I've written before about the alarming consensus developing in certain wonkish circles that suddenly labor markets are tightening up, and accelerating inflation is just waiting in the wings. Paul Krugman has now weighed in several times against these "inflationistas," and his latest effort is the most comprehensive.
He adduces four arguments: First, measured wage growth is probably to some extent a statistical artifact representing the fact that during bad weather hourly workers, who are paid less, tend to be idled — making measured wages only seem to increase. Second, if you look closely at the data, the case for wage growth even existing at all is barely there. Third, wage increases are well below what they were before the financial crisis, and everything we've learned since then suggests that a greater fraction of GDP coming in the form of wages would be highly beneficial.
The fourth is especially interesting, though:
Fourth, there's good reason to believe that everyone is working with the wrong paradigm here. Ever since the 1970s, textbook macroeconomics — reflecting the experience of the 1970s — has assumed an "accelerationist" framework, in which low unemployment leads not just to rising wages but to an ever-rising rate of wage increase. But the actual data haven't looked like that for a long time. Since the mid-1990s, in fact, they have looked much more like an old-fashioned Phillips curve, with a relationship between the unemployment rate and the level of wage increase, not the rate of change of wage increase. [New York Times]
This brings to mind a Steve Randy Waldman post arguing that the economics profession has completely misinterpreted the 1970s, and the accelerationist view was wrong even back then. By this reading, inflation is even less of a concern than people assume. If true, this loads the policy scale even more heavily on the side of stimulating like mad.
Of course, as Krugman says, regardless of who is actually right about this, the relative risks involved clearly militate on the side of stimulus. One doesn't have to buy the Waldman view of the '70s for that — it will hold regardless.
In other words: Damn the inflation, Captain Yellen, full speed ahead!