The Macroeconomic Effects of the Higher Oil Price
What happens when a powerful group contributing to the output of an economy seeks to appropriate to itself a larger proportion of that output than it has previously been receiving? The question seems to many to have direct relevance both to the domestic situation in the United Kingdom in recent years and to the international economy since the rise in the price of oil induced by OPEC at the end of 1973. For this reason, it may be useful to approach the macroeconomic analysis of the effects of the rise in the price of oil via the rather better-explored territory of ‘wage-push’ in the domestic setting. The analogy lends itself readily because we are concerned with the effects of the rise in the price of oil on the world economy at large; we can therefore assume the kind of closed economy which features in most analyses of ‘wage-push’, avoiding the complications which the latter encounter when foreign trade has to be brought into the picture. It is not intended to suggest that the autonomous increases in money wages which adherents of ‘wage-push’ believe to be the prime mover in the United Kingdom’s inflation in recent years can be ascribed to concerted action of the sort taken by the oil producers’ cartel. Nor do we mean to deny that either autonomous ‘wage-push’ by trade unions in the domestic setting, or the oil producers’ concerted action, may be explicable in terms of the desire to recoup earlier losses of relative real income experienced for reasons outside their control.
KeywordsInterest Rate Price Level Trade Union Real Wage Excess Demand
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