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New Policies to Fight Inflation: Sources of Skepticism



New Policies to Fight Inflation: Sources of Skepticism ALBERT REES Princeton University New Policies to Fight Inflation: Sources of Skepticism A NUMBER of proposals for new methods to fight inflation are being opposed, especially by labor organizations and the business community. Included among the old methods to fight inflation are restrictive mon- etary and fiscal policies, wage and price controls, and exhortation or "jaw- boning," all of which have been used in the United States at various times in the past thirty years. Among the new methods are reductions in excise, sales, and payroll taxes; tax-based incomes policies (TIPs); and deregulation, or the elimination of "sacred cows." This paper ex- plores possible reasons for opposition to these more recent proposals, with major attention devoted to TIPs. The existence of opposition is well known, but little explanation for it has appeared on the record. When considering objections to a pro- posed policy, it is important to keep in mind that not all objections are consistent with one another. For example, some emphasize reasons why a proposed policy might not work, and others point out possible adverse consequences if it does work. These two kinds of objections cannot be valid simultaneously, but it might not be possible to determine in advance which to take more seriously. It is far easier to list objections to a proposed policy than it is to ad- vance a better one. For this reason I do not attempt to distinguish be- Note: I am indebted to Daniel Quinn Mills and participants of the Brookings Panel for helpful comments on an earlier version of this paper. 0007-2303/7810002-04531$00.2510 ? Brookings Instituttion 454 Brookings Papers on Economic Activity, 2:1978 tween two alternative purposes of the objections discussed. They can be viewed either as grounds for rejecting a policy altogether or as points to be considered in trying to improve the proposals under discussion and make them more workable

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