“Please Better Shut Their Mouths”: German Influence on US Macroeconomic Policy under the Carter Administration

Abstract

Over the late 1970s, U.S. macroeconomic policy underwent a major shift, rejecting incomes policies and accepting macroeconomic restraint as the primary means to holding down inflation and strengthening the dollar. In conventional narratives, this shift is cast as a response to the diminishing effectiveness of incomes policies and the fundamental importance of macroeconomic restraint in maintaining monetary stability. However, such accounts obscure the interpretive context in which these shifts occurred, as beliefs regarding the limits of incomes policies and the need for restraint took on "lives of their own." In this paper, I examine the intersubjective context of these policy shifts, addressing not only the domestic context of debates over wage-price trends, but also German pressure on U.S. policy, and the key influence of Chancellor Helmut Schmidt in urging U.S. oil deregulation and monetary restraint. I specifically highlight interactions in the context of the 1977 London and 1978 Bonn summits and the 1979 World Bank-IMF meetings. Taken as a whole, this effort highlights the intersubjective context of domestic-systemic debates, as liberalizing pressures reflected not only domestic pressures from within U.S. society but also external German influences, as together mediated by key U.S. policymakers.