Mr. Krugman wrote about a possible permanent slump and declining demand. He sort of offers two possible causes of it.
- Slowing population growth.
- Persistent trade deficits
He does not even mention the big drop in labor share since the crisis.
Yet, we see profound economists like Michael Pettis using labor share to describe the trade imbalance between Germany and the rest of Europe. Krugman doesn’t even use labor share for Europe. Michael Pettis uses labor share to analyze China, but Mr. Krugman doesn’t.
Mr. Krugman referred to the rise in capital share back on February 9th… “What’s really out of line with previous experience is the level of corporate profits, which is arguably serving as a kind of sinkhole for purchasing power.”
His comment back then would explain the declining demand, but what happened since February until now? How come he didn’t mention corporate profits in his latest post? Capital share is even bigger now than it was then.
It is definitely odd that Mr. Krugman has no clear model to include labor share.