On 12/7/2010 6:29 PM, Mike Beggs wrote:
> On Wed, Dec 8, 2010 at 8:52 AM, SA<s11131978 at gmail.com> wrote:
>
>> Well, was the problem simply that it was ineffective (and why was it
>> ineffective?) or was it that the vaunted reforms were hollow, or both?
> It was effective in reducing the real wage - it's just that the
> anticipated effects on unemployment and inflation did not eventuate.
> (Actually, there was an initial reduction in the rate of inflation,
> soon reversed, but no reduction in unemployment.) The problem is that
> the scheme relied on a revival in private investment, under the belief
> that a reduction of the 'real wage overhang' built up in the 1970s
> would restore profitability. But that revival did not occur.
I see now. I had in mind an incomes policy aimed simply at curing a pure wage-price spiral. It's different if the idea in Australia was also to target *real* wages in hopes of reviving investment. That's just offering a gift and hoping the other side does something productive with it.
Just speaking off the cuff, it sounds like the effect on inflation might have been blunted by a credibility deficit - people didn't believe the deal would stick, so expectations remained inflationary and prices resumed rising after a pause.
Incidentally, as a political matter, between inflation and stagnant growth, I think the greater threat to labor's political support comes from inflation...
SA