, why such the discrepancy in the rates of increase commodity-to-commodity?

          Inflation of the money supply doesn’t affect all goods equally.

        • Tel says:

          Well after checking commodity prices, I can see that nearly everything made between 10% and 15% gain (per annum rate) as averaged over the past 6 or 7 years. Some things showed a spike in 2008 prices (e.g. oil) but those that did also showed a crash right after in 2009 so after tipping the spike into the hole, that’s just speculative bubble and bust, says nothing about the system as a whole. Sure some people made a lot of money on the speculative bubble by selling at just the right time… big deal, some people make a lot of money playing poker too, doesn’t indicate anything about economics.

          The only exceptions I can find to the rise in commodity prices have been pigs (govt regulated market) and lumber. The only explanation I can think of for the decline in lumber prices is the decline in new home building which is what you would expect after decades of artificial stimulation in the housing market.

          Sure there is some variation, I mean sugar as averaged over 8 years made 19% per annum gain, copper over the last 6 years made 20% per annum gain (and those are conservative estimates, if you bought at the right time you could have made a lot more)… compare that to official inflation rates, it’s a freaking joke.