SINCE EARLY 1973 the major price aggregates have risen far more than can be explained by the direct effects of rising unit labor costs and higher prices for fossil fuels and other imported commodities. The margin of prices over standard unit labor costs for private nonfarm domestic output widened not only during the last phases of expansion in 1972-73 but even more sharply in the recession that followed. At today’s price-cost relationships, full-employment levels of output and associated levels of productivity would generate very large profits. The full-employment profit rate (first cousin to the full-employment surplus) has risen very rapidly during the past two years, accounting for an important part of the inflation and perhaps—like its budgetary cousin—for an important part of the recession.
