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WP535: Rudimentary Inflation Conflict Models: A Note
Using the most rudimentary models, this note explains how the pursuit by workers and firms of collectively unobtainable goals for real wages and real profits can lead not simply to a higher rate of inflation but to an explosive inflation. The rudimentary nature of the models allows a clear link to be forged between these conflicting aspirations and the distribution of national income. The models exclude any notion that workers or firms form, or act upon, expectations about future inflation but can generate the equivalent of a non-accelerating inflation rate of unemployment, a concept absent from many complex conflict models. Out of academic fashion since the ‘defeat of inflation’, conflict models may now enjoy a revival of interest from policy makers should the British economy suffer a period of ‘stagflation’. If so, solutions proposed by British academics who developed the inflation conflict approach in the 1970s and 1980s would warrant their own revival.