Chronic. The next President of the Republic, whatever it may be faced with an economic situation close to that of the 1970s-2008, a “saving formerly” very distant from the one we experienced in recent years – between 2010 and the crisis due to COVID-19.
In this saving of the past, there was inflation. It was then due to the acceleration of wages, when the economies were getting closer to full employment, and the indexation of wages on prices. Indeed, the bargaining power of employees was high; This involved, on the one hand, that employees could benefit from full-employment periods for faster salary increases, on the other hand, that productivity gains were redistributed to employees, and finally that wages were protected against inflation by the indexing of these on prices.
The second characteristic of the economy formerly was that inflationary shocks (rising commodity prices and energy, social conflicts) were essentially borne by the companies and led mainly to a decline in profits, since The indexation of wages spared employees of the consequences of these shocks.
Finally, in this environment marked by inflation and the struggle between employees and companies for the sharing of income, central banks, especially from 1980, had the primary objective of fighting inflation. Whenever inflation increased (1973-1974, 1980-1982, 1998-2000, and even 2006-2008), interest rates were rising sharply; Long-term interest rates were on average higher than the growth rates of the economy.
Expansionist policies
As a result, fiscal policy could not remain sustainably expansionist: it was contracracly, but had to stabilize the public debt ratio. States had to ensure the sustainability of public debts by returning to restrictive budget policies in the second half of the periods of expansion.
Everything changes from the subprime crisis of 2008-2009, but some developments occur in the early 2000s. The starting point is the loss of employee trading power, with deindustrialization and the creation of Jobs in small service businesses, where unions are poorly present, and with deregulation of labor markets (reduction of employment protection, layoff facilitation). The result is a deformation of income sharing at the expense of employees in all OECD countries, except in France and Italy. The smallest wage increases lead to lower inflation. But the cost of inflationary shocks (rising energy prices, food, transport …) is, as currently, suffered by employees more than by companies, because from the beginning of the 2000s, the wages are weakly indexed to prices. Finally, full employment no longer comes to inflation – it was clearly seen in 2018-19, the decline in unemployment no more (or less) increase in wages.
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