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macroeconomics_and_the_phillips_curve_myth

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macroeconomics_and_the_phillips_curve_myth [2018/03/25 18:48]
will [Responses to Samuelson and Solow]
macroeconomics_and_the_phillips_curve_myth [2018/07/25 22:09] (current)
dan [Poor responses to Friedman]
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 ===== The general picture ===== ===== The general picture =====
  
-> There is... nothing in the policy record to suggest that 'the Phillips curve',​ or 'the tradeoff'​or the same thing by any other name had any role in motivating or influencing policy. ((p147))+> There is... nothing in the policy record to suggest that 'the Phillips curve',​ or 'the tradeoff'​or the same thing by any other name had any role in motivating or influencing policy. ((p147))
  
-Given that the academic literature had provided a range of viable justifications for modest inflation (see 5.4), it is somewhat surprising that policymakers ​remain ​so committed to price stability throughout the 1960s and 1970s.((In fact, inflation does not gain acceptance in these circles until the failure and abandonment of disinflationary policy in the 1980s.))  ​+Given that the academic literature had provided a range of viable justifications for modest inflation (see 5.4), it is somewhat surprising that policymakers ​remained ​so committed to price stability throughout the 1960s and 1970s.((In fact, inflation does not gain acceptance in these circles until the failure and abandonment of disinflationary policy in the 1980s.))  ​
  
 In the UK, the history of Chancellors'​ speeches emphasize the constant tension between unemployment (demand) and the //balance of payments deficit//​. ​ Costs and prices were controlled quite separately (in the minds of the policymakers) by incomes policy, which was uniformly perceived as a means of obtaining the prices and wages that would prevail under perfect competition (rather than an attempt to '​subvert the market'​). In the UK, the history of Chancellors'​ speeches emphasize the constant tension between unemployment (demand) and the //balance of payments deficit//​. ​ Costs and prices were controlled quite separately (in the minds of the policymakers) by incomes policy, which was uniformly perceived as a means of obtaining the prices and wages that would prevail under perfect competition (rather than an attempt to '​subvert the market'​).
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 The first antecedents of the Phillips curve myth can be seen emerging at the end of the 1960s, but it is fully established in the literature with "​remarkable"​ suddenness between 1975 and 1977.  From there it made the leap to textbooks by 1978, including to many that had previously contained accurate accounts. ​ Even more oddly, alongside the new assertion that economists had believed in an obviously flawed model for a decade, The first antecedents of the Phillips curve myth can be seen emerging at the end of the 1960s, but it is fully established in the literature with "​remarkable"​ suddenness between 1975 and 1977.  From there it made the leap to textbooks by 1978, including to many that had previously contained accurate accounts. ​ Even more oddly, alongside the new assertion that economists had believed in an obviously flawed model for a decade,
  
-> the lubrication argument disappears, even when it had been present in earlier editions. ​ This gives the impression that the supposed inflationism had no explanation,​ except a failure to understand the expectations argument, ​bet it also seems to show those authors as being overly anxious to display errors in the thinking of the past.((pp161-2))+> the lubrication argument disappears, even when it had been present in earlier editions. ​ This gives the impression that the supposed inflationism had no explanation,​ except a failure to understand the expectations argument, ​but it also seems to show those authors as being overly anxious to display errors in the thinking of the past.((pp161-2))
  
 Over the next few years it was cited routinely by a range of authors of "high standing"​ without citation, collectively giving the impression that it was universally accepted as fact.  One of many examples is the opening lines of Feldstein (1979): Over the next few years it was cited routinely by a range of authors of "high standing"​ without citation, collectively giving the impression that it was universally accepted as fact.  One of many examples is the opening lines of Feldstein (1979):
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   - Friedman challenged his peers to provide a sturdy theoretical model of cost-push inflation -- critical to much of the foregoing work -- and nobody did.   - Friedman challenged his peers to provide a sturdy theoretical model of cost-push inflation -- critical to much of the foregoing work -- and nobody did.
   - The expectations argument was refuted again and again in subsequent econometric work, but the authors "all allow the econometrics to speak for itself in showing Friedman to be wrong, giving no explanation of what economic behaviour might underlie such a result."​((p191. ​ **Further: end p191**))   - The expectations argument was refuted again and again in subsequent econometric work, but the authors "all allow the econometrics to speak for itself in showing Friedman to be wrong, giving no explanation of what economic behaviour might underlie such a result."​((p191. ​ **Further: end p191**))
-  - In presenting his thesis, Friedman (1968) simply assumes that the economy is at the natural rate of unemployment,​ whereas the accepted Keynesian methods for using demand to reduce unemployment //without raising inflation// applied when this was not the case.  The "​amazing"​((p192,​ and noted later by Hahn (1982) and de Vroey (1998))) lack of response to Friedman on this point allowed the actual techniques of demand management to be overshadowed by a straw man.+  - In presenting his thesis, Friedman (1968) simply assumes that the economy is at the natural rate of unemployment,​ whereas the accepted Keynesian methods for using demand to reduce unemployment //without raising inflation// applied when this was not the case.  The "​amazing"​((p192,​ and noted later by Hahn (1982) and de Vroey (1998) )) lack of response to Friedman on this point allowed the actual techniques of demand management to be overshadowed by a straw man.
  
 ===== The circumstances in which the myth developed ===== ===== The circumstances in which the myth developed =====
macroeconomics_and_the_phillips_curve_myth.1522003727.txt.gz ยท Last modified: 2018/03/25 18:48 by will