Here is another extract from The Invisible Handcuffs regarding the threat of
inflation. By the 3rd paragraph I fall back on the excellent work of Tom
Dickens, whom I nag each time I see him to put a book together.
Sado‑Monetarism
According to the rhetoric of the Federal Reserve, it also attempts to maintain
an appropriate balance between maintaining employment and price stability. But
in reality, this balance is anything but balanced. The Federal Reserve uses
price stability as a code word for holding wages in check. Paul Volcker,
former Chairman of the Federal Reserve Board, was quite clear about this
relationship: "... in an economy like ours, with wages and salaries accounting
for two‑thirds of all costs, sustaining progress [in reducing inflation] will
need to be reflected in the moderation of growth of nominal wages" (Volcker
1981, p. 614; and 1982, p. 89). But tight monetary policy does little to hold
down the salaries of executives earning multimillion dollar salaries. Nor is
it meant to do so.
When Richard Nixon was running for president in 1968, he insisted
that inflation was the country's number one problem. After his election, he
enlisted the Council of Economic Advisors to identify those adversely impacted
by inflation. According to the Chairman of his council, Herbert Stein, "If
anyone was being severely hurt, the available statistics were too crude to
reveal it" (Stein 1984, p. 149; also cited in May and Grant 1991, p. 373).
Indeed, a number of studies indicate that inflation does no harm to
the middle or lower classes as a whole, although it does have a detrimental
effect on the rich (see May and Grant 1991). However, the fight against
inflation does have a substantial negative impact on workers.
Edwin Dickens, an economist from St. Peter's College, has written a
series of significant articles analyzing the minutes of the meetings of the
Open Market Committee of the Federal Reserve Board back as far as the 1950s.
He reports numerous occasions when participants voted to tighten the money
supply just when major union contracts were about to expire. The minutes
indicate that the specific intent was to force employers to be less generous
with their wage offers during contract negotiations (Dickens 1995; and 1997).
Dickens's research shows that the Federal Reserve's strongly
partisan behavior is designed to tilt the economy in the direction of the
wealthy by making workers more compliant. In addition, the rich are net
lenders; the poor, borrowers. Over one‑seventh of wage earners' salaries went
for interest, even at a time when interest rates were low (see Stiglitz 2004,
p. 81).
A recent study formalized Dickens' work by attempting to
distinguish whether the policy actions of the Federal Reserve were a response
to inflation or to low unemployment. The study concluded that "a baseless fear
of full employment" rather than prevention of inflation was the guiding
principal of the Federal Reserve (Galbraith and Giovannoni 2007). The
conclusion of this study should come as little surprise to people familiar with
the Federal Reserve's obsession with high wages.
This fight against wages can be intense. In the late 1970s the
head of the Federal Reserve, Paul Volcker:
... carried in his pocket a little card on
which he kept track of the latest wage settlements by major labor unions. From
time to time, he called various people around the country and took soundings on
the status of current contract negotiations. What is the UAW asking for? What
does organized labor think? Volcker wanted wages to fall, the faster the
better. In crude terms, the Fed was determined to break labor. [Greider 1987,
p. 429]
Volcker tightened the money supply so extremely that the United States
experienced the worst economic downturn since the Great Depression. Volcker
only let up when Mexico, which owed a great deal of money to U.S. banks, seemed
to be on the brink of bankruptcy. Later, the director of the Department of
Research at the International Monetary Fund praised the good work of Chairman
Paul Volcker in vanquishing "the demon of inflation" (Mussa 1994, p. 81):
The Federal Reserve had to show that when
faced with the painful choice between maintaining a tight monetary policy to
fight inflation and easing monetary policy to combat recession, it would choose
to fight inflation. In other words to establish its credibility, the Federal
Reserve had to demonstrate its willingness to spill blood, lots of blood, other
people's blood. [Mussa 1994, p. 112]
Mussa's militaristic analogy lets the cat out of the bag. The effort to tame
inflation is, in reality, a class war. What have workers done to make the
state treat them as enemies? Strangling the economy disproportionately affects
the poor, especially poor minorities and poor women. Are these people culpable
of some dastardly deed for wanting more than a pittance?
Just compare the bloodlust with those leading the attack on labor
with the disciplinary mechanisms for the powerful people who run large
corporations. Michael Jensen, a professor emeritus at Harvard's Graduate
School of Business, based on an extensive survey of major corporations found
that in 94 percent of all contracts for chief executives, the companies cannot
fire the executive for unsatisfactory work without a big severance package. In
44 percent of the contracts, this protection even included those convicted of
fraud or embezzlement (Chiseller 2007).
Michael Perelman
Economics Department
California State University
michael at ecst.csuchico.edu
Chico, CA 95929
530-898-5321
fax 530-898-5901
michaelperelman.wordpress.com
________________________________
From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On Behalf Of Robert Naiman
Sent: Sunday, March 30, 2008 9:27 AM
To: Progressive Economics
Cc: lbo talk
Subject: [Pen-l] what's a little inflation between friends?
aren't progressive economists generally of the view that a little extra
inflation isn't such a terrible thing?
suppose that unemployment is 6% and inflation is 3%. Behind Door Number Two we
have: inflation is 6% and unemployment is 3%.
shouldn't we favor Door Number Two?
On Sun, Mar 30, 2008 at 9:20 AM, ken hanly <[EMAIL PROTECTED]> wrote:
Isn't there a problem with government attempts to
solve the liquidity crisis and stimulate the economy.
Aren't they liable to cause inflation especially when
combined with high oil prices and agricultural
production shortages that are driving up prices.
Converting agricultural to biofuel production doesn't
help either. Couldn't we end up with RECession and
inFLATION?
Cheers, Ken Hanly
Blog: http://kenthink7.blogspot.com/index.html
Blog: http://kencan7.blogspot.com/index.html
_______________________________________________
pen-l mailing list
[email protected]
https://lists.csuchico.edu/mailman/listinfo/pen-l
_______________________________________________
pen-l mailing list
[email protected]
https://lists.csuchico.edu/mailman/listinfo/pen-l
