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date: 02 December 2020

Abstract and Keywords

In the New Neoclassical Synthesis, inflation is treated as a purely monetary phenomenon, which is to be dealt with by means of monetary policy. Central banks are assumed to target output price inflation—not asset price inflation—and to set interest rates according to some version of the Taylor Rule, increasing the real interest rate when expected inflation exceeds the target and decreasing it when inflation falls below the target. In post-Keynesian economics, cost inflation has always been taken very seriously. Whereas wages policy plays no role in the New Neoclassical Synthesis, it is central to post-Keynesian thinking on inflation. Another important difference between post-Keynesian and mainstream thinking on the aggregate price level concerns price deflation. This chapter presents a post-Keynesian critique of wages policy. It examines Sidney Weintraub’s criticism of the neoclassical-Keynesian synthesis, as well as the role of workers’ expectations and the power of trade unions in post-Keynesian explanations of the great stagflation of the 1970s and early 1980s.

Keywords: New Neoclassical Synthesis, inflation, monetary policy, post-Keynesian economics, cost inflation, price deflation, wages policy, Sidney Weintraub, trade unions, stagflation

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