Krugman wonks out

And no, I’m not inventing this diagnosis ex post. Almost 30 years ago Shiller, after a careful survey, found that “People do not tend to see inflation as a process that naturally tends to affect wages and salaries as well as goods prices.” Stantcheva has confirmed that result. They attribute wage gains to their own efforts, and don’t see any connection with price increases.

Of course, post-election Trump is, on this issue at least, telling the truth. Cutting prices — as opposed to reducing the rate at which prices are rising — is very hard. Partly this is because employers are very reluctant to cut wages, because they fear the effects on employee morale (a phenomenon closely linked to the perception that wages are earned, while prices are someone else’s fault.)