The Politics of Inflation and Economic Stagnation: Theoretical Approaches and International Case Studies

By Leon N. Lindberg; Charles S. Maier | Go to book overview

2
Models of the Inflation- Disinflation Process

Leon N. Lindberg

Economic theory and doctrine as well as the policymaking priorities of political elites in advanced capitalist societies have been decisively changed by the inflation and stagnation experiences of the 1970s and early 1980s. This chapter seeks to present a synthetic account of the inflation-disinflation process that is broadly consistent with the research reported in the chapters that follow and that highlights how this approach differs from conventional economic models. A more or less coherent account of inflation-disinflation does emerge in the chapters that follow. On the other hand, the view presented here would not necessarily be subscribed to in its entirety by any of their authors.

In the 1970s government policy toward inflation became the overriding preoccupation of economists, policymakers, and the public.1 Tight fiscal and monetary policies began to bring inflation rates down in the 1980s but at the cost of deep global recession and unemployment rates not seen since the Great Depression. Even as inflation seemed at last to respond to the bitter medicine of sustained recession, it became clear that disinflation was also destabilizing. Were "solutions" to inflation to fail to produce promised results, and to weigh sharply against widely held norms of equity and fairness, the result might eventually be more radicalizing. The state budget could then become an ever more highly visible and sharpened arena of class and group conflict. How long can tacit coalitions supporting monetary and fiscal contraction hold together when consumers, producers and investors, debtors and creditors all confront the fact that disinflation

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1
Fred Hirsch and John H. Goldthorpe, eds., The Political Economy of Inflation ( Harvard University Press, 1978), p. 1, called it the "great unsolved issue" of modern capitalist society.

-25-

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