Monetary policy will not work because the link between inflation and higher wages is broken?
Not sure that they buy this explanation in China..
Daniel Alpert: Earth to Paul Krugman � naked capitalism:
"As a result of the foregoing, wages in the U.S. and other areas of the developed world are unable to “track” (that is, to follow along with, even on a lagging basis) the type of inflation resulting from the ocean of liquidity that quantitative and credit easing policy of the Fed, the ECB and the Bank of Japan has produced – generally speaking, inflation in highly tradable commodities and financial assets. No wage growth (because of the dampening effect of excess emerging market labor, always standing by to work cheaply where it can compete with endogenous U.S., European or Japanese labor)…no sustainable inflation. As a result, high levels of inflation tend to collapse economic activity, as limited per capita wages are shunted to oil and food, rather than to more expansionary forms of consumption."
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