Editing Incomes policy

{{Short description|Economy-wide wage and price controls}}
'''Incomes policies''' in [[economics]] are economy-wide [[wage]] and [[price controls]], most commonly instituted as a response to [[inflation]], and usually seeking to establish wages and prices below [[free-market]] level.<ref name="rothbard">	 
{{cite web	 
| last = Rothbard	 
| first = Murray
| title = Price Controls Are Back!	 
| work = Making Economic Sense		 
| url = http://freedomkeys.com/pricecontrols5.htm	 
| access-date = 2008-11-03 }}</ref> Incomes policies have often been resorted to during wartime. During the [[French Revolution]], "[[The Law of the Maximum]]" imposed price controls (by penalty of death) in an unsuccessful attempt to curb inflation,<ref name="gmu">	 
{{cite web	 
| title = The Maximum	 
| work = [[George Mason University]]		 
| date = 29 September 1793		 
| url = http://chnm.gmu.edu/revolution/d/415/	 
| access-date = 2008-11-03 }}</ref> and such measures were also attempted after [[World War II]]. Peacetime income policies were resorted to in the U.S. in August 1971 as a response to inflation. The wage and price controls were effective initially but were made less restrictive in January 1973, and later removed when they seemed to be having no effect on curbing inflation.<ref name="pbs">	 
{{cite news	 
| last = Yergin	 
| first = Daniel
|author2=Joseph Stanislaw	
| title = Nixon Tries Price Controls	| work = Commanding Heights	 | date = 1997	 | url = https://www.pbs.org/wgbh/commandingheights/shared/minitextlo/ess_nixongold.html	 
| access-date = 2008-11-03 }}</ref> Incomes policies were successful in the United Kingdom during World War II but less successful in the post-war era.<ref>[http://www.hegemonics.co.uk/docs/Incomes-Policy-Hegemony-1970s.pdf The Wages of Militancy: Incomes Policy, Hegemony and the Decline of the British Left] By David Purdy, 2006</ref>

==Theory==
Incomes policies vary from voluntary wage and price guidelines to mandatory controls like price/wage freezes. One variant is "tax-based incomes policies" (TIPs), where a government fee is imposed on those firms that raise prices and/or wages more than the controls allow. Some economists agree that a credible incomes policy would help prevent inflation; however, by arbitrarily interfering with [[price signal]]s, it  provides an additional bar to achieving [[economic efficiency]], potentially leading to [[shortage]]s and declines in the quality of goods on the market and requiring large government [[bureaucracy|bureaucracies]] for enforcement. That happened in the United States during the early 1970s.<ref name="pbs" /> When the price of a good is lowered artificially, it creates less supply and more demand for the product, thereby creating shortages.<ref name="argmax">	 
{{cite news	 
| last = Irons	 
| first = John
| title = Price Controls and California Electricity	 
| work = ArgMax Economics	 
| date = 2001-06-24	 
| url = http://www.argmax.com/mt_blog/archive/2001_06_price_controls.php
| archive-url = https://web.archive.org/web/20071020150908/http://www.argmax.com/mt_blog/archive/2001_06_price_controls.php
| url-status = dead
| archive-date = 2007-10-20
| access-date = 2008-11-06 }}</ref>

Some economists argue that incomes policies are less expensive (more efficient) than [[recession]]s as a way of fighting inflation, at least for mild inflation. Others argue that controls and mild recessions can be complementary solutions for relatively mild inflation. The policy has the best chance of being credible and effective{{Citation needed|date=November 2008}} for the sectors of the economy dominated by [[monopoly|monopolies]] or [[oligopoly|oligopolies]], particularly [[nationalised]] industry, with a significant sector of workers organized in [[labor unions]]. Such institutions enable collective negotiation and monitoring of the wage and price agreements. Other economists argue that inflation is essentially a [[monetary]] phenomenon, and the only way to deal with it is by controlling the [[money supply]], directly or by changing [[interest rate]]s. They argue that price inflation is only a symptom of previous [[monetary inflation]] caused by [[central bank]] money creation. They believe that without a totally [[planned economy]] the incomes policy can never work, the excess [[money]] in the economy greatly distorting other areas, exempt from the policy.

==Examples==

===France===
During the [[French Revolution]] in the 1790s, "[[The Law of the Maximum]]" was imposed in an attempt to decrease inflation. It consisted of limits on wages and [[food prices]].<ref name="gmu"/> Many dissidents were [[guillotine|executed]] for breaking this law.<ref name="fiat money">	 
{{cite news
 |last=White 
 |first=Andrew Dickson 
 |title=The French Revolution 
 |work=Fiat Money: Inflation in France 
 |date=1912 
 |url=http://www.compulink.co.uk/~archaeology/civilisation/Later/french_revolution.htm 
 |access-date=2008-11-03 
 |url-status=dead 
 |archive-url=https://web.archive.org/web/20080808135719/http://www.compulink.co.uk/~archaeology/civilisation/Later/french_revolution.htm 
 |archive-date=August 8, 2008 
}}</ref> The law was repealed 14 months after its introduction.<ref name="fiat money"/> By turning the crimes of [[price gouging]] and food hoarding into crimes against the government, [[French First Republic|Revolutionary France]] had limited success. With respect to its overt intention, that of ensuring the people were able to purchase food at a reasonable rate, the Maximum was mostly a failure.  Some merchants having found themselves forced into a position to sell their goods for a price below cost (e.g. cost of baking [[bread]] or growing [[vegetable]]s) chose to hide their expensive goods from the market, either for personal use or for sale on the [[black market]];<ref>Darrow, M. "Economic Terror in the City: The General Maximum in Montauban." ''French Historical Studies'' 1991, pp. 517–19</ref> however, the General Maximum was very successful in deflecting a volatile political issue away from the [[Committee of Public Safety]] and [[Maximilien Robespierre]], enabling them to focus on larger political issues more closely related to completing the French Revolution.<ref>Darrow, M. "Economic Terror in the City: The General Maximum in Montauban." ''French Historical Studies'' 1991, pp. 523–25</ref>

By creating the General Maximum, Robespierre shifted the attention of the French people away from government involvement in widespread shortages of money and food to a fight between consumers and merchants.  The text of the General Maximum was written towards businessmen who were profiting on a large scale from the demise of the French economy. In practice, the law ultimately targeted local shopkeepers, butchers, bakers, and farmers-the merchants who were profiting the least from the economic crisis.<ref>Darrow, M. "Economic Terror in the City: The General Maximum in Montauban." ''French Historical Studies'' 1991, pp. 503–05</ref> With the General Maximum, Robespierre offered the people an answer regarding whom to blame for their poverty and their hunger. Furthermore, considering its association with the [[Law of Suspects]], when a citizen informed the government about a merchant who was in violation of the law, they were considered to have done their civic duty.<ref>Darrow, M. "Economic Terror in the City: The General Maximum in Montauban." ''French Historical Studies'' 1991, p. 511</ref>

===United States===
During [[World War II]], price controls were used in an attempt to control wartime inflation. The [[Franklin Roosevelt Administration]] instituted the OPA ([[Office of Price Administration]]). That agency was rather unpopular with business interests and was phased out as quickly as possible after peace had been restored; however, the [[Korean War]] brought a return to the same inflationary pressures, and price controls were again established, this time under the [[Office of Price Stabilization]]. In the early 1970s, inflation had been much higher than in previous decades, getting above 6% briefly in 1970 and persisting above 4% in 1971. U.S. President [[Richard Nixon]] imposed price controls on August 15, 1971.<ref name="pbs" /> This was a move widely applauded by the public<ref name="pbs" /> and a number of Keynesian economists.<ref name="'70s 298">{{cite book|title= How We Got Here: The '70s|last= Frum|first= David|author-link= David Frum|year= 2000|publisher= Basic Books|location= New York, New York|isbn= 0-465-04195-7|pages= [https://archive.org/details/howwegothere70sd00frum/page/298 298–99]|url= https://archive.org/details/howwegothere70sd00frum/page/298}}</ref> The same day, Nixon also suspended the convertibility of the dollar into gold, which was the beginning of the end of the [[Bretton Woods system]] of international currency management established after World War II.<ref name="pbs" /> The 90-day freeze was unprecedented in peacetime, but such drastic measures were thought necessary. It was quite well known at the time that this would likely lead to an immediate inflationary impulse (essentially because the subsequent [[depreciation]] of the dollar would boost the demand for exports and increase the cost of imports). The controls aimed to stop that impulse. The fact that the election of 1972 was on the horizon likely contributed to both Nixon's application of controls and his ending of the convertibility of the dollar.<ref name="pbs" />

The 90-day freeze became nearly 1,000 days of measures known as Phases One, Two, Three, and Four,<ref>http://www.presidency.ucsb.edu/ws/index.php?pid=3868 Richard Nixon speech announcing Phase Four price controls, June 13th, 1973</ref> ending in 1973. In these phases, the controls were applied almost entirely to the biggest corporations and labor unions, which were seen as having price-setting power;<ref name="'70s 298" /> however, 93% of requested price increases were granted and seen as necessary to meet costs.<ref name="'70s 298" /> With such [[monopoly]] power, some economists saw controls as possibly working effectively, although they are usually skeptical on the issue of controls. Because controls of this sort can calm inflationary expectations, this was seen as a serious blow against [[stagflation]]. The first wave of controls were successful at curbing inflation temporarily while the administration used expansionary fiscal and monetary policies;<ref name="nytimes.com">{{cite news|url=https://www.nytimes.com/2004/02/07/opinion/the-nixon-recovery.html|title=The Nixon Recovery|first=Charles R.|last=Morris|date=7 February 2004|access-date=15 April 2018|newspaper=The New York Times}}</ref><ref name="Richard M. Nixon">Friedman, Leon / Levantrosser, William F.[https://books.google.com/books?id=mFcqC8-9xa8C&pg=PA232 ''Richard M. Nixon''], Greenwood Publishing Group, 1991, p. 232 {{ISBN|0-313-27653-6}}, {{ISBN|978-0-313-27653-8}}</ref> however, the long-term effects proved to be destabilizing. Left unsuppressed after the initial price controls were relaxed, the overly expansionary policies proceeded to exacerbate inflationary pressures.<ref name="nytimes.com" /><ref name="Richard M. Nixon" /> Meat also began disappearing from grocery store shelves and Americans protested wage controls that did not allow wages to keep up with inflation.<ref name="pbs" /> Since that time, the U.S. government has not imposed maximum prices on consumer items or labor, although the cap on [[Petroleum|oil]] and [[natural gas]] prices persisted for years after 1973.<ref name="pbs" /> During times of high inflation, controls have been called for; in 1980 during unprecedented inflation, ''[[BusinessWeek]]'' editorialized in favor of semi-permanent wage and price controls.<ref name="'70s 292">{{cite book|title= How We Got Here: The '70s|last= Frum|first= David|author-link= David Frum|year= 2000|publisher= Basic Books|location= New York, New York|isbn= 0-465-04195-7|page= [https://archive.org/details/howwegothere70sd00frum/page/292 292]|url= https://archive.org/details/howwegothere70sd00frum/page/292}}</ref>

===Canada===
[[File:Labour Demonstration against wage controls, Parliament Hill, 1942.jpg|thumb|250px|Demonstration against wage controls during [[World War II]] on [[Parliament Hill]] in [[Ottawa]], [[Ontario]]]]
During the [[1974 Canadian federal election]], Progressive Conservative Party leader [[Robert Stanfield]] proposed the imposition of a wage and price freeze on the Canadian economy as a response to rising inflation due to the [[1973 oil crisis]]. The Liberal government under [[Pierre Trudeau]] was originally opposed to this idea; however, after winning the election, it introduced the [[Anti-Inflation Act]] in 1975. This act contained wage and price controls on parts of the economy and remained in force until 1978. In 1979, the anti-inflation board was dissolved and the Anti-Inflation Act repealed.<ref>{{cite web|title=Wage & Price Controls|url=http://www.canadahistory.com/sections/eras/trudeau/wage_%26_price_controls.htm|work=The History Project|access-date=7 April 2011|archive-date=27 June 2011|archive-url=https://web.archive.org/web/20110627165816/http://www.canadahistory.com/sections/eras/trudeau/wage_%26_price_controls.htm|url-status=dead}}</ref>

===United Kingdom===
{{main|National Board for Prices and Incomes}}
The National Board for Prices and Incomes was created by the [[Labour government, 1964–1970|Labour government]] led by [[Harold Wilson]] in 1965 in an attempt to solve the problem of inflation in the British economy by managing wages and prices. The [[Callaghan government]] in the 1970s sought to reduce conflict over wages and prices through a [[Social Contract (Britain)|social contract]] in which unions would accept smaller wage increases, and business would constrain price increases, imitating Nixon's policy in America.<ref name="'70s 313">{{cite book|title= How We Got Here: The '70s|last= Frum|first= David|author-link= David Frum|year= 2000|publisher= Basic Books|location= New York, New York|isbn= 0-465-04195-7|page= [https://archive.org/details/howwegothere70sd00frum/page/313 313]|url= https://archive.org/details/howwegothere70sd00frum/page/313}}</ref> Price controls ended with the election of [[Margaret Thatcher]] in 1979.

===Australia===
Australia implemented an incomes policy, called the [[Prices and Incomes Accord]] during the 1980s. The Accord was an agreement between trade unions and the [[Bob Hawke|Hawke]] [[Australian Labor Party|Labor]] government. Employers were not party to the Accord. Unions agreed to restrict wage demands, and the government pledged action to minimise inflation and price rises. The government was also to act on the social wage. At its broadest, this concept included increased spending on education as well as welfare. Inflation declined during the period of the Accord, which was renegotiated several times; however, many of the key elements of the Accord were weakened over time, as unions sought a shift from centralised wage fixation to [[enterprise bargaining]]. The Accord ceased to play a major role after the recession of 1989–1992, and was abandoned after the Labor government was defeated in 1996.

===Italy===
Italy imitated the United States' price and wage controls in 1971 but soon gave up the policy to focus on controlling the [[price of oil]].<ref name="'70s 313"/>

===The Netherlands and Belgium===
The [[polder model]] in the Netherlands is characterized by tri-partite cooperation between [[employers' organization]]s like [[VNO-NCW]], [[labour union]]s like the [[Federatie Nederlandse Vakbeweging|FNV]], and the government. These talks are embodied in the [[Social Economic Council]] (Dutch: ''Sociaal-Economische Raad'', SER). The SER serves as the central forum to discuss labour issues and has a long tradition of consensus, often defusing labour conflicts and avoiding strikes. Similar models are in use in [[Finland]], namely [[Comprehensive Income Policy Agreement]] and [[universal validity of collective labour agreements]]. The polder model is said to have begun with the Wassenaar Accords of 1982 when unions, employers and government decided on a comprehensive plan to revitalize the economy involving shorter working times and less pay on the one hand, and more employment on the other. This model is also used in [[Belgium]], hence its name (the "polders" are a region comprising the Netherlands and the northern part of Belgium). The polder model is widely, but not universally, regarded as successful incomes management policy.<ref>{{Cite journal | doi=10.1177/0143831X07079351| title=The Polder Model Reviewed: Dutch Corporatism 1965—2000| journal=Economic and Industrial Democracy| volume=28| issue=3| pages=317–347| year=2007| last1=Woldendorp| first1=Jaap| last2=Keman| first2=Hans| s2cid=52990197| url=https://research.vu.nl/ws/files/2288584/203173.pdf| url-access=| url-status=| archive-url=| archive-date=}}</ref>

===New Zealand===
In 1982, then Prime Minister and Finance Minister [[Rob Muldoon]] imposed a simultaneous freeze on wages, prices and interest rates in an effort to curb inflation, despite public resistance. These measures were subsequently repealed by Muldoon's successor [[David Lange]] and Finance Minister [[Roger Douglas]].

===Zimbabwe===
In 2007, [[Robert Mugabe]]'s government imposed a price freeze in [[Zimbabwe]] because of [[hyperinflation]].<ref>{{cite web|title=IRIN Africa &#124; ZIMBABWE: Price controls devastating rural economy &#124; Zimbabwe &#124; Food Security|url=http://www.irinnews.org/report/73391/zimbabwe-price-controls-devastating-rural-economy|date=2007-07-24}}</ref>  That policy led only to shortages.

==References==
{{reflist}}

==External links==
*[http://demonstrations.wolfram.com/PriceControls/ Price Controls] by Fiona Maclachlan, [[The Wolfram Demonstrations Project]]
* [https://www.pbs.org/newshour/bb/infrastructure/power/ca_power.html PBS Special Report on California Electricity Price Controls] {{Webarchive|url=https://web.archive.org/web/20130619171407/http://www.pbs.org/newshour/bb/infrastructure/power/ca_power.html |date=2013-06-19 }}
*[http://nixonswageandpricefreeze.wordpress.com/2011/07/14/nixon-wage-and-price-freeze/ Nixon's Wage and Price Freeze – Forty Years After the Freeze] by William N. Walker

{{Public policy}}

[[Category:Inflation]]
[[Category:Macroeconomic policy]]
[[Category:Household income|Policy]]
[[Category:Price controls]]