Wages and Panic Buttons

Jim heartfield jim at heartfield.demon.co.uk
Thu Aug 5 02:21:31 PDT 1999

In message <v0421010bb3ce14fdb091@[]>, Doug Henwood <dhenwood at panix.com> writes
>Ellen Frank 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?

I had always assumed that the relation had been somewhat the reverse - that the low inflation trumpeted in Britain in the nineties, after the bubble burst, was not a sign of good health, but a sign of low growth. It was the fact that the Major government would so regularly boast about this one indicator, inflation, that made you think that this was just a symptom of bugger-all going on in the economy.

>Also, some of the worst real wage declines in the U.S. were during
>the high inflation years of the late 1970s. Some of the best recent
>real wage gains have come during the last two years, a period of low
>(and falling) inflation.

So, too in Britain. Inflation just drove down the real wage.

>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,

The negative consequence of inflation for the ruling class was that it led to a heavily contested wage round - at least that's how it worked in the seventies, when collective bargaining was the norm. That was the political justification for the crack-down. But history does not repeat itself.

In the late eighties, the unions were just too wasted to fight back, but employers and economists complained of tight labour markets, and that, despite unemployment being high, they could not find the people with the skills. They meant that no-one would work for the devalued wages they were offering. The government had to step in to secure nurses wages, after the NHS bargained them so low that the nurses started leaving the country in their thousands.

-- Jim heartfield

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