Back early April I came upon John Taylor draws a Phillips Curve at Noahpinion. I had already noticed for myself that Taylor's graph looked much like the Phillips curve. So I did like Noah's post. Of course, I liked my own analysis better.
But Noah also provided a graph that woke me up early the next day, ready to write.
It took until now, however, for my thoughts to come together.
From Noah's post:And then I remembered something else about Phillips curves - they shift over time. Policy shifts and structural shifts in the economy will, over time, change the tradeoff between inflation and unemployment. If you look at data over more than a decade, you see a series of different curves for different time periods:
I never saw a graph like this before. I knew it should look like this, because the curve "shifts over time." And I always thought this shifting significant. But Noah's graph is the first time I saw it plotted out.
In his post, Noah goes on to say that Taylor's ratio, too, shifts over time. But he says no more about reasons for the shifting. As an explanation of the Phillips shifts, we are left with only five words: "Policy shifts and structural shifts". Isn't that inadequate?
The question is: Why does the Phillips Curve shift? Noah doesn't really address the question. Milton Friedman, if I have it right, said people anticipate policy changes and they change their behavior, and this disrupts the curve. I find that unsatisfactory.
Check out the labels on Noah's graph. The longest (lowest and leftmost) curve represents the Phillips tradeoff of the 1960s and the late 1990s. The shortest curve (in the upper-right corner) represents the tradeoff during two very severe recessions.
Growth was particularly good in the 1960s, and again in the late 1990s. Growth was particularly bad during those recessions. The placement of the curve is related to economic performance. Not "structural" shifts, but performance shifts. A healthy economy puts the tradeoff low and left on the graph; a sickly economy puts the tradeoff high and to the right.
Compare that to what Friedman said.
So the question, really, is not "Why does the Phillips curve shift?" The question is: What makes growth so good in some periods, and not so good in others?
5 comments:
The thing that makes growth good, or not good, is the ability or inability of debt to increase.
I think you gloss over policy and structure too blithely. Unless you believe that there is no relationship between these things and results.
Note that in the 60's we were following Keynesian principles. We got into that again briefly in the late 90's.
Also, be on the look out for confirmation bias. The debt level and ability to increase is significant, but there is no reason to believe it is at the root of everything.
Cheers!
JzB
Okay, I could have a conversation on this. Perhaps I didn't say it in this post, but I attribute EVERYTHING to policy. The trick is to see what it is that policy is doing wrong. (I say policy encourages the accumulation of debt.)
"Structure" to me is the structure of money: how much of it is debt, and what does that add to costs?? Other things, technology is technology, and institutions are politics, and I have nothing to offer on these.
You mentioned before the Keynesian principles thing. I do refer to 30 years of Keynesian policy (1947-1977) and 30 years of Reaganomics (1978-2008). But I've likely been "blithe" about the dates. So, don't refer me to a link, tell me something that happened in the late 1990s to make it Keynesian. What, we balanced the budget???
Everything I do is based on answering the question: "What is the fundamental problem in our economy?" I have an answer that suits me.
For the record, my comment about "ability to increase" debt is not offered as a plan of what we need to do, but as an evaluation of how we run our economy and what has to change.
So okay Jazz, I read the link post and the link-link post and I get your view of "Keynesianism." I think, yeah you think it was Keynesian in the late 1990s because we balanced the budget.
Dunno about that. After maxing out in 1992, the federal budget deficit fell consistently until balance was achieved in 1998. Whatever happened, whatever changed (and I have an inkling but not a post to link to) it happened in 1992 OR BEFORE (say, 1989-1990-1991) to permit the trend to develop. Probably a change in the tax code.
Well, Reagan increased taxes 11 times (the net effect of his various tax changes was to shift some of the burden from the rich to the poor.)
Poppy, after his infamous "read my lips." gaffe also raised taxes, out of necessity. Something the current crowd of Rethugs won't do, no matter how great the necessity. All Rethugs running for national office take a pledge authored by Grover Norquist to never raise any tax - and this included closing loopholes. Poppy violated the pledge. I saw him say this on TV, just a few days ago.
Whenever and however the groundwork was laid, we were in Keynesian territory by 1998. Under Clinton, the deficit declined steadily, and surpluses ran from 1998 through 2001.
http://www.cbo.gov/ftpdocs/108xx/doc10871/HistoricalTables.pdf
Remember I did call them accidental Keynesians.
I'm going to be more or less out of touch for a couple of weeks. Back at you later.
Cheers!
JzB
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