Paul Krugman

Paul Krugman @paulkrugman

Calculations of "underlying" inflation are basically about how far we've slid down that green arrow. They aren't irrelevant, because they offer guidance about how much more, if at all, the Fed needs to tighten. But the big debate about inflation dynamics looks largely over 10/ — PolitiTweet.org

Paul Krugman @paulkrugman

Does anyone seriously want to dispute the proposition that recent inflation dynamics look a lot more like that last picture than like the 80s redux? I mean, most core measures look like this one (chosen because it's easy to conjure up from FRED) 9/ https://t.co/oOdScgh8rf — PolitiTweet.org

Paul Krugman @paulkrugman

But anyway, the soft landing story was that went up with shocking speed could also come down with shocking speed. 8/ https://t.co/N8MMZEsb00 — PolitiTweet.org

Paul Krugman @paulkrugman

I've argued all along that this view required rejecting standard macroeconomics: after all, sticky inflation expectations are what lie behind textbook models of "clockwise spirals" in unemployment and inflation, and expectations seemed anchored 7/ — PolitiTweet.org

Paul Krugman @paulkrugman

The view Larry Summers and other have been propounding is that despite the speed with which inflation shot up, disinflation would be a slow, grinding process comparable to what happened in the 1980s, with what appeared to be a high "sacrifice ratio" 6/ https://t.co/rMl6KeK4Ep — PolitiTweet.org

Paul Krugman @paulkrugman

As in the previous picture, what had looked like a flat Phillips curve pre-2020 suddenly seemed very steep, with core inflation (by any measure) shooting up rapidly as the economy overheated 5/ — PolitiTweet.org

Paul Krugman @paulkrugman

Here u is unemployment and u* is some version of full employment — with expectations seemingly stable, I don't think we can talk about the NAIRU. And I use the ratio because in a pandemic-disrupted environment full employment may move around 4/ — PolitiTweet.org

Paul Krugman @paulkrugman

The main question seems to me to be what disinflation requires — which is closely connected to why inflation rose so fast. At this point my working hypothesis is nonlinearity: inflation responds much more to demand when the economy is hot. Something like this: 3/ https://t.co/lRFb5xoHmj — PolitiTweet.org

Paul Krugman @paulkrugman

But I'd argue that efforts to estimate underlying inflation, while of some value, are currently missing a lot of the point. If an inflation measure can change as fast as various core measures have lately, in what sense is it even "underlying"? 2/ — PolitiTweet.org

Paul Krugman @paulkrugman

Some further notes on inflation in the wake of the ECI report. We can quibble about details on the numbers, but two things seem clear: compensation growth has fallen substantially, but is still probably too high to be consistent with 2 percent inflation 1/ https://t.co/KlOwVxziVl — PolitiTweet.org

Paul Krugman @paulkrugman

I think we’re approaching the point at which Team Stagflation will have to do what Team Transitory did a while back: admit that they got it wrong, and try to figure out why. https://t.co/S8xAoCrVWj — PolitiTweet.org

Paul Krugman @paulkrugman

There's light at the beginning of the tunnel — which is really, really needed https://t.co/RV2VJ40LLi — PolitiTweet.org

Paul Krugman @paulkrugman

And come on, people, we've been discussing this possibility since 2011. No excuse for making elementary conceptual mistakes 5/ — PolitiTweet.org

Paul Krugman @paulkrugman

In effect, the govt broadly defined as Treasury+Fed would be doing exactly the same borrowing as before — except that the Fed rather than Treasury would be selling securities to the private sector. Zero inflation impact 4/ — PolitiTweet.org

Paul Krugman @paulkrugman

The other is that the coin would be "printing money" and inflationary. No. It's true that the Fed would have to release funds if Treasury drew on a coin-backed account, but this wouldn't have to increase the monetary base; it could be offset by selling Fed-held securities 3/ — PolitiTweet.org

Paul Krugman @paulkrugman

1 argument is they're gimmicky and undignified. Yes, they are. So is having a financial crisis because a faction in Congress refuses to allow the govt to pay bills it has already incurred. You don't refuse to wear a helmet in a construction zone bc you think it looks dorky 2/ — PolitiTweet.org

Paul Krugman @paulkrugman

I'm not writing much about Mint the Coin etc, bc I think the Biden plan is to give Rs as much rope as possible to hang themselves, while keeping their contingency plans quiet. But I do think I should say something about 2 bad arguments against the coin and other strategies 1/ — PolitiTweet.org

Paul Krugman @paulkrugman

I endorse this thread. You really have to work hard not to find this report encouraging. — PolitiTweet.org

Paul Krugman @paulkrugman

RT @WHCOS: Inflation IS moderating Unemployment IS down Job Growth IS up Income IS up https://t.co/V0RBPmOF92 — PolitiTweet.org

Paul Krugman @paulkrugman

And the ECI came in cool — 4 percent annualized, 3.2 excluding incentive paid. Good news for Team Soft Landing. Unfortunately too early for a drink. — PolitiTweet.org

Paul Krugman @paulkrugman

Aha. Good to know. Fewer problems with interpreting tomorrow's data. — PolitiTweet.org

Paul Krugman @paulkrugman

This is not to wave it away. If the ECI comes in hot, this will give Team Soft Landing pause. But in a fast-moving environment, even what used to seem like trivial data lags can pose problems of interpretation 5/ — PolitiTweet.org

Paul Krugman @paulkrugman

The ECI, being 4th v 3rd quarter, is roughly a measure for the 3 months ending November — which means, given how fast things seem to be moving, that it could miss a lot of recent disinflation. 4/ — PolitiTweet.org

Paul Krugman @paulkrugman

Many (not all) of these measures have fallen off a cliff (in which case it's not clear how "underlying" they are, but never mind). In the measure shown above, the 3 months ending in Dec. were a lot lower than the 3 months ending in November 3/ — PolitiTweet.org

Paul Krugman @paulkrugman

The ECI comes out only quarterly, which is annoying, but also means that it's lagging data. Many of us trying to assess underlying inflation have lately been focused on 3-month rates of change, which matched up with quarterly data. But ... 2/ — PolitiTweet.org

Paul Krugman @paulkrugman

Like many economic observers, I'm waiting anxiously for tomorrow's release of the Employment Cost Index. But there may be a big problem of interpretation, illustrated below (I'll explain in a minute) 1/ https://t.co/wcK05j8vrU — PolitiTweet.org

Paul Krugman @paulkrugman

Utility post https://t.co/x0CbillwXl — PolitiTweet.org

Paul Krugman @paulkrugman

I don't know who came up with this idea, but it surely wasn't anyone who knows anything about international monetary economics 5/ — PolitiTweet.org

Paul Krugman @paulkrugman

Argentine exports are basically all agriculture, More than half Brazil's are manufactures or fuel. So shocks to the world economy likely to cause big changes in equilibrium real exchange rate 4/ — PolitiTweet.org

Paul Krugman @paulkrugman

Argentina sends more to Brazil, because Brazil's economy is larger — but still only 15%. And the two countries' structure of exports is very different 3/ — PolitiTweet.org