Remembering the Phillips Curve

Accuracy in Academia ^ | February 6, 2014 | Spencer Irvine

[Academiadotorg]

It turns out that the man famous for concocting “the Phillips Curve” that a generation of economics students had to memorize didn’t believe in it himself.

As Investopedia explains the rise and fall of the curve, “The theory states that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment. However, the original concept has been somewhat disproven empirically due to the occurrence of stagflation in the 1970s, when there were high levels of both inflation and unemployment.”

Tim Harford, a columnist for the Financial Times, claims that the legacy of A. W. H. Phillips has been tarnished by the notoriety of the Phillips curve. Phillips himself felt “it was just correlation” and did not want to publish it, Harford claimed in an appearance at Cato on January 23rd.

Phillips was believed to have said that the Phillips curve was “always a rush job” and “was said to never have taken it seriously.” Harford suggested that Phillips’ colleagues published it on his behalf while he was on sabbatical in order to help him obtain tenure.

Phillips died in 1975 and could never provide this context when the theory fell out of favor due to circumstances beyond his control. “This really was a great man, a practical thinker…yet he’s irrevocably linked to an idea that was proven wrong, but he didn’t believe in,” Harford said.

[mc5cents]

Accuracy in Academia, hmmm, oxymoron? Maybe.

[Bogey78O]

I find it hard to believe research would be published solely for the sake of publishing research. What next, saying the president of these united states of America is a dishonest scoundrel? Harumph.

[Rock Eye Jack]

Milton Friedman made the Philips Curve easy to understand.
The Philips Curve is the short term relationship between Inflation and Employment, and is an inverse relationship

Friedman pointed out that the long term relationship was more important and he called it The Natural Rate.
Inflation and Employment move in the same direction

This country has lost much with Friedman’s passing

[theBuckwheat]

Inflation of the currency is a planned result of Keynesian economics. In truth it is embezzlement of private wealth by dilution similar to when a bartender dilutes the booze. Inflation distorts the costs of long term projects and thus degrades the ability of people in business to plan the full costs of long term projects. When coupled with a tax on incomes that includes taxing the gain in the sale of assets like land in dollars due to inflation, it is the grandest scheme of theft in all human history.

Inflation is coveting and theft, based on lies. Each of these is itself a violation of one of the Ten Commandments. An economic system built on lies, coveting and theft cannot be blessed by God and it is not “sustainable”.

[JoeFromSidney]

I saw an attempt to validate the Phillips Curve in one of my professional journals. The graph accompanying the article displayed unemployment vs. inflation, and the author fitted a curve to the data. The intent was to show that higher inflation was correlated with lower unemployment. Phillips himself never said there was any causality between the two, only a correlation. Actually the correlation was pretty poor. The data points were scattered all over the graph, and the regression fit had a fairly low correlation coefficient. However, because it supported Keynesianism, it received a great deal of support among economists and politicians. I don't think anyone takes the Phillips Curve seriously any longer.

[Academiadotorg]

indeed it has

[fatez]

Yep, Keynes ignored key concepts such as productivity and substitution, two things libs don’t understand...

[mjp]

the original concept has been somewhat disproven empirically due to the occurrence of stagflation in the 1970s, when there were high levels of both inflation and unemployment.”

Knowledge of the fact that unemployment can be eliminated by virtue of a fall in wage rates and prices, and that government interference is what prevents this, implies that there is absolutely no necessity for any kind of "trade-off" between inflation and unemployment as is claimed by the supporters of the so-called Phillips curve. In a free market, full employment is achievable precisely by means of a fall in wage rates and prices. The Phillips curve analysis, however, is so imbued with the spirit of government intervention and Keynesianism that it is blind to the very possibility of this occurring.

[Rock Eye Jack]

During 1967, Milton Friedman wrote a column in Newsweek saying that it was commonly believed that Inflation and Unemployment were inversely related.(Philips Curve)

Friedman noted that this was not always the case, and in fact we were entering a period that he called Inflationary Recession.

In the 1970s , we called it Stagflation , and Friedman once again showed himself to be about 10-20 years in front of everyone else.