December 4, 2018

WINNING THE WAR ON WAGES:

Everyone loves Paul Volcker. Everyone is wrong (Jeff Spross, December 4, 2018, The Week)

Yes, Volcker successfully tamed inflation. The question is whether there was a better way to do it than setting off a massive recession. At the time, America was dealing with oil shocks, a broken consumer price index, the fallout from funding the Vietnam War, the end of the Bretton Woods system, and a new political enthusiasm for massive tax cuts for the wealthy. Any combination of these factors could have been driving the price spiral.

But Volcker's solution destroyed the American working class for a generation. Unemployment peaked as high or higher than in the Great Recession. Unions, already in decline, went into free fall. Volcker explicitly viewed breaking the power of organized labor as a critical piece of his anti-inflation crusade. "The standard of living of the average American has to decline," Volcker declared shortly after becoming Fed Chair. Trace the modern trends in wage stagnation and inequality, and they lead back to Volcker's recession.

There's also the lesson Volcker taught the Fed. In many ways, the institutional culture of the Fed remains fixated on the moral narrative of the 1970s inflation and guided by Volcker's tough-love disciple. Fed Chair Alan Greenspan, Volcker's successor, argued that keeping workers "traumatized" was key to restraining prices.

In free market nations, inflation is just a function of wage pressure.

Posted by at December 4, 2018 6:37 PM

  

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