“Last year’s return to the economy may be violent.”


Chronic. Any president-elect is at risk of facing economic conditions very close to 1970-2008. This is a “last year’s economy” that is far from what we know in recent years. – 2010 and the Covid-19 crisis.

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In that old economy, there was inflation. It was due to the acceleration of wages as the economy approached full employment and the indexing of wages into prices. Certainly, the bargaining power of the employees was high. This means, on the one hand, that employees can profit from the period of full employment and get faster wage increases, and on the other hand, productivity gains are redistributed to employees and eventually wages become price. It meant being protected from inflation by being indexed.

The second characteristic of the economy in the past was that inflationary shocks (rising prices of raw materials and energy, social conflicts) were essentially brought about by businesses, leading to lower profits above all. These shocks.

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Finally, in this environment, characterized by the struggle between employees and businesses for inflation and income distribution, central banks have primarily aimed to combat inflation, especially since 1980. With every rise in inflation (1973-1974, 1980-1982, 1998-2000, and even 2006-2008), interest rates rose sharply. Long-term interest rates were on average higher than economic growth.

Expansionist policy

As a result, fiscal policy could not continue to expand in the long run and was anti-circular, but on average it needed to stabilize its public debt ratio. Countries had to ensure the sustainability of public debt by returning to restrictive budgetary policies later in the expansion period.


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Everything has changed since the 2008-2009 subprime crisis, but some progress has been made since the early 2000s. The starting point was the loss of employee bargaining power due to the hollowing out of industry and job creation in many small service companies with few trade unions. Presence and deregulation of the labor market (reducing employment protection, promoting dismissal). The result is distorted income distribution and damage to employees in all OECD countries except France and Italy. Lower wage increases lead to lower inflation. However, the cost of inflation shocks (rising energy, food, transportation prices, etc.) has been borne by employees more than companies, as it is today, as salaries have been weakly indexed to prices since the early 2000s. I am. Finally, full employment no longer leads to inflation – as we clearly saw in 2018-2019, lower unemployment no longer leads to higher (or less) wages.

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