A recent op-ed (paywall) in the Financial Times about inflation stated that (emphasis mine):
Across the developed economies, the Phillips curve has gone ignominiously flat. The world’s leading central bankers are scratching their heads.
Rather than a response to tightness in the markets for products and labour, [in earlier theories] inflation was understood as a barometer of the political systemâs ability (or lack of it) to resolve struggles over the distribution of income and wealth. Workers and bosses, creditors and debtors, fought one another for a larger slice of the pie. When negotiations failed, the path of least resistance was the excessive expansion of credit.
Stop dreaming of mythical beasts like the global output gap and the natural rate of interest, they would say. Wake up to the political realities.
Globalisation and the march of technology have strengthened the hand of employers and weakened that of workers. So it is no surprise that though unemployment has relentlessly fallen, wage growth remains in the doldrums.
What these unfashionable theories of inflation see â that the central bankersâ current models do not â is simply put. It is the dirty secret of economics: the central importance of power.
The author is referring to “old” political theories of inflation. I have struggled to find references about them. I wonder if someone has come across some of these political theories of inflation?