'Does Monopoly Power Cause Inflation? (1968 and all that)'
Does monopoly power cause inflation? (1968 and all that): Here's a question for you: Suppose there is a permanent increase in monopoly power across the economy (either firms having more monopoly power in output markets, or unions having more monopoly power in labour markets). Would that permanent increase in monopoly power cause a permanent increase in the inflation rate?
Most economists today would answer "no" to that question. It might maybe cause a temporary once-and-for-all rise in the price level, but it would not cause a permanent increase in the inflation rate. The question just sounds strange to modern economists' ears. They would much prefer to discuss whether a permanent increase in monopoly power caused a permanent reduction in real output and employment. What has monopoly power got to do with inflation?
To economists 40 or 50 years ago, the question would not have sounded strange at all. Many (maybe most?) economists would have answered "yes" to that question. ...
Posted by Mark Thoma on Monday, January 26, 2015 at 03:32 PM in Economics, Inflation, Macroeconomics |
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