Inflation plus recession equals stagflation, right? Wrong, Paul Krugman argued vociferously yesterday, there cannot be a wage-price sprial (and therefore stagflation) with out higher wages. Krugman is now joinged by Merrill economist David Rosenberg. Reuters:
“It is utter nonsense, in our view, to be talking incessantly about stagflation,” Merrill Lynch economist David Rosenberg wrote in a note to clients, pointing to strong productivity gains and flat wages.
Three decades ago, when inflation was soaring and the U.S. Federal Reserve had to drive up interest rates to get it back under control, powerful unions had the clout to push for higher pay to compensate for rising prices.
That power is largely gone now.
“Instead of running out and going on strike for higher pay, people are adjusting by driving less, riding their bikes, car-pooling, or using mass transit,” Rosenberg said