The Phillips’ Jumble

by Don Boudreaux on June 20, 2011

in Data, Inflation, Myths and Fallacies, Scientism, State of Macro, Work

Does this plot of data from 1948 through 2010 suggest that mild doses of inflation promote job creation? (From Renee Courtois Haltom, “What Drives Changes in Economic Thought?” Region Focus, First Quarter 2011 [Federal Reserve Bank of Richmond]; this graph is on page 14.)

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{ 47 comments }

jjoxman June 20, 2011 at 8:16 pm

It’s all just sunspots. That’s why you need the theory before the data.

Methinks1776 June 20, 2011 at 9:39 pm

LIKE LIKE LIKE!!!

Gimme data and I’ll mine my way to any conclusion you want.

jjoxman June 20, 2011 at 10:06 pm

I appreciate the enthusiasm.

Methinks1776 June 20, 2011 at 11:18 pm

I cannot express to you how important this is to me.

muirgeo June 20, 2011 at 8:58 pm

“What Drives Changes in Economic Thought?”

Apparently nothing.

From Demand side economics Blog;

http://www.demandsideeconomics.net/search?updated-max=2011-06-19T20%3A26%3A00-07%3A00&max-results=1

In modern times no respected discipline has ever suffered such a radical and widespread decline in its public credibility as has economics since the Global Financial Collapse. Outside of economics itself, support for fundamental reform of economics has become nearly universal.

[Consider these headlines]

From the Financial Times : “How economics lost sight of real world” , “Academics languish behind the curve set by journalists” , “Needed a new economic paradigm” , “Sweep economists off their throne”

From Business Week : “Why Economics is Bankrupt” , “What Good Are Economists Anyway?”

From Atlantic Magazine: “Will Economists Escape a Whipping?” , “Why Economics Failed” , “Have economists gone mad?”

From the New York Times : “Seduced by a Model”

From the New York Times Magazine: “How Did Economists Get It So Wrong?”

From The Guardian : “Rescuing economics from its own crisis” , “The Nobel prize for economics may need its own bailout” ,

From the Foreign Policy Journal: “Bought-and-paid-for-economists”

From Newsweek: “Blame the Economists”

From the Vancouver Sun: “Economics: Dismal Science or Science at All?”

From the Korea Hearld: “Economics is a religion, not a science”

From the Huffington Post: “How the Fed Bought the Economics Profession”

From tpmcafe: “Should We Bury Macroeconomists at Ground 0?”

From Money Magazine: “How to rebuild a shamed subject”

Three years ago James Galbraith, in a piece for tpmcafe.com, wrote as follows:

The neoclassical trick is to insist that all “real economists” adhere to an arcane and limited set of techniques. The focus on conformity, on a bizarre hierarchy of journals, the dominance of the AEA [American Economics Association] at the annual meetings, all serve to define who is in the tribe, and their rank. Mainstream economics . . . is defined by who accepts the discipline of the cult.

Sandre June 20, 2011 at 9:17 pm

And yet, you worship at the altar of “solutions” oriented economists and want to hear nothing from those economists who tell you that economics has no “solutions” to offer. What an irony! Not really when you think that it is coming from the same muirdouche trolling this blog for more than half a decade.

muirgeo June 21, 2011 at 12:12 am

“…and want to hear nothing from those economists who tell you that economics has no “solutions” to offer. ”

Yeah , because that belief is totally idiotic and contrary to history… and logic. Again…. it’s a cult like belief system promoted by the powers that be to control people like you, people in the economics profession, think tanks, the media and all their other sources of protective propaganda. You are nothing but a minion or an orc way down the hierarchy of their massive empire of control… and you thought you were free.

sandre June 21, 2011 at 1:32 am

Yeah , because that belief is totally idiotic and contrary to history…
and you said the following too…
From the Financial Times : “How economics lost sight of real world” , “Academics languish behind the curve set by journalists” , “Needed a new economic paradigm” , “Sweep economists off their throne”

From Business Week : “Why Economics is Bankrupt” , “What Good Are Economists Anyway?”

From Atlantic Magazine: “Will Economists Escape a Whipping?” , “Why Economics Failed” , “Have economists gone mad?”

From the New York Times : “Seduced by a Model”

From the New York Times Magazine: “How Did Economists Get It So Wrong?”

From The Guardian : “Rescuing economics from its own crisis” , “The Nobel prize for economics may need its own bailout” ,

From the Foreign Policy Journal: “Bought-and-paid-for-economists”

From Newsweek: “Blame the Economists”

From the Vancouver Sun: “Economics: Dismal Science or Science at All?”

From the Korea Hearld: “Economics is a religion, not a science”

From the Huffington Post: “How the Fed Bought the Economics Profession”

From tpmcafe: “Should We Bury Macroeconomists at Ground 0?”

From Money Magazine: “How to rebuild a shamed subject”

You’re hilarious

it’s a cult like belief system promoted by the powers that be to control people like you, people in the economics profession, think tanks, the media and all their other sources of protective propaganda.

If you say so, it must be true. Yes, just because you are paranoid, doesn’t mean they are not out to get you… ROTFLMAO…

We have all been duped, and only Muirdouche and the people he follows know the truth, and if I don’t confess my sins and not become born again, I’ll burn in eternal hell.

brotio June 21, 2011 at 3:37 am

and if I don’t confess my sins and not become born again, I’ll burn in eternal hell.

Well, His Holiness: The Divine Prophet Algore I, the leader of The Church of Anthropogenic Climate Change (formerly known as The Church of Anthropogenic Global Warming) did say, “The planet has a fever”.

muirgeo June 21, 2011 at 9:37 am

No… there is nothing new here. All of history has been about the oppression of the many by the few. This is just more of the same. Indeed their tactic is much more subtle because it has to be yet it is still out in the open. The success of propaganda through out history is clear. You won’t burn or anything but the economy willl fumble along and when time comes to need to make real decisions it’s more likely to occur through revolt when government is broke or co-opted.

Again a fella like you has no idea how to fix the economy. I believe the same is true of the professors. When things are complicated sometimes people try to oversimplify and that is what libertarianism is… like religion. It helps to explain the complicated. But really like religion t’s lazy thinking mixed in with a little self centered unthinking greed and short sightedness. It explains nothing about the real world and offers no solutions…. except to those in power who wield it to stay there.

sandre June 21, 2011 at 10:45 am

muirdouche…Again a fella like you has no idea how to fix the economy. I believe the same is true of the professors

Oh, I agree. And I’m pretty sure that the professors would agree with that too. They also know that the keynesians are selling snake oil – which has its market – you being one of them. ROTFLMAO.

Muirdouche said this in the same paragraph…When things are complicated sometimes people try to oversimplify and that is what libertarianism is… LOL. It should be the simplicity that results in lack of solutions and the complexity leading to solutions. What a amazingly stupid troll.

Scott June 21, 2011 at 10:52 am

Muir,
Yet it is socialists who have set the stage for your so-called revolt against the free market.

I’ve got an idea, let’s undermine the capitalist system so that it grinds to a halt, everyone will get pissed at capitalism and clamour for socialism and they’ll never know we broke it from the inside just like Paul Newman in the sting.

Sandre June 20, 2011 at 9:20 pm

Muirdouche,

Economists lean left 2.9 to 1. That is 3 in every 4 economists are left leaning. That’s a lot less lopsided than most other subjects, but still very lopsided. Yes, you are right. Economists are not to be trusted, especially those selling the snake oil solutions.

http://www.insidehighered.com/news/2005/12/21/politics

muirgeo June 21, 2011 at 9:40 am

All intellects tend to lean to the left. That’s why the right has to try to demonize them… they can be dangerous to the powers that be. All through history we see intellects being some of the favorite targets of the right and targeted for persecution and mass murder in the worse cases. When some one complains about intellects it’s clear which side they are on…. they have a belief to protect so attack them…call them Divine Profit Al Gore or communist ect ect….

HaywoodU June 21, 2011 at 9:44 am

You cannot be serious….even though I know you are.

sandre June 21, 2011 at 10:50 am

Yes, intellectuals you usually start of their arguments by saying, “You all have been duped. I’m your salvation”. LOL. If Al Gore is not a prophet then what is he? LOL. 100 million people were murdered by Mao, and I’m sure he was not a communist, but a right wing ideologue. LOL. Russian Gulags were run by free-market ideologues. You are hilarious muirgeo. The ethnic cleansing of jews were organized not by National Socialists but by National Libertarians ( NALI). Keep trolling, douche.

Scott June 21, 2011 at 11:02 am

“All intellects tend to lean to the left….they can be dangerous to the powers that be. ”

Hey turd ball, the powers that be tend to lean to the left too. I guess the left leaning intellectuals are dangerous to the left leaning powers that be. Yep, that’s about right.

The fact that socialists ignore the murderous results of their planning just shows their history is as bankrupt as their morality as is their economic theories.

Dan J June 22, 2011 at 1:00 am

More like narcissistic intelligentsia…… The common theme of getting so wrapped up in one’s own ability to comprehend and discern information that they think their findings or views must be the prevailing wisdom above all else. A Nobel prize is very likely to reinforce the path down narcissistic sociopathy, as is a constant stream of ‘yes-men’…. Often found with dictators as they unfold their grand scheme of organizing society under their management.
Who else have we learned that has a grand idea of reorganization or fundamental change for our nation? A nation of expert panelists, beyond redress of the emotionally reactive public who are … Bill Maher- “stupid f@%ks”…. Or ‘ unable to understand in your own little world’- John Stewart …….. And, the panels, shall be directly appointed by the most knowledgeable of all, the elected president. These panels shall have immunity and not be subject to congressional approval…… Since they are elected by the same ‘stupid f@%ks”.
May ‘ Redistribution of The Wealth’ ……. Commence.

Dan J June 22, 2011 at 1:10 am

Muirgeo has ‘bats in the belfry’…. If u know what I mean….
Is one ‘ color wheel’ hue shy of communist red……
Just falls short of a ‘Final Solution’ for loving when a plan comes together.

Great balls of fire.

Mao-geo is off the reservation.

PrometheeFeu June 21, 2011 at 10:34 am

That’s an absurd reason if I ever heard one.

Michael Mace June 20, 2011 at 10:03 pm

And what are we going to replace economics with? Sociology? Marxist critical theory? Central planning?

muirgeo June 21, 2011 at 9:42 am

That’s like saying what are you going to replace blood letting with? What are you going to replace alchemy with. We should replace institutionalized economics with actual economics. That”s what I say. But again the profession has been hijacked as a most valuable commodity of the wealthy and their propaganda.

Sandre June 21, 2011 at 12:55 pm

We should replace institutionalized economics with actual economics.

Muirdouche,
That simple huh? What is “institutional economics”? What is actual economics? How would you replace “institutional economics” with “actual economics”? What stopped “actual economics”? Why would that won’t stop it in the future? How many scholarly “actual economics” books and papers have you studied? What makes you an expert on this topic?

SheetWise June 21, 2011 at 10:00 am

It doesn’t need to be replaced with anything — just get rid of macro.

cmprostreet June 21, 2011 at 11:20 pm

*LIKE*

This also has a lot to do with the “theory before data” comment above.

Dan J June 21, 2011 at 12:36 am

Your right! We should no longer trust the prevailing wisdom of the majority of economists who are generally left leaning. Thanx, Muirgeo! Push Keynesian theory and collectivist ideas off of the Grand Canyon Rim. Dont let EPA catch ya. You will be banished for discarding hazardous waste into a protected environment.

Ooooooh, the amount of oil that mist lie beneath the canyon floors. The natives who own the western portion should drill and bring it up.

Scott June 21, 2011 at 10:39 am

Over the last 70 years, the driver has not been Austrian economics, so when you quote the headlines above, you are pointing out critiques of central planning. The theories marxists like yourself subscribe to got us into this mess. They have no prospect of getting us out.

Peter June 20, 2011 at 9:01 pm

I smell a new open letter to Paul Krugman. Just a copy of the graphs, with a question: Care to explain?

Joe Calhoun June 20, 2011 at 9:15 pm

A couple of points about the Phillips curve. The original paper was about wage inflation and merely pointed out that low levels of unemployment resulted in higher wage inflation rates. It did not say that general inflation reduced unemployment at all. In addition, the study only covered England during a time it was on the gold standard and therefore had a very stable general price level. What Phillips uncovered was real wage inflation during times of low unemployment and real wage stagnation/deflation during times of high unemployment. In other words, he merely confirmed that wages were subject to the same laws of supply and demand as every other good. Duh. How did this get transformed into the idea that a little inflation is good for employment? One can only surmise that the economists who pushed the idea had an agenda other than reducing unemployment.

Methinks1776 June 20, 2011 at 9:50 pm

I did not know that. Thank you for the information.

Whether the assertion was original to Phillips or not, the Phillips Curve was interpreted as a trade-off between employment and inflation. At least, that’s how it was taught to me back in the day. Supposedly, the 70′s disproved not only Keynes but the Phillips curve. Although, nobody seems to have informed Krugman.

Gil June 21, 2011 at 12:06 am

But in some respect isn’t that the point of NAIRU. When unemployment is low – around 4 or so percent it’s actually good for the economy because labour shortages do nothing but increase wages as employers are overly-competing for workers moreso than just plain producing and expanding. Austrian economists are quick to point out the cheap labour is required for good economic growth – employers sit back and let workers compete and concentrate more on production and passing the savings from cheap labour into the market.

tkwelge June 21, 2011 at 1:02 am

When do Austrians say that “cheap labor” is good for economic growth. I would argue that economically efficient labor is necessary for economic growth. Paying people less when you could pay them more and see a greater return on investment is quite dumb.

Gil June 21, 2011 at 4:38 am

By that reasoning the minimum wage increases productivity.

HaywoodU June 21, 2011 at 6:56 am

Gil, I suggest you read tk’s comment over before you make a statement like that.

Dan J June 21, 2011 at 2:09 am

Free market wages , even if they are lower than you like them, promote strong economic growth, not govt mandated wages.

Gil June 21, 2011 at 4:40 am

So you’re saying you agree with me?

Hal_10000 June 20, 2011 at 9:15 pm

Wait. Are you saying correlation isn’t always causation? That just because you can think of why A might cause B doesn’t necessarily mean A causes B? Blasphemy, sir!

Denno June 20, 2011 at 9:46 pm

Thank you for posting these graphs. They merely support what most of us already believe. Didn’t the stagflation of the late 1970′s and early 1980′s put a chink in the armor of the Phillips curve?

Ryan Vann June 20, 2011 at 10:18 pm

I don’t know about the rest of you, but at U of Oregon, the Phillips curve was taught in Intermediate Macro under the umbrella of “dead theory.” Why is this topic being zombiefied only to be put down again?

Gil June 21, 2011 at 12:08 am

That’s what I read too – stagnation is supposed to be impossible.

W.E. Heasley June 20, 2011 at 11:52 pm

Yes, the Phillips Curve is Milton Friedman‘s classic argument regarding the Barking Cat.: “I would like to have a cat, provided it barked”. Yes, the Phillips Curve is the Keynesian Barking Cat, in that, “….provided it behaves as you believe desirable is precisely equivalent”.

Surely this is all in jest! Nay, nay!

Introduction to the New Keynesian Phillips Curve, Andreas Hornstein, Economic Quarterly—Volume 94, Number 4—Fall 2008—Pages 301–309

http://www.richmondfed.org/publications/research/economic_quarterly/2008/fall/pdf/hornstein.pdf

James Reade June 21, 2011 at 3:00 am

Erm, well usually controlling for the other factors that might shift this relationship is a good idea. You guys would plot price and quantity and say “hmhp. can’t see demand or supply here”, it would seem. I seem to recall somebody a while ago talked about augmenting the Phillips Curve with inflation expectations or something? To deny there is some relationship between inflation and unemployment/output based on cross plots of the two is pretty unconvincing at best and misleading at worst.

Dan S June 21, 2011 at 4:57 am

Couldnt have said it better myself, and I already tried to.

Dan S June 21, 2011 at 4:56 am

This context-ignoring post is unbecoming of you, Don. No economist, not even an ardent Keynesian like say Krugman, believes anymore that there is a relationship between inflation per se and unemployment per se. The question is whether there is a relationship between inflation above the expected amount and employment, or not, and everybody knows that inflation expectations got unstuck during the 70s which led to the inflation-employment relationship to break down. You are attacking a straw man in this post.

Would you conclude from this analysis that the fiscal or monetary authorities cannot increase employment even if they were to increase inflation expectations? Maybe that is so, but you are not looking at the right data to draw that conclusion.

Dan J June 22, 2011 at 1:16 am

Everybody knows?!?! I did not know.

Doc Merlin June 23, 2011 at 8:00 am

As expectations are fairly impossible to measure well, it becomes even more worthless as an empirical tool, you have too many degrees of freedom for the data. Maybe if you define it using the TIPS-Tbill spread?

tw June 21, 2011 at 7:46 am

To paraphrase Ralph Malph, I see a picture of 2 spiders doing their laundry….

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