Paul Krugman notes that nominal wages are falling for some workers. He worries that this is akin to a paradox of thrift where lower wages lead to less spending and the economy struggles and so on. He then notes that the economy seems to be doing better. BUT:
But the unemployment rate is almost certainly still rising. And all
signs point to a terrible job market for many months if not years to
come — which is a recipe for continuing wage cuts, which will in turn
keep the economy weak.
To break that vicious circle, we basically need more: more stimulus, more decisive action on the banks, more job creation.
Credit
where credit is due: President Obama and his economic advisers seem to
have steered the economy away from the abyss. But the risk that America
will turn into Japan — that we’ll face years of deflation and
stagnation — seems, if anything, to be rising.
I want to focus on the first two lines of he last paragraph in this excerpt:
where credit is due: President Obama and his economic advisers seem to
have steered the economy away from the abyss.
Tell your children (so that when they grow up and hear this ridiculous story repeated) that the President and his advisers don't steer the economy and that the so-called stimulus package has barely gotten started at the time that the most recent Nobel Laureate was ready to give the administration credit for saving us from the abyss.
I would add that it's a little too early to be optimistic about the future. I hope it's true. But if it is, what does Krugman have in mind when he says, "steering?" What policy can he point to that is keeping us from the abyss?
BTW, if you go here and click on the frame number 3 you'll see a chart of funds allocated and spent by the federal government in the "stimulus" package. As of the end of April the total spent was still under $100 billion of the $787 billion to be spent. Is this what has kept us from the abyss? Or maybe he means the masterfull steering of the financial sector. I'd sure like to know.
