15 April 2012

Paul Krugman: The US Can Learn from Canada’s 1990s Slump

So, is there still a lot of slack in the United States' labor markets? On the face of it, that seems an absurd question to ask, given the persistence of very high unemployment and an employment-population ratio far below pre-crisis levels.

Yet it is being asked, partly because we don't see strong evidence of falling inflation.

But how good a criterion is that? Sharply rising inflation would be one thing — but we don't see that either. And there's actually pretty good evidence that inflation tends to stall out at low but positive levels in the face of prolonged slumps.

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