Policy déjà vu
Has the International Monetary Fund taken an old policy alternative out of deep freeze? In its latest report on the Japanese economy, it has urged the Shinzo Abe government to pursue an incomes policy: Japan should push employers to raise wage rates so that inflation begins to move up while domestic demand gets a boost.
Such incomes policies were last tried in the early 1970s when the world was battling a different type of problem. Many governments imposed wage ceilings in a bid to cool runaway inflation. India, too, tried one version of this in 1974, when Manmohan Singh was an economic advisor to Indira Gandhi.
Incomes policies did not work—and monetarist central banks eventually got into the act by squeezing money supply. That was the last that was heard of such policies till they were curiously recommended for Japan by the IMF, of all institutions.
The broader lesson: Old policy options never quite die out.