Abstract

Demand-pull inflation could be contained using standard macroeconomic tools. Non-competitive conditions in the factor market were a challenge to microeconomic policy as well. By the 1950s Meade was concerned about the power of the unions to force the economy into an unattractive combination of unacceptable price rises and avoidable unemployment, in excess of the structural or frictional minimum. The only solution to cost-push inflation was a new tool: incomes policy. It would propagate a norm in line with productivity gains and would enforce it through compulsory arbitration. The level of total demand would be fixed by a pre-announced rule in such a way as to back up the norm. The market would not solve the problem. It was a surprising concession for a market liberal to make.