The stakes are too high to use the Phillips Curve with its unreliable tradeoff between unemployment and inflation. We don't need millions of Americans out of work. We need investments in our future.
Concur. Thank you. We, society, must prioritize the dignity of the human vice money. Fiat currency provides the US the time and space to achieve this priority. Keep educating via this forum Claudia.
“High interest rates make it more costly to make all these investments.” How does this itself not reinforce the inflation cycle? We are fighting high prices by raising prices. How is that consistent with the Fed’s “stable prices” mandate? Genuinely baffled as to why there isn’t more institutional pushback on this concept. Comments from Fed officials suggest frustration with how persistent inflation has been. It seems like they think they are spraying water on the inflation fire but in reality are spraying gasoline.
I agree with most of what you say. Normally it is never different, except this time it is. The fiscal stimulus was needed but over done. The disruptions that the lockdown caused with more money in the system caused demand to outstrip supply. Then to top it off we have a war and a cycle of lockdowns in China. The only world shortage today in energy is liquefied natural gas. Russian oil is finding buyers. This will take 2 years to fix if the war lingers on. As far as the China lockdowns goes I don’t have a clue except as of today it seems better.
The Fed has changed from low cost money to now it cost. They have changed peoples/companies behavior. Where I disagree is that they must make sure inflation goes down. I lived through the inflation of the 70s/80s and it wasn’t pretty. I doubt that it will effect employment as much as then because this time really is different. Sure tech companies are laying off people but META having 15,000 people working on the metaverse is nuts. Tech companies are just adjusting to the over hiring they did in the past 2 years. Also there is much more governmental stimulus coming in the inflation reduction act and the infrastructure act plus there is 500 billion leftover in stimulus act money.
You're right, of course, but just you watch, they're going to follow the same old tired playbook until they get a recession at which point they will declare "victory" yet again. Sure -- a "victory" from the same logic that gave us "in order for the village to be saved it was necessary that it be destroyed." As Tacitus had Calgacus say of the Romans, "they make a desert and call it peace."
Have you downloaded Phillips paper? It’s not what it says. It talks about wages, not prices and includes the rate of change of employment. It’s not to say you’re not correct in getting rid of it but first, at least acknowledge that Phillips was a pretty smart guy who has been wholly misrepresented by mainstream economics.
I have largely agreed with your arguments as you have continued to use recent data to explain your conclusions. I think in short your argument boils down to--amongst other smaller factors-- a labor supply issue caused largely by COVID and inadequate support for US workers--which I totally agree with (correct me if I am wrong). The question I have is how do you and others get the Fed and the market to realize that this is an employer and congressional issue, that these inflationary issues are due to a lack of proper legal protections and conditions for workers instead of a simple too much demand/ Phillips Curve issue?
Some questions that came to mind while reading this post (as well as the Stiglitz paper linked in the comments):
1) Is there such a thing as inflation-contagion? Suppose that a number of large, rich countries were too generous with lockdown benefits, could this lead to inflation in other countries that were the appropriate amount of generous (whatever that means) but have economies that are well-connected to the large, rich countries?
2) How much damage do you think 'team transitory' macroeconomists did to their perceived credibility by aggressively pushing the transitory angle in 2021?
3) It seems like we're not seeing a price-wage spiral in the data, but if I judge by the news and my anecdotal experience with the people around me it definitely feels like we have the makings of a price-wage spiral. I'm more likely to encounter someone on social media talking about having their salary effectively decrease due to inflation, and more of my friends are testing the market hoping to negotiate a higher salary. Does anyone have any thoughts on this discrepancy (if it exists at all)?
I’m not an economist, but your level headed and progressive approach to the “dismal” science is very refreshing.
I am interested in writing and offering training on personal and financial well being (no financial investment advice or insurance sales). Your posts give me a great macro perspective that affects workers and consumers at the micro-level.
The Phillips Curve could make sense if there were a shock to the system that made wages too => unemployment and it was necessary for the Fed to engineer enough inflation (but not too much) to get real wages back in line. But that is so clearly NOT the case today if it ever was.
I thought I read somewhere the Phillips curve suggests a Fed rate of 7-10% to get inflation down. I think this is what you are arguing against, so it would be good to state it.
The Phillips Curve is NOT a parameter of the economy that the Fed needs to take into account in seeking to keep or return inflation to its target value. A "Phillips Curve" results from Fed mistakes -- under-target inflation and excessively over-target inflation.
Hi Claudia. Not sure if Cory Doctorow is on your radar but I think you would appreciate today's post.
https://pluralistic.net/2022/12/14/medieval-bloodletters/
He's very dramatic in his delivery but his message is very familiar. Haven't read the Joe Stiglitz paper yet but am looking forward to it.
Concur. Thank you. We, society, must prioritize the dignity of the human vice money. Fiat currency provides the US the time and space to achieve this priority. Keep educating via this forum Claudia.
The fourth thing we need to do: build much, much more housing and implement sensible rent control to lower housing costs.
Agree.
The idea is that policy makers could trade more inflation for less unemployment in the short run, but not in the long run.
Alan Blinder notes in his new book “A Monetary and Fiscal History of the United States 1961-2021”
“That view remains largely intact today, although even a short-run Phillips curve is hard to find in the US data since the late 1990.”
“High interest rates make it more costly to make all these investments.” How does this itself not reinforce the inflation cycle? We are fighting high prices by raising prices. How is that consistent with the Fed’s “stable prices” mandate? Genuinely baffled as to why there isn’t more institutional pushback on this concept. Comments from Fed officials suggest frustration with how persistent inflation has been. It seems like they think they are spraying water on the inflation fire but in reality are spraying gasoline.
I agree with most of what you say. Normally it is never different, except this time it is. The fiscal stimulus was needed but over done. The disruptions that the lockdown caused with more money in the system caused demand to outstrip supply. Then to top it off we have a war and a cycle of lockdowns in China. The only world shortage today in energy is liquefied natural gas. Russian oil is finding buyers. This will take 2 years to fix if the war lingers on. As far as the China lockdowns goes I don’t have a clue except as of today it seems better.
The Fed has changed from low cost money to now it cost. They have changed peoples/companies behavior. Where I disagree is that they must make sure inflation goes down. I lived through the inflation of the 70s/80s and it wasn’t pretty. I doubt that it will effect employment as much as then because this time really is different. Sure tech companies are laying off people but META having 15,000 people working on the metaverse is nuts. Tech companies are just adjusting to the over hiring they did in the past 2 years. Also there is much more governmental stimulus coming in the inflation reduction act and the infrastructure act plus there is 500 billion leftover in stimulus act money.
You're right, of course, but just you watch, they're going to follow the same old tired playbook until they get a recession at which point they will declare "victory" yet again. Sure -- a "victory" from the same logic that gave us "in order for the village to be saved it was necessary that it be destroyed." As Tacitus had Calgacus say of the Romans, "they make a desert and call it peace."
It's ridiculous.
Have you downloaded Phillips paper? It’s not what it says. It talks about wages, not prices and includes the rate of change of employment. It’s not to say you’re not correct in getting rid of it but first, at least acknowledge that Phillips was a pretty smart guy who has been wholly misrepresented by mainstream economics.
I have largely agreed with your arguments as you have continued to use recent data to explain your conclusions. I think in short your argument boils down to--amongst other smaller factors-- a labor supply issue caused largely by COVID and inadequate support for US workers--which I totally agree with (correct me if I am wrong). The question I have is how do you and others get the Fed and the market to realize that this is an employer and congressional issue, that these inflationary issues are due to a lack of proper legal protections and conditions for workers instead of a simple too much demand/ Phillips Curve issue?
Some questions that came to mind while reading this post (as well as the Stiglitz paper linked in the comments):
1) Is there such a thing as inflation-contagion? Suppose that a number of large, rich countries were too generous with lockdown benefits, could this lead to inflation in other countries that were the appropriate amount of generous (whatever that means) but have economies that are well-connected to the large, rich countries?
2) How much damage do you think 'team transitory' macroeconomists did to their perceived credibility by aggressively pushing the transitory angle in 2021?
3) It seems like we're not seeing a price-wage spiral in the data, but if I judge by the news and my anecdotal experience with the people around me it definitely feels like we have the makings of a price-wage spiral. I'm more likely to encounter someone on social media talking about having their salary effectively decrease due to inflation, and more of my friends are testing the market hoping to negotiate a higher salary. Does anyone have any thoughts on this discrepancy (if it exists at all)?
I’m not an economist, but your level headed and progressive approach to the “dismal” science is very refreshing.
I am interested in writing and offering training on personal and financial well being (no financial investment advice or insurance sales). Your posts give me a great macro perspective that affects workers and consumers at the micro-level.
I am going to become a paid subscriber.
Thank you.
The Phillips Curve could make sense if there were a shock to the system that made wages too => unemployment and it was necessary for the Fed to engineer enough inflation (but not too much) to get real wages back in line. But that is so clearly NOT the case today if it ever was.
I thought I read somewhere the Phillips curve suggests a Fed rate of 7-10% to get inflation down. I think this is what you are arguing against, so it would be good to state it.
Explain how the 3-month moving average of inflation ending Nov-22 is only 3.7%?
The Phillips Curve is NOT a parameter of the economy that the Fed needs to take into account in seeking to keep or return inflation to its target value. A "Phillips Curve" results from Fed mistakes -- under-target inflation and excessively over-target inflation.
See: https://thomaslhutcheson.substack.com/p/the-rise-and-fall-of-the-phillips
This is so good.