Re(2): RE: Wages and Panic Buttons

Ellen Frank frank at
Wed Aug 4 15:33:46 PDT 1999

lbo-talk at writes:

Doug wrote:
>Does it really? I thought there was a lot of recent research showing
>essentially no relation between inflation and growth if you leave out
>the rare instances of hyperinflation (which is usually a symptom of a
>society in collapse). As I recall, Bob Pollin was citing this against
>the austerity crowd. But it cuts both ways. Sure, tight money and
>tight fiscal policy - conventional anti-inflation weapons - stifle
>growth. But that aside, what demonstrable relation is there between
>inflation and growth over the long term?
A problem I have with some of the anti-NAIRU literature is that it has thrown the proverbial baby out in its efforts to critique the natural rate of unemployment idea. You can dispute the inotion that unemployment is "natural" without wholesale rejection of any connection between growth/ low unemployment and inflation. Obviously, a one-to-one relationship between growth// inflation is difficult to establish, since so much depends on the wage-setting and price-setting institutions in a country, but its a pretty plausible relationship, all in all.
>Also, some of the worst real wage declines in the U.S. were during
>the high inflation years of the late 1970s.
The worst sustained real wage declines in the US came during the 1980s and 1990s, though manufacturing wages began to decline in 1973.

Wages didn't decline in Europe's inflation, though. Inflation is a mixed-bag for wage-earners, and so much depends on how wages are set. It's great though for the indebted middle-class, because historically it lowers real interest rates.
> Some of the best recent
>real wage gains have come during the last two years, a period of low
>(and falling) inflation.
Yes, this is true, but how long can this last? The fact that wages are rising without inflation (indeed with disinflation) is due to the weakness of 1970s style wage-setting institutions, like collective bargaining units and contractual raises in bureaucratic workplaces. Workers pay a price for this - lower job security, less control over hours, worsened health and safety. Workers are not, today, getting a dime extra without putting out more.
>Finally, I'm tempted to make the argument that inflation is
>psychologically destabilizing and leads people to a longing for order
>- for authoritarian politics, in other words. Thatcher, Reagan,
I think leftists should support inflation, if only for the wealth- redistributing properties. Frankly, I don't know how I'll ever pay off my debts if the inflation rate stays near zero. There's no evidence that inflation is politically destabilizing in the sense you seem to imply -- save for hyper-inflation, which is always a manifestation, not a cause, of political instability. Several years back, though, Jerry Epstein at UMass wrote a paper hypothesizing that the US 1970s inflation, to the extent that it reflected irresoluble conflicts over wages and productivity and the power of strong unions to press for wage gains, caused finance and mfg capital to close ranks behind Volcker.



More information about the lbo-talk mailing list