When Paul Krugman Gave A Verdict On US Handling Of Pandemic Shock, Inflation Under Biden: 'Pretty Good Possibility That...'

Nobel laureate and noted economist Paul Krugman questioned the prevalent belief that bringing down inflation required a recession, while stating that America’s handling of the pandemic shock under President Joe Biden will be mostly remembered as a success story.

“But won't bringing inflation down require a nasty recession? Maybe, or maybe not — that's an assertion, not a fact. And the standard economic model of stagflation, which depends on expectations, actually says not, since expected inflation hasn't risen much,” he said in a series of tweets, it was reported in October 2022.

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“In short, there's a pretty good probability that we'll look back on how America handled the pandemic shock, mostly under Biden, and see it as a big success story,” he said at the time.

Wage Growth: He asserted his views by comparing the wage growth from pre-pandemic levels. Krugman stated that the real wages of non-supervisory workers are actually higher compared to pre-pandemic levels. The overall real wages are down mostly because of food and energy, he argued.

“So real wages of nonsupervisory workers actually higher than pre-pandemic; real wages overall slightly down, but that's entirely bc of food and energy, driven by forces outside the US. Not the story you've probably heard,” he tweeted in October.

So we've returned to full employment, but with unacceptably high inflation. And inflation is bad because it reduces real wages — right? Actually, the facts if you compare the current situation with pre pandemic, are kind of surprising 1/ pic.twitter.com/srO3is9rPq

— Paul Krugman (@paulkrugman) October 30, 2022

The U.S. Federal Reserve was set to announce its monetary policy at the time and market participants had already started factoring in a relatively less aggressive central bank. The SPDR S&P 500 ETF Trust SPY closed 2.38% higher on Oct. 28, 2022, while the Vanguard Total Bond Market Index Fund ETF BND closed 0.2% lower.

Contrarian View: Experts like former Treasury Secretary Lawrence H. Summers had been projecting a contrarian view, saying soft landings from high inflation without a recession is not something that has happened earlier. 

This story was originally published on Oct. 30, 2022.

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