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A Relic

Is it the end of the Phillips Curve? If so, I won't miss it.

Posted by Rand Simberg at July 12, 2007 07:50 AM
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Too bad the curve outlived Milton Friedman, whose Free To Choose thoroughly debunked the notion that anything other than debasing the currency causes inflation.

Posted by Alan K. Henderson at July 12, 2007 08:11 AM

Actually it was his research on monetary theory that he published in the classic paper “"The Quantity Theory of Money: A restatement” in “Studies in the Quantity Theory of Money” in 1956 that established that money supply determines inflation.

It was also a key part of the body of scientific work he produced which won him the Noble Prize. The equation he developed based on this research (MV=PT) was the foundation of his monetary theory and work on stabilization.

Free to Choose is a good popular explanation of his equation and model although I prefer his book “Money Mischief” (1982) as it builds on his classic historical study of the U.S. money supply to build his case on empirical evidence.

Posted by Thomas Matula at July 12, 2007 10:20 AM

Free to Choose gave a prescription for ending inflation, which Volcker took. The recipe did exactly what was promised - ended inflation and, as a side effect, caused a painful but temporary recession. (Which Reagan eased by getting five-sixths of the the Kemp-Roth tax cuts passed - they wanted 30% but got 25%.)

Posted by Alan K. Henderson at July 13, 2007 08:31 AM

OTOH, just because no one pays attention to the curve doesn't mean it'll go away. Wages are a significant component of the cost of most things. And low unemployment appears to mean higher wages due to increased competition for the same resources. Get that unemployment low enough and you have a source of inflation. A lot depends on how efficient the job search process is. More efficient looks to cause less inflation for the same level of unemployment.

Posted by Karl Hallowell at July 15, 2007 08:26 AM

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