High Unemployment vs. Low Inflation

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John Major: "If it's not hurting, it's not working." Norman Lamont: "If higher unemployment is the price we have to pay in order to bring inflation down, then it is a price worth paying." Relating to the above statements, what is the relationship between the main macroeconomic objectives?

-- Lucyjane Lukins (l_lukins@hotmail.com), April 16, 2000


We seek to get full employment, stable prices, and rapid productivity growth. At one level, Major and Lamont are saying that stable prices is the principal objective--the one that is more equal than the others. At another level, Major and Lamont may be following the doctrine tha t if you talk *really* *tough* on inflation you can get faster productivity growth and lower unemployment than if you don't talk *really* *tough* on inflation.

Brad DeLong

-- Brad DeLong (delong@econ.berkeley.edu), April 19, 2000.

Monetarists have a ready answer for the correlation between unemployment and inflation: inflation confuses people into thinking that new savings are available, and that new products are needed. They then hire people. If you continue to inflate the currency, employers continued to be confused and maintain this higher employment. Cut inflation, confusion vanishes, and so do those jobs. Don't cut inflation, and you Turkeyize your economy. Suck! I did some work for some Turks, back when $1 == 580,000 TL. I told 'em so. They said "inflation has been working for us for twenty years, there's no reason why it should stop working now." Maybe so ... but it did at the $1 == 2M TL point.

-- Russell Nelson (nelson@crynwr.com), March 24, 2004.

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