"Please Better Shut Their Mouths": German Influence on U.S. Macroeconomic Policy Under the Carter Administration‪.‬

********** In the late 1970s, as the Democratic Carter administration confronted intensifying trade-offs between price stability and full employment--and so between dollar stability and growth--the U.S. abandoned the use of incomes policies and adopted macroeconomic restraint as the primary means to currency stabilization. Subsequently, incomes policies--defined as standards for variation in wages and prices--would be decisively discredited as policy instruments. (1) In this paper, I offer a constructivist analysis of the evolving debates which drove this transformation, emphasizing the interplay of domestic shifts and foreign pressures stemming from German Social Democratic Chancellor Helmut Schmidt in particular. (2) In the process, I counter views of incomes policies as inherently flawed, suggesting instead that what "everybody knows" about prospects for private wage and price restraint on behalf of the public good can have a self-reinforcing effect on the viability of incomes policies. In other words, "how agents think" about economic policy can affect "how policies work." From this vantage, over the early post-World War II period, collective trust in possibilities for the exercise of private wage and price restraint on behalf of the public good enhanced the effectiveness of incomes policies. In contrast, by the late 1970s, collective skepticism in prospects for private wage and price restraint assumed the force of a self-fulfilling prophecy, as the social fact that "everybody knew" that incomes policies did not work undermined support for their use. ... Restraint was left the sole means to wage, price, and currency stability.