Forget inflation — the problem is falling real wages

No one under the age of about 50 has an adult memory of high inflation and falling behind wages.

John Quiggin

That’s the title of my new column in Independent Australia. I plan to write fortnightly from now on.

Now that quantitative easing is no longer needed, the problem is how to manage the huge increase in money balances that is driving demand. This is not a new problem; it arises every time a lot of spending is needed to handle an emergency, and we know what works and what does not. In the aftermath of World War I, governments in the UK and Australia sought to unwind the inflation created by wartime spending and return to the gold standard. The result was a long period of economic weakness, culminating in the Great Depression. By contrast, after World War II, wages and prices were allowed to rise, as wartime rationing ended and reconstruction gradually removed constraints on production.

As long as the real value of wages is maintained, a once-off…

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