Nobel Prize-winning economist pinpoints major flaw in Trump's 'nervous' Iran war ploy

Donald Trump's plan for the war with Iran could cause even further trouble for taxpayers across the country, according to a Nobel Prize winner.

Paul Krugman has warned that the president's current task in Iran is to reopen the Strait of Hormuz. Crude oil prices reached a staggering $100 a barrel earlier this week, and the veteran economist does not see the price improving any time soon. Even though the United States' own oil exporters profited from the Strait of Hormuz closure, Krugman claims there is no way this will help the average citizen.

Writing in his Substack, he explained, "Now, America produces a lot of oil, and the domestic oil industry will be earning large windfall profits even as U.S. consumers suffer. But so what?

"We don’t have any mechanism in place to capture and redistribute those windfall gains, so ordinary U.S. families will bear the full brunt of the global oil shock even though America is a net oil exporter."

"The Fed could, in principle, try to look through the effects of the Strait crisis on business costs as well as direct effects on consumer prices. But given how nervous everyone is about the risk of 70s-type stagflation, it probably won’t."

Krugman went on to suggest the reaction of the Federal Reserve could be a cause for concern. "There’s an additional, technical but important reason to be even more worried about soaring prices for diesel, jet fuel and industrial materials than about gasoline prices," he wrote. "It involves how the Federal Reserve is likely to react.

"The Fed normally bases its decisions about whether to reduce or increase interest rates on 'core' inflation — inflation excluding food and energy prices. The reason it does this is that food and energy prices are highly volatile and are usually a poor indicator of what inflation will be over the next few years."

"So the Fed tries to 'look through' inflation fluctuations driven mainly by the prices of groceries and gasoline. For example, it didn’t raise rates in 2011, when there was a temporary uptick in inflation driven entirely by oil prices."