Krugman: Wage Cuts Blow

The cost to employ people in the private sector rose only two-tenths of a percentage point in Q1, the lowest increase on record.  If recent trends continue, wages will soon be falling.

Although some companies use pay cuts as a way to avoid mass firings, Paul Krugman notes that the overall trend isn’t good news. 


Because people whose salaries get cut can’t buy as much stuff. And that forces other companies to make pay cuts. Then their workers can’t buy as much stuff.  And so on.

Krugman’s solution? 

[M]ore 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.

We’re with him on the banks.  Read the whole thing here >

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