Monday, April 07, 2014

Krugman on Kapital

I comment on Kevin Drum commenting on Paul Krugman (do click the links) I think that Krugman is wildly over theorizing and that even you (Drum) and Cowan are over theorizing a little. It is absolutely clear that when you ask people why they fear inflation they assert that inflation implies increasing prices without increasing wages (or nominal incomes generally). Most people assume that the alternative to double digit inflation was stable prices with the same high nominal wage growth without reduced employment. Let's ask a Nobel memorial prize winner who asked research assistants to ask people http://www.nber.org/chapters/c8881.pdf . There is nothing there about the rich and the poor or about COLAs or anything as sophisticated as you, Cowan and especially Krugman assume. As noted by Krugman, the median household didn't do so badly in the 70s. Look you could also try for a political economy (Krugman) or psychology (Drum) based explanation for why the median US adult wants the foreign aid budget to be cut by 5% of total Federal Spending (without noting the detail that it is currently less than 1%). I shouldn't be totally surprised that two economists slip in the assumption that people are more or less rational, but with your more relevant educational qualifications you should know better (you usually do especially if by economists one means economists other than Krugman).

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