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.
65-465: The Nixon shock was the effect of a series of economic measures, including wage and price freezes , surcharges on imports, and the unilateral cancellation of the direct international convertibility of the United States dollar to gold , taken by United States President Richard Nixon on 15th August 1971 in response to increasing inflation. Although Nixon's actions did not formally abolish
130-608: A " social contract " in which unions would accept smaller wage increases, and business would constrain price increases, imitating Nixon's policy in America. Price controls ended with the election of Margaret Thatcher in 1979. Australia implemented an incomes policy, called the Prices and Incomes Accord during the 1980s. The Accord was an agreement between trade unions and the Hawke Labor government. Employers were not party to
195-540: A central and lasting force in the Gaullist movement. The United States was eager to restore positive relations with France after de Gaulle's departure from office. New US President Richard Nixon and his top adviser Henry Kissinger admired Pompidou; the politicians were in agreement on most major policy issues. The United States offered to help the French nuclear programme. Economic difficulties, however, arose following
260-591: A few cents for the Bureau of Engraving and Printing to produce a $ 100 bill, but other countries had to pony up $ 100 of actual goods in order to obtain one". In February 1965, French President Charles de Gaulle announced his intention to exchange its U.S. dollar reserves for gold at the official exchange rate. By 1966, non-US central banks held $ 14 billion US dollars, while the United States had only $ 13.2 billion in gold reserve. Of those reserves, only $ 3.2 billion
325-482: A figure that was both powerful and elegant. Naturally reserved, little given to emotional outbursts, Pompidou did not forge very close ties with his colleagues. He served as prime minister of France under de Gaulle after Michel Debré resigned, from 14 April 1962 to 10 July 1968, and to this day is the longest serving French prime minister under the Fifth Republic . His nomination was controversial because he
390-503: A formal revaluation of their currencies. In March 1973, the fixed exchange rate system became a floating exchange rate system. The currency exchange rates no longer were governments' principal means of administering monetary policy . Under the floating rate system, during the 1970s, the dollar plunged by a third. Further, the Nixon shock unleashed enormous speculation against the dollar. The German Mark appreciated significantly after it
455-528: A great success. The American public believed the government was rescuing them from price gougers and from a foreign-caused exchange crisis. The Dow Jones Industrial Average rose 33 points the next day, its biggest daily gain ever at that point, and the New York Times editorial read, "We unhesitatingly applaud the boldness with which the President has moved." By December 1971, the import surcharge
520-617: A hinterland including all nations bordering the Mediterranean. Pompidou's time in office was marked by constant efforts to modernise France's capital city. He spearheaded construction of a modern art museum, the Centre Beaubourg (renamed Centre Pompidou after his death), on the edge of the Marais area of Paris. Other attempts at modernisation included tearing down the open-air markets at Les Halles and replacing them with
585-612: A longevity record under the Fifth Republic . In the context of the strong growth of the last years of the Trente Glorieuses , Pompidou continued De Gaulle's policy of modernisation, which was symbolised by the presidential use of the Concorde , the creation of large industrial groups and the launch of the high-speed train project (TGV). The government invested heavily in the automobile, agribusiness , steel, telecommunications, nuclear and aerospace sectors and also created
650-466: A more conservative Gaullist. While the left-wing opposition organised itself and proposed a Common Programme before the 1973 legislative election , Pompidou widened his presidential majority by including Centrist pro-European parties. In addition, he paid special attention to regional and local needs in order to strengthen his political party, the UDR (Union des Democrates pour la Ve République), which he made
715-558: A price freeze in Zimbabwe because of hyperinflation . That policy led only to shortages. Georges Pompidou Georges Jean Raymond Pompidou ( / ˈ p ɒ m p ɪ d uː / POMP -id-oo ; French: [ʒɔʁʒ(ə) pɔ̃pidu] ; 5 July 1911 – 2 April 1974) was a French politician who served as President of France from 1969 to his death in 1974. He previously served as Prime Minister of France under President Charles de Gaulle from 1962 to 1968,
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#1732766044613780-486: A region comprising the Netherlands and the northern part of Belgium). 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 . In 2007, Robert Mugabe 's government imposed
845-560: A shift from centralised wage fixation to enterprise bargaining . The Accord ceased to play a major role after the recession of 1989–92, and was abandoned after the Labor government was defeated in 1996. 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 . The polder model in the Netherlands is characterized by tri-partite cooperation between employers' organizations such as VNO-NCW , labour unions such as
910-620: 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 . 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
975-473: A week later and $ 4 billion the following week. Still, this large-scale intervention by Japan's central bank could not prevent the depreciation of US dollar against the yen. France also was willing to allow the dollar to depreciate against the franc , but not allow the franc to appreciate against gold. Even much later, in 2011, Paul Volcker expressed regret over the abandonment of Bretton Woods: "Nobody's in charge," Volcker said. "The Europeans couldn't live with
1040-410: 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 signals , it provides an additional bar to achieving economic efficiency , potentially leading to shortages and declines in
1105-536: Is also dedicated to him in his hometown. The family of Georges Pompidou was of very modest origins. He was the grandson of farmers of modest means in Cantal on both his father's and his mother's side. His case is thus often cited as a typical example of social mobility in the Third Republic because of public schooling. Georges Jean Raymond Pompidou was born on 5 July 1911 in the commune of Montboudif , in
1170-546: 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. The polder model is widely, but not universally, regarded as successful incomes management policy. This model is also used in Belgium , hence its name (the "polders" are
1235-735: The 1968 legislative campaign , overseeing a tremendous victory of the Gaullist Party. He then resigned. Nevertheless, in part due to his actions during the May 1968 crisis, he appeared as the natural successor to de Gaulle. Pompidou announced his candidature for the Presidency in January 1969. In social policy, Pompidou's tenure as prime minister witnessed the establishment of the National Employment Fund in 1963 to counter
1300-633: The 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 current polder model
1365-588: 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. 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
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#17327660446131430-717: The Nixon Shock and the 1973–1975 recession , particularly over the role of the American dollar as the medium for world trade. Pompidou sought to maintain good relations with the newly independent former French colonies in Africa. In 1971, he visited Mauritania , Senegal, Ivory Coast , Cameroon , and Gabon . He brought a message of cooperation and financial assistance, but without the traditional paternalism. More broadly, he made an effort to foster closer relations with North African and Middle Eastern countries in order to develop
1495-712: The United Kingdom 's entry to the EEC in contrast to de Gaulle's opposition. Pompidou died in office in 1974 of Waldenström's disease , a rare form of blood cancer . An admirer of contemporary art , Pompidou's name remains known worldwide for the Centre Pompidou , which he initiated and was inaugurated in 1977; it subsequently spread the name with its branches in Metz (France), Málaga ( Spain ), Brussels ( Belgium ) and Shanghai ( China ). A Georges Pompidou Museum
1560-669: The United States Congress released a report recommending devaluation of the dollar, in an effort to protect the dollar against "foreign price-gougers". Also in August French President Georges Pompidou sent a battleship to New York City to remove France's gold deposits. On August 9, 1971, as the dollar dropped in value against European currencies, Switzerland left the Bretton Woods system. The pressure began to intensify on
1625-556: The 1974 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 oil crisis . The Liberal government under Pierre Trudeau was originally opposed to this idea, but after winning the election, introduced the Anti-Inflation Act in 1975. This act contained wage and price controls on parts of
1690-501: 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
1755-410: The Bretton Woods system became fully operational. Countries now settled their international accounts in dollars that could be converted to gold at a fixed exchange rate of $ 35 per ounce, which was redeemable by the U.S. government . Thus, the United States was committed to backing every dollar overseas with gold, and other currencies were pegged to the dollar. For the first years after World War II ,
1820-479: The Bretton Woods system for other global currencies . In 1944, representatives from 44 nations met in Bretton Woods, New Hampshire , to develop a new international monetary system that came to be known as the Bretton Woods system. Conference attendees had hoped that this new system would "ensure exchange rate stability, prevent competitive devaluations, and promote economic growth". It was not until 1958 that
1885-524: The Bretton Woods system worked well. With the Marshall Plan , Japan and Europe were rebuilding from the war, and countries outside the US wanted dollars to spend on American goods—cars, steel, machinery, etc. Because the U.S. owned over half the world's official gold reserves—574 million ounces at the end of World War II—the system appeared secure. However, from 1950 to 1969, as Germany and Japan recovered,
1950-470: The General Maximum was written towards businessmen who were profiting on a large scale from the demise of the French economy. However, in practice, the law ultimately targeted local shopkeepers, butchers, bakers, and farmers-the merchants who were profiting the least from the economic crisis. 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
2015-582: The Republic would have to provide reports on the state of their health; however, President François Mitterrand , who had pledged during his 1981 campaign to publish regular health bulletins, would also conceal, after his accession to power, the severity of the cancer from which he was suffering. Pompidou's wife Claude Pompidou would outlive him by more than thirty years. The couple had one (adopted) son, Alain Pompidou , who went on to serve as president of
Nixon shock - Misplaced Pages Continue
2080-531: 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. Incomes policies were successful in the United Kingdom during World War II but less successful in the post-war era. Incomes policies vary from "voluntary" wage and price guidelines to mandatory controls like price/wage freezes. One variant
2145-738: The US share of the world's economic output dropped significantly, from 35% to 27%. Furthermore, a negative balance of payments , growing public debt incurred by the Vietnam War , and monetary inflation by the Federal Reserve caused the dollar to become increasingly overvalued in the 1960s. In France, the Bretton Woods system was called " America's exorbitant privilege " as it resulted in an "asymmetric financial system" where non-US citizens "see themselves supporting American living standards and subsidizing American multinationals". American economist Barry Eichengreen wrote that "It costs only
2210-710: The United States to leave Bretton Woods. On 11 August Britain requested $ 3 billion in gold be moved from Fort Knox to the Federal Reserve in New York. By 15 August Nixon would declare there were only 10,000 metric tons of gold remaining, or less than half of the reserves the US once held. At the time, the U.S. also had an unemployment rate of 6.1% (August 1971) and an inflation rate of 5.84% (1971). To combat these problems, Nixon consulted Federal Reserve chairman Arthur Burns , incoming Treasury Secretary John Connally , and Paul Volcker , then Undersecretary for International Monetary Affairs and future Federal Reserve Chairman. On
2275-581: The accession of the United Kingdom to the European Community on 1 January 1973. He embarked on an industrialisation plan and initiated the Arianespace project, as well as the TGV project, and furthered the French civilian nuclear programme. He was sceptical about the "New Society" programme of his prime minister, Jacques Chaban-Delmas . In 1972, he replaced Chaban-Delmas with Pierre Messmer ,
2340-506: The afternoon of Friday, August 13, 1971, Burns, Connally, and Volcker, along with twelve other high-ranking White House and Treasury advisors, met secretly with Nixon at Camp David . There was great debate about what Nixon should do, but ultimately Nixon, relying heavily on the advice of the self-confident Connally, decided to break up Bretton Woods by announcing the following actions on August 15: Speaking on television on Sunday, August 15, when American financial markets were closed, Nixon said
2405-408: The appearance of being secretive, wily, a little cunning—which he was, to a degree. However, it was primarily his intelligence, culture, and competence that conferred indisputable authority on him and commanded respect.... I remember his untamed eyebrows, his penetrating, very kindly gaze, his perceptive smile, full of humour and mischievousness, his voice with its wonderful low, warm, gravelly tone, and
2470-408: The best chance of being credible and effective for the sectors of the economy dominated by monopolies or 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
2535-485: The convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States. Now, what is this action—which is very technical—what does it mean for you? Let me lay to rest the bugaboo of what is called devaluation. If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among
2600-489: The department of Cantal , in south-central France . After his hypokhâgne at Lycée Pierre-de-Fermat and his khâgne at Lycée Louis-le-Grand , where he befriended the future Senegalese poet and statesman Léopold Sédar Senghor , Pompidou attended the École Normale Supérieure from which he graduated with a degree of agrégation in literature. He first taught literature at the lycée Henri IV in Paris until he
2665-504: The dollar. The 90-day freeze became nearly 1,000 days of measures known as Phases One, Two, Three, and Four, 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. However, 93% of requested price increases were granted and seen as necessary to meet costs. With such monopoly power, some economists saw controls as possibly working effectively (though they are usually skeptical on
Nixon shock - Misplaced Pages Continue
2730-554: The economy and remained in force until 1978. In 1979 the anti-inflation board was dissolved and the Anti-Inflation Act repealed. The National Board for Prices and Incomes was created by the government of 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
2795-466: The existing Bretton Woods system of international financial exchange, the suspension of one of its key components effectively rendered the Bretton Woods system inoperative. While Nixon publicly stated his intention to resume direct convertibility of the dollar after reforms to the Bretton Woods system had been implemented, all attempts at reform proved unsuccessful. By 1973, the current regime based on freely floating fiat currencies de facto replaced
2860-402: The following: The third indispensable element in building the new prosperity is closely related to creating new jobs and halting inflation. We must protect the position of the American dollar as a pillar of monetary stability around the world. In the past 7 years, there has been an average of one international monetary crisis every year… I have directed Secretary Connally to suspend temporarily
2925-421: 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. However, the long-term effects proved to be destabilizing. Left unsuppressed after the initial price controls were relaxed,
2990-652: The minimum wage (SMIC) and the Ministry of the Environment. His foreign policy was pragmatic but in line with the Gaullist principle of French autonomy within the Western Bloc . It was marked by a warming of relations with Richard Nixon 's United States , close relations with Leonid Brezhnev 's Soviet Union , the launch of the snake in the tunnel and the relaunching of European construction by facilitating
3055-546: The negative effects on employment caused by industrial restructuring. After the failure of the 1969 constitutional referendum , de Gaulle resigned and Pompidou was elected president of France. In the general election of 15 June 1969 , he defeated the centrist president of the Senate and acting president Alain Poher by a wide margin (58% to 42%). Though a Gaullist, Pompidou was more pragmatic than de Gaulle, notably facilitating
3120-401: The only way to deal with it is by controlling the money supply , directly or by changing interest rates . 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
3185-607: The overly expansionary policies proceeded to exacerbate inflationary pressures. Meat also began disappearing from grocery store shelves and Americans protested wage controls that didn't allow wages to keep up with inflation. Since that time, the U.S. government has not imposed maximum prices on consumer items or labor (although the cap on oil and natural gas prices persisted for years after 1973). 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. During
3250-472: The overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today. The effect of this action, in other words, will be to stabilize the dollar. The Nixon shock has been widely considered to be a political success, but an economic failure for bringing on the 1973–1975 recession , the stagflation of the 1970s, and the instability of floating currencies. Politically, Nixon's actions were
3315-486: 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 vegetables ) chose to hide their expensive goods from the market, either for personal use or for sale on the black market . However, the General Maximum was very successful in deflecting
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#17327660446133380-480: The policy. 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 . Many dissidents were executed for breaking this law. The law was repealed 14 months after its introduction. By turning the crimes of price gouging and food hoarding into crimes against the government, France had limited success. With respect to its overt intention, that of ensuring
3445-580: The quality of goods on the market and requiring large government bureaucracies for enforcement. That happened in the United States during the early 1970s. When the price of a good is lowered artificially, it creates less supply and more demand for the product, thereby creating shortages. Some economists argue that incomes policies are less expensive (more efficient) than recessions 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
3510-562: The shopping mall of the same name, building the Montparnasse Tower , and constructing an expressway on the right bank of the Seine. While still in office , Pompidou died on 2 April 1974, at 9 PM in his apartment, from Waldenström macroglobulinemia . His body was buried on 4 April, in the churchyard of Orvilliers , where he had bought an old baker 's house which he turned into a weekend home. The official memorial service for him
3575-402: 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
3640-413: The uncertainty and made their own currency and now that's in trouble." Wage freeze 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, and such measures were also attempted after World War II . Peacetime income policies were resorted to in
3705-422: Was a move widely applauded by the public and a number of Keynesian economists. 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. The 90-day freeze was unprecedented in peacetime, but such drastic measures were thought necessary. It was quite well known at
3770-661: Was able to cover foreign holdings as the rest was covering domestic holdings. By 1971, the money supply had increased by 10%. In May 1971, West Germany left the Bretton Woods system, unwilling to sell further Deutsche Mark for dollars. In the following three months, this move strengthened its economy. Simultaneously, the dollar dropped 7.5% against the Deutsche Mark. Other nations began to demand redemption of their dollars for gold. Switzerland redeemed $ 50 million in July. France acquired $ 191 million in gold. On August 5, 1971,
3835-402: Was allowed to float in May 1971. It forced Japan's central bank to intervene significantly in the foreign exchange market to prevent the yen from increasing in value. Within two days August 16–17, 1971, Japan's central bank had to buy $ 1.3 billion to support the dollar and keep the yen at the old rate of ¥360 to the dollar. Japan's foreign exchange reserves rapidly increased: $ 2.7 billion (30%)
3900-603: Was dropped as part of a general revaluation of the Group of Ten (G-10) currencies, which under the Smithsonian Agreement were thereafter allowed 2.25% devaluations from the agreed exchange rate. According to Douglas Irwin in World Trade Review ' s report "The Nixon Shock After Forty Years: The Import Surcharge Revisited", for several months, U.S officials could not get other countries to agree to
3965-428: Was held at Notre-Dame de Paris with 3,000 dignitaries in attendance (including 28 heads of state and representatives from 82 countries). April 6 was declared a national day of mourning and entertainment and cultural events were canceled, theatres and schools closed. Attendees included: A controversy arose surrounding the secrecy kept over Pompidou's illness, and the political class agreed that future presidents of
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#17327660446134030-485: Was hired in 1953 by Guy de Rothschild to work at Rothschild . In 1956, he was appointed the bank's general manager, a position that he held until 1962. Later, he was hired by Charles de Gaulle to manage the Anne de Gaulle Foundation for Down syndrome (de Gaulle's youngest daughter, Anne, had Down syndrome). Defunct Defunct Jacques Chirac served as an aide to Prime Minister Pompidou and recalled: The man gave
4095-660: Was not a member of the National Assembly . In October 1962, he was defeated in a vote of no-confidence, but de Gaulle dissolved the National Assembly. The Gaullists won the legislative election and Pompidou was reappointed as prime minister. In 1964, he was faced with a miners' strike. He led the 1967 legislative campaign of the Union of Democrats for the Fifth Republic to a narrow victory. Pompidou
4160-581: 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 OPS ( 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. This
4225-538: Was widely regarded as being responsible for the peaceful resolution of the student uprising of May 1968. His strategy was to break the coalition of students and workers by negotiating with the trade-unions and employers ( Grenelle conference ). During the events of May 1968 , disagreements arose between Pompidou and de Gaulle. Pompidou did not understand why the President did not inform him of his departure to Baden-Baden on 29 May. Their relationship, until then very good, would be strained from then on. Pompidou led and won
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