9058009886

CHAPTF.R TTT

3 9

8 6 2 3 0

As far as inflat. ion i s o o n c e r n e d , we h a v e t. o reoognize t.hat. t.he argument. 1s very serio u s, and t.hat. ecnnnmle t.heory has not. heen able, unt.il now, t.o deal wit. h the 1ssne in a way t.hat. co u ld result. at. . the same tf me satisfaotory and wldely aooept.ed .

Tn seot.ions 2.7 and 2.8 of onr 1986 Report we at.tempt.ed t.o develop a sultahle dynamie explan«t.1on of the souroes of inflat. 1 o n. Sil oh explanat.ioi> had t.he advant.age of giving a oonslst.ent. aooonnt. of several oont.exf.ual phenomena whloh appear to have -or have had- a role in det.er.mining t.he present. soenarlo: not only the Inflat. 1 o n hut. ais o the searoh for f 1 ex 1 h i 1 i t.y , the rerinction of emp 1 oyment. , and the reduotlon of produot.1 ve oapaoit.y (what. the expert.s of CRPS oorreot.ly Rtress, oalling it. * o a p 11. a 1 d e o u m n 1 a 11 o n ' , falling, hnwever , to give a oonslst.ent explanat.1on for it).

We oan summarize it here (hut we will develop It. fnrt.her in the oourse of next. ohapt.er) by saying t.hat the set of st.rat.egies prev1ously out,) inert, t.oget.her wlt.h t.hejr systemie effeots, are percel ved by firma as signals agalnst. the llkellhood of a    wldespread • reoovery.    Suoh negative

expeot.at.1ons wl 1 1 lead firma to oonoentrat.e their 1nvest.ment.s on produot. 1 v 1 t.y gains , wi thout. widening t.helr prodnct.1 ve oapaoit.y (u nie as 1nd1oated by t.he prospeot. s for expans1on of speoifio oommodit.y    market.s whloh do not. depend on t.he

posslhility of a generał l7.ed reoovery). Th1s makes for a rigldlt.y t.owards expans1on of aggregat.e supply, and makes t.he systems morę vulnerable to Inflationary pressures.

Tn t.he me ant. 1me oount.rles oont.inue t.o oompet.e eaoh agalnst t.he others. However, slnoe the posslhility of Inoreaslng produot. 1 v 11. y 1s 1 Imited, t.he ootnpet.lt. łon Inoreasingly affeot.s wages and labo u r standards, whloh oonst.1t.ute, under certaln o 1 r oumstanoes , t.he only ' free ¹ variable left., as we will argue 1n t.he next. sect.lon. ;

8.    bour_standards_andoompet^t^on.

Wlt.hln and aoross soo 1 o-eoonom 1 o systems, an equ 1 1 1 br 1 urn oould establish It.self t.hat allows for a oert.aln 1evel and st.ruot.ure of labo u r and s o o 1 a 1 standards, whloh on t.he one hand- guarant.ee relat.1vely fair, or at least. aooept.able, worklng oondit. lons , prnt.ent.1on agalnst arbit.rary lay-offs, soolal security benef 1 t.s , eto. , and, on the o t.he r hand, oontrlbute t.o maint. a1n a relat.ively go od standard of leav1ng, a relat.1vely aooept.able d1st.r1but.1on of Inoome, wealt.h and jobs, go od standards for t.he rep rod u ot. łon of t.he la bo nr foroe and of human resouroes 1n generał, and a sultahle market, for grnwlng produot. i on.

Su oh an eqn111br1nm ex1st. ed around t.he s1xt. 1 es , and had heen bu 1 11. up along t.he prev1ous deoades; many scholara regard t.hls as t.he souroe nf t.he seoond post.-war affluenoe.

' F.qu 1 1 1 br 1 urn ' 1s 1 nt.ended here 1n a rongh sense, and does not. 1mply t.hat. la bo u r and soolal standards are equal, and not.