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Worth Thinking About

Felix Salmon:

[W]hile previous recessions were part of economic cycles within a certain economy, what we’re going through right now is a painful disruption from that economy to something else. I fear that the flat or declining median wages, however, might well survive the transition — at least so long as unemployment continues to remain as high as it is now. Which is one reason not to worry overmuch about inflation: if consumer spending accounts for 70% of the economy, and consumers don’t have any money, it’s really hard for prices to rise very quickly.

By Ezra Klein  |  July 10, 2009; 11:41 AM ET
Categories:  Economy , Financial Crisis  
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Comments

Hard, but not impossible. Read anything about the 70's, anyone? I'll agree inflation's probably not a problem in the short run, but going out more than a year or two it could be, no matter the shape of the economy.

And please don't bring up the Philips Curve, anyone. Liberals love to accuse free-market fundamentalists of having stopped after Econ 101. I'd say anyone who believes in the Philips Curve other than as a short-run construct stopped learning Economics after 102.

Posted by: donkensler | July 10, 2009 1:27 PM | Report abuse

That assumes that the only risk of inflation is an internal one. I think when most people worry about inflation in this crisis, they're talking about external forces, i.e., the economies of the world deciding our money isn't worth anything.

I *also* think this is an overblown fear, but I thought I should note it. :)

Posted by: roquelaure_79 | July 10, 2009 1:30 PM | Report abuse

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