3.3.8.5 Shifts in the Balance of Economic Power
Macroeconomic policies, intended to control inflation or unemployment, can shift the balance of economic power between employers and workers
Mark Blyth pointed this out in an article entitled Global Trumpism: Why Trump’s Victory Was 30 Years in the Making and Why It Won’t Stop Here.
● Government policies designed to reduce unemployment after the Second World War had the unintended effect of increasing inflation, as workers were able to demand higher wages when they could easily switch jobs at a time of full employment. Worker power peaked in the 1970s.
● The subsequent policy of reducing inflation, by increasing interest rates, shifted the balance of economic power in favour of the lenders. It also caused consumer demand to fall, though, as people could no longer afford to borrow money to buy the things they wanted. The resulting unemployment allowed employers to squeeze wages.
Blyth ascribed the worldwide political backlash, that he called ‘Global Trumpism’, to people’s resentment at their loss of relative power and prosperity – and argued, in an interview entitled “Global Trumpism” And The Revolt Against The Creditor Class, that it will result in further economic change.
Scott Sumner has made The Case For Nominal GDP Targeting, which aims for steady growth rather than trying to control inflation and unemployment. Inflation could be allowed to fluctuate, for example. He argued that this would have avoided the recession in 2007-8 and would lead to greater economic stability, but it doesn’t appear to address the issues of inequality and the balance of economic power between employers and workers.
Macroeconomic management may be designed to achieve steady economic growth or stability, but it cannot avoid having social and political repercussions.
This page is intended to form part of Edition 4 of the Patterns of Power series of books. An archived copy of it is held at https://www.patternsofpower.org/edition04/3385.htm