Dick writes: 'Not until the Thatcher years were income policies and belief in cost push theory finally abandoned in the UK.'

But ... in 1974, didn't "the market" (that is, four political operatives, Rumsfeld, Cheney, Laffer, and Wanniski) conjure-up a tax-based incomes policy that achieved what "the state" never could: four decades of flat real income (non) growth?   


On Thu, Feb 25, 2016 at 2:27 PM, Richard Lipsey <[log in to unmask]
<mailto:[log in to unmask]> > wrote:



I do not think we need to get into a debate about the realism of the cost
push theory of inflation, especially using modern figures for labour’s share
in construction, which has been declining over the years.



What matters for historians is that the theory was widely held in the post
WWII UK, It was much debated when I was first a student (1953-55) and then
staff member at the LSE (1953-63). It was also widely held by such Cambridge
Keynesians as Joan Robinson and Richard Kahn. This observation raises a
related point that often bothers me in discussions of past theories: much of
UK economics in the  first half of the 20th century was held in the oral
tradition and not written down, which poses a real problem for historians of
the subject. Over and over in the 1950s I heard early Keynesians expressing
the worry that now that we had the tools to prevent recessions, organised
labour would not have recession worry as a restraint when pushing for higher
wages and they would do so. Of course for this push to cause continued
inflation, a necessary condition was that the money supply was endogenous,
which many Keynesian, including my good friend, Nicky Kaldor, believed. I
had a long exchange with him on this matter. Although these economists were
not anti-labour and indeed more on the left than many others, they still
believed that union power could cause an inflationary problem.



Also if you look at UK macro policy, you see a long succession attempts to
control inflation with wage and price controls, often called incomes policy.
In the 1970s major concessions were granted to unions to bring them on board
with the latest versions of incomes policies that were motivated by a belief
in the wage price spiral. Not until the Thatcher years were income policies
and belief in cost push theory finally abandoned in the UK.



There were too many intelligent people on the cost push side of the debate
to dismiss them as not being aware of such evidence as Mason refers to.



Richard Lipsey



From: Societies for the History of Economics [ <mailto:[log in to unmask]>
mailto:[log in to unmask]] On Behalf Of Mason Gaffney
Sent: February-24-16 9:44 AM
To:  <mailto:[log in to unmask]> [log in to unmask]
Subject: Re: [SHOE] Is there a history of cost-push or wage-price spiral
analysis?



Dear Leeson et al.,

                20% or less of the price of a new house is the cost of
on-site labor.

                Lumber? The price of stumpage includes accumulated rent on
the growing site plus compound interest on the stored-up rents over, say, 60
years.  Do the math.

                The building site? Not much in Verdigris, Nebraska, but
over half the total price in Manhattan, Indian Wells, Kenilworth, Rancho
Santa Fe, Pacific Palisades, Malibu, or … you get the idea.

                Copper pipes and wires?  Copper ore, basis of many great
fortunes.

                Cement?  Pretty common dirt, you may think, but I believe
in the total its ingredients are our most valuable mining product – rent for
landowners. But in processing it embodies more energy per $ of value than
almost anything, and whence comes that energy?

                Aluminum?  It’s right up there with cement in
energy-intensiveness.

                Steel? Read your economic geography.

                Financing? Again, do the math on a 30-year loan.



                So now, who dreamed up this idea of a wage-price spiral, as
though to blame labor unions for inflation?  Cui bono?



Mason Gaffney







From: Societies for the History of Economics [ <mailto:[log in to unmask]>
mailto:[log in to unmask]] On Behalf Of Robert Leeson
Sent: Wednesday, February 24, 2016 2:24 AM
To:  <mailto:[log in to unmask]> [log in to unmask]
Subject: Re: [SHOE] Is there a history of cost-push or wage-price spiral
analysis?



I have been modestly directed (off-list) to the essay that I read 25 years
ago: could the author comment on where this 1913 piece sits?


  _____


From: Societies for the History of Economics < <mailto:[log in to unmask]>
[log in to unmask]> on behalf of Robert Leeson < <mailto:[log in to unmask]>
[log in to unmask]>
Sent: Monday, February 22, 2016 1:38 AM
To:  <mailto:[log in to unmask]> [log in to unmask]
Subject: [SHOE] Is there a history of cost-push or wage-price spiral
analysis?




Is there a history of cost-push or wage-price spiral analysis? (I have a
memory of seeing one about a quarter of a century ago - in the Phillips
curve literature).



Is this one of the first (1913)? Referring to the ‘groups that initiate the
rise in prices’:

It is true that no effort by labor unions can permanently succeed in
pushing wages above their natural level. In the best of cases, all that they
can achieve is to raise wages, but they cannot prevent the necessary
adjustment of wages back to their natural level. The adjustment, however,
does not come about by nominal wages coming down again to their old level.
The money wage remains unchanged. The rise in the prices of goods has the
effect of bringing real wages back to the ‘natural’ wage that corresponds to
the given conditions of the market.













--

An optimist, often disappointed, but still hopeful.

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