Letter: A Keynesian approach to inflation worked in the 1970s

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Andrew Shouler blames the so-called discredited ideas of Keynesian demand management for the Bank of England’s current economic dilemma (Letters, August 22). Yet he fails to understand that such demand management ended the inflation of the 1970s in the UK – and the US.

In fact, interest rates were raised so high — up to 20% in the United States — that a deep recession ensued, enough to dampen demand and control inflation.

All the Bank of England can do to fight inflation is raise interest rates, which it and the US Federal Reserve are doing with enough zeal to offset their slow start.

Both, not without reason, initially believed that inflation was transitory and would decline as the supply blockages created by the pandemic eased. That turned out not to be the case, so the timing of their rate hikes was wrong.

Both central banks also aim to support a high employment rate, thus necessarily adopting a cautious approach to raising rates. Even today, with these large and rapid increases, the two institutions want to avoid the kind of recession that wreaked havoc on incomes in the early 1980s.

Both face a delicate balancing act. Employers have a responsibility to offer wage increases within productivity parameters and workers also have a duty to make reasonable wage demands, in the fight against inflation.

The government also has a role. Government income support during the pandemic in the UK and US has driven up demand, for example, and necessitated a reduction. Employers and workers must do their part.

Unfortunately, Giles, in his two op-eds (August 16; and “Person in the News,” August 20), scapegoats the Bank of England, as does Shouler, your letter writer.

Professor Emeritus Albion M Urdank
University of California, Los Angeles
Los Angeles, California, United States

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