Evidence suggests the Philips curve is dead. Does this mean we can obtain lower inflation and lower unemployment?Using any of the demand management and/or supply policies at your disposal, what combination of policies would you recommend to the government in order to achieve a sustained reduction in unemployment and inflat? what, if any, are the problems with your recommendations?

-- Andrew Bagnall (abagnall@yahoo.com), February 28, 2001

Answers

No one seems to understand the new economy. Most companies use as many contract workers as they do employees. This helps them control their bottom line by giving them a variable labor supply. When a company lays off 500 employees that means it has probably NOT HIRED 1000 contractors. Greenspan sees the layoff of 500 as unemployed but not the 1000 not hired. Outsourcing has not necessarily killed the philips curve but it has made it much more difficult to understand. For example the democrats want to increase demand with a low income tax cut but they don't want to increase the supply by reducing capital gains. That is a recipe for stagflation.

-- Ed Linne (edlinne@yahoo.com), April 17, 2001.

THE PHILIPS CURVE IS WRONG. Everybody can test it with the same data Philips used, and the result is that inflation does not matter, what matters to reduce unemployment is that inflation goes faster than the adjust in salaryes that means that Real Wage goes down and than as the clasical economy discovered, employment grows in the short term........... Try it and test unemployment in one axe and real wages on the other. Sorry about my bad english denis degener mar del plata argentina

-- denis degener (degenerden@hotmail.com), August 22, 2001.

Despite the seeming failure of the Philips curve to provide an accurate relationship between inflation and unemployment in the long run, it still touches on the trade-off that govenments experience between output and price stability. In order to reduce unempoyment without experiencing accelerating rates of inflation it seems evident that the government must concentrate on supply side policies designed to increase the productive capacity of the economy. This can be done through improvements in efficiency or an actual increase in resources, both these solutions prove difficult to implement given the inherent immobilities of the labour market and the finite amount of natural resources available to any government.

-- Hamish Young (hamo_29@hotmail.com), March 31, 2002.

Philips curve amended by Milton Friedman.

The great Milton Friedman, (among others) showed that the Philips curve holds (basically) true as a negative relationship for UNANTICIPATED inflation and CYCLICAL unemployment.

However in the past 20-30 years, (and especially during the 1970's) cyclical unemployment has been a diminishing component of total unemployment while STRUCTURAL unemployment has played an increasing role.

In essence such things as bad government policy and the 1973 oil embargo can "shift" the philips curve resulting in high unemployment AND high inflation. The converse also holds.

~Bob

-- bob hyneman (bobhyneman@bigfoot.com), April 24, 2002.

Philips curve doesn't exist. There nevertheless could be a Boboli's egg, or, better, Boboli's spiral or even Boboli's inclinated oval cylinder.

Indeed, if You look at the recent statistics, You will note that while the inflation was going down, the unemployment went on up (just before the Yale and Samuelsson teams entered the White House with Clinton).

What exists, in two dimensions is something like an egg or a circle. Nevertheless, the real graphic shoud, at least, be a 3 dims one : unemployment, inflation and, as third, whether simply the time, or, better, the work/capital ratio by produced unit.

the time as third axe would result in a spiral, the inclinated oval cylinder would be the result of different level of work/capital ratio per produced unit.

This kind of blunder like the Philips curve occurs when economics deeplier worried by politics than by economics accept any figure, even when supposed exogen variable are evidently endogen or correlative.

This occurred with Philips curve where unemployment and inflation both depend and other common factors like the offer7demand ratio.

The same kind of blunder went on with Don Patinkin's monetarist equation where he assumed an endogen variable should be accepted as being exogen.

The deep concern is all that blunder only favour a happy few oligopolists while putting the brake on the normal development of the economy and bringing a lot of misery in many families.

As far as I am concerned, i feel that economy should, like any science,have the happiness of the mankind as aim.

Please point out that i am neither socialist neither communist but a fervent of Adam Smith. He was neither a mercantilist, neither favoured the capitalist Schumpeter so much likes.

-- Jacek Boboli (hussaile@ant.pl), February 06, 2003.

Inflation is caused by too many dollars chasing to few goods. More aptly stated, it defines a situation whereby the government spends more than it taxes,i.e. a budget deficit resulting in rising prices. If the government spends exactly the same as it taxes then there will be price stability in the economy. Deductively, we can then say that if the government spends less than it taxes we will see falling prices in the economy. The philips curve will be applicable in situation one and three, deficit spending and budget surplus.

In the deficit spending situation excess money is in the system which will cause the money to be discounted, i.e. rising prices. Since all production is consumed and the demand is still there it will appear that inflation is caused by growing economy. Conversly, if there is a surplus in the budget a liquidity squeeze will cause the economy to decline. Why? The econmony does not have sufficient funds to pay its tax bill let alone to create economic growth. Hence, the philips curve looks again at the result and predicts that a slowing economy will reduce inflation.

Therefore, the ideal situation occurs when the budget is balanced. At that point the result is real growth with stable prices and the philips curve really does die.

This, then, begs the question of what is a balanced budget?

-- larry carty (lcarty@inreach.com), September 17, 2003.

there is no problem ,philips curve is true.

-- wert ass (w@yahoo.com), November 19, 2003.

there is no death,be careful,think clearly

-- erastos demiro (qq121@yahoo.com), November 19, 2003.

Broadly speaking, neoclassical economists assume inflation and growth go together - a growing economy adds more jobs and reduces unemployment. A look at the changes of GDP growth and inflation over the long-term shows that there is an INVERSE relationship between inflation and growth - strong stagflation alternating with periods of growth and low inflation. (The following article shows such an inverse Philips Curve on page 257 - http://www.arts.yorku.ca/politics/nitzan/bnarchives/journal_articles/pdf/nitzan_2001_regimes_of_differential_accumulation.pdf)

Furthermore, the article shows a tight correlation between the corporate profits of dominant capital (the largest corporations) and stagflation.

-- Herb v. (herbvdd@hotmail.com), December 09, 2003.

The philips curve as it is known shows the relationship between inflation and unemployment. It has however lost its entire meaning but itss insight of trade-off between these two evil econmic indcators still pllayss a vital role in eeconmics.

-- Okyere Ernest (erniok2003@yahoo.com), March 09, 2004.

Wow... too much for my current kownledge to handle... at alevel we are basically told:

Philips curve used to be true, but nor anymore, for reasons such as "target inflation rates" by the gov, they keep inflation down by using supply side policies, so that the increase in aggregate demand caused by employment is met with an increase in aggregare supply. They also tell us its possible that the philips curve has shifted to the right... i dont really understand how, maybe i shud pay more attention in class...

-- Hitesh Sawlani (hitesh@wanadoo.es), April 18, 2004.