Friedman’s Nobel Lecture and the Phillips Curve Myth

Abstract

In his Nobel lecture, Friedman built on his earlier argument for a “natural rate of unemployment” by painting a picture of an economics profession which, as a result of foolish mistakes, had accepted the Phillips curve as offering a lasting trade-off between inflation and unemployment, and was thereby led to advocate a policy of inflation. It is argued here that, in fact, the orthodox economists of the time often did not accept Phillips’ analysis; almost no one made the mistakes in question; and very few advocated inflation on bases vulnerable to Friedman’s theoretical criticisms. The Phillips curve was put to various uses, but advocating inflation was hardly amongst them. It is suggested that one lasting result of the uncritical acceptance of Friedman’s history is to limit what appears to be within the reasonable range of views about macroeconomic policy.

THE “PLACE OF THE PHILLIPS CURVE” IN MACROECONOMETRIC MODELS: THE CASE OF THE FEDERAL RESERVE BOARD’S MODEL (1966–1980s)

“…To them, in the case of separation between union and non-union labor markets, using two different wage equations, the implications for the long-run Phillips curve depends on the nature of the spillover from one sector to another (for a similar reasoning, also see Modigliani 1968, Box RW 15, MP) 17 . Behind their analysis, there seems to be the “lubrication” argument that, according to Forder, provided a rationalization of the persistence (long-run) trade-off, put forward before Friedman’s and Phelps’s challenge (see Forder 2010, pp. 335–336; and 2014, pp.…”

Social benefit expenditures and stagflation: evidence from the United States

“…Moreover, the curve could shift to the upper right, with a positive correlation between inflation and unemployment. Given the challenges in stimulating the economy, the Phillips curve was considered to also reflect stagflation (Forder 2010).…”

A. J. Brown, “Phillips’s Curve,” and Economic Networks in the 1950s

“…2 1 James Forder (2015) critiques textbook uses of the Curve. The policy importance of the Curve in practice is more controversial; e.g., see Forder (2010) and Schwarzer (2013). 2 Brown's view can only be surmised, but his son, William Brown (himself a former chair of the Faculty of Economics and Politics and Master of Darwin College, Cambridge University), commented, in personal correspondence, about his father: "Would he have liked it to have been called the Brown-Phillips relationship?…”

“… 1 James Forder (2015) critiques textbook uses of the Curve. The policy importance of the Curve in practice is more controversial; e.g., see Forder (2010) and Schwarzer (2013). …”