Political Economy of the Zero Bound?
By Arnold Kling
Tyler Cowen offers a theory.
The greater the number of protected service sector jobs in an economy, the more likely those citizens will oppose inflation. Inflation brings the potential to lower real wages, possibly for good.
The wages that are stickiest downward are those in the public sector. The only way to lower the wages of teachers or other government workers is through inflation.
Note that in the last several months, the government sector has been shedding jobs. The alternative, as I have said many times, is to cut pay. But that is unthinkable.
If you are in this protected sector, and particularly if you are employed by a state university, you personally benefit from more government spending. You personally are more likely to be hurt by monetary expansion.
I think this is true of many workers in what Tyler calls the “protected service sector.” Thus, the political economy predicts that these folks will be very sympathetic to the argument that there is a “zero bound” at which monetary policy is not the answer, and only fiscal policy can help.