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Immigration and 1970s Inflation
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May 07, 2012, 06:07 PM
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A commenter writes:

Jeff W. said... 

I have finally figured out why The Powers That Be hate immigration restriction so much. I`m sure there are a number of reasons. But one big reason is this: 

Western governments for years have been trying to maximize the resources they obtain from money printing. All Western governments have been continually running deficits and financing them with newly-created fiat. 

One thing that derails money printing is a wage-price spiral. That`s what got going in the 1970`s. Around 1979-80, Paul Volcker had to jack up interest rates very high to get inflation back under control. 

In the 1980`s, The Powers That Be decided that they would continue money printing, but they would also take action to head off a wage-price spiral. So... 

- Continuing pressure to add women to the workforce

- Open door import policy to force down U.S. wages

- Open borders. 

They succeeded. You never hear about a wage-price spiral anymore.  

A protectionist trade policy and immigration restriction would get wages rising, which would make conditions difficult for the money printers. They would have to slow down or even halt their operation. That would be bad for big banks, the military-industrial complex, Social Security, and Medicare.  

All of the biggest and most powerful interest groups in America support continued money printing, and that necessitates open borders to keep wages low.

You can see this in all the newspaper articles where reporters (not just pundits) say things like "low wages are good for the economy." Nobody ever talks about this, but it`s stuck in people`s heads. It`s sort of 1970s Folk Wisdom for subscribers to The Economist.

One interesting question is whether wage-price spirals and/or cost-push inflation actually happened in the 1970s. It was endlessly debated during the 1970s whether unions were causing inflation. Interestingly, the ideological lines in the debate were often reversed in the U.S., with Milton Friedman`s monetarist school absolving the AFL-CIO (because inflation had to be the fault of the Fed), while neoliberals tended to blame the unions.

Was this controversy ever resolved? 

Back in the 1970s, I spent a huge amount of time thinking about macroeconomics, but I don`t believe I got much return on my investment. So, I don`t have much opinion on macroeconomic controversies anymore. 

Perhaps America and Britain had different experiences, with Britain having stronger union power. The Labour Party was founded as a third party explicitly for the good of the trade unions. A half century later, it became the ruling party and nationalized the commanding heights of industry. This caused a subsequent conflict of interest in wage negotiations in nationalized industries: Labour as both the instrument of the unions and Her Majesty`s Government, was sitting on both sides of the table, not just in effect but by definition. This led to a lot of people in Britain feeling jobbed by the Labour Party. Eventually, that led to Labour`s spell in the wilderness and its reformulation as New Labour, a broad-based party.