There's the rub | Arkansas Blog

Monday, May 4, 2009

There's the rub

Posted By on Mon, May 4, 2009 at 7:47 AM

Paul Krugman talks about the "paradox of wages."  Falling wages are a symptom of a sick economy, he writes, and one that can make it even sicker.

We’re suffering from the paradox of thrift: saving is a virtue, but when everyone tries to sharply increase saving at the same time, the effect is a depressed economy. We’re suffering from the paradox of deleveraging: reducing debt and cleaning up balance sheets is good, but when everyone tries to sell off assets and pay down debt at the same time, the result is a financial crisis.

And soon we may be facing the paradox of wages: workers at any one company can help save their jobs by accepting lower wages, but when employers across the economy cut wages at the same time, the result is higher unemployment.

Krugman even gives the Obama administration a little credit when it comes to the economy, something he is not prone to do.  However, we're not out of the woods yet. 

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