Here they go again
Four years ago, some of us watched with a mixture of incredulity and horror as elite discussion of economic policy went completely off the rails. Over the course of just a few months, influential people all over the Western world convinced themselves and each other that budget deficits were an existential threat, trumping any and all concern about mass unemployment. The result was a turn to fiscal austerity that deepened and prolonged the economic crisis, inflicting immense suffering.
And now it’s happening again. Suddenly, it seems as if all the serious people are telling each other that despite high unemployment there’s hardly any “slack” in labor markets — as evidenced by a supposed surge in wages — and that the Federal Reserve needs to start raising interest rates very soon to head off the danger of inflation.
To be fair, those making the case for monetary tightening are more thoughtful and less overtly political than the archons of austerity who drove the last wrong turn in policy. But the advice they’re giving could be just as destructive.
What are they agitated about this time? Rising wages. That's right. After years and years of wage stagnation caused by the greed, avarice and malpractice of financial elites, the mere prospect of workers getting a raise is so outrageous that they need to put the brakes to this anemic economy. And Krugman points out that the data is far from clear that wages are actually rising. But whatever, it's time to get back to taming non-existent inflation.
Krugman examines why that might be:
Part of the answer, I’d submit, is that for some people it’s always 1979. That is, they’re eternally vigilant against the danger of a runaway wage-price spiral, and somehow they haven’t noticed that nothing like that has happened for decades. Maybe it’s a generational thing. Maybe it’s because a 1970s-style crisis fits their ideological preconceptions, but the phantom menace of stagflation still has an outsized influence on economic debate.
Then there’s sado-monetarism: the sense, all too common among in banking circles, that inflicting pain is ipso facto good. There are some people and institutions — for example, the Basel-based Bank for International Settlements — that always want to see interest rates go up. Their rationale is ever-changing — it’s commodity prices; no, it’s financial stability; no, it’s wages — but the recommended policy is always the same.
Finally, although the current monetary debate isn’t as openly political as the previous fiscal debate, it’s hard to escape the suspicion that class interests are playing a role. A fair number of commentators seem oddly upset by the notion of workers getting raises, especially while returns to bondholders remain low. It’s almost as if they identify with the investor class, and feel uncomfortable with anything that brings us close to full employment, and thereby gives workers more bargaining power.
I think it's a little bit of all of that, with a healthy portion going to the latter. I think there are quite a few very wealthy types who have their money prudently invested in bonds and they want a little sumpm-sumpm from the 1% looting we've seen over the past few years. Sure, they've been making huge gains just from the fact that they have so much to start with. And I'll guess they have investments in equities as well, which means they've made a killing. But come on ... these low interest rates just aren't moral. The rich deserve to have their investments make a lot of money because they're so good (...and we're so evil.)
It's time to put a stop to all this coddling of the working class. Tamp down those wages before they get all spoiled and think they deserve benefits too! Next thing you know they'll start forming unions and agitating for vacation time and then we'll be just like Europe and everything will go all to hell. Best nip it in the bud.