Jan 22, 2022·edited Jan 22, 2022

Good article.

It should be understood *how* the Phillips Curve was transformed from an explanation of the relationship between wage growth and unemployment into one of the reciprocal relationship between unemployment and all-price inflation:. This was a 1960 article by Samuelson and Solow, "Analytical aspects of Anti Inflation Policy," based on their visual (not statistical) inspection of that unemployment/all-price relationship. This became Canon Law. Samuelson added the Phillips Curve to the 5th edition ot his widely used textbook, calling his interpretation "one of the most important concepts of our time." (There's a Solow interview somewhere confirming this account of how that "looks-like-so-it-must-be" discovery occurred.) This was a disaster for future economic theory, since it placed liberal "New Keynesian " economists in the side of having to "create" unemployment by raising interest rates in order to control inflation. Some of this is covered in: Robert Leeson, “The Political Economy of the Inflation-Unemployment Trade-Off,” History of Political Economy (1997) 29:1.

The subsequent jousting between liberal MIT and Conservative Chicago economists took economic theory into the Never-Never Land of stagflation, expectations, natural rates, liquidity traps -- all to explain why this newly interpreted Phillips Curve kept not fitting -- until fiscal Keynesianism became merely a gloss (a Plan X,Y,Z) of monetary policy. Liberal Keynesianism and fiscal policy have been on the ropes, figuratively, ever since.

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Thoughts on Lerner's (1943 ) Functional Finance with regard to Unemployment ?

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