Jim Devine __
I don't think that it. The Phillips Curve is about _money_ wages (W) going up when unemployment is down. (Money wages are what's printed on your paycheck.) This is not quite the workers' dream, since when money wages go up, the capitalists usually raise prices (P). High demand giveth high money wages to workers but then taketh way by raising prices. Thus real wages (W/P) may stay the same, fall, or rise. (Real wages are what goods and services your wages are able to buy.) ^^^^ CB: One thing I know is that you understand the Phillips Curve better than I do. Please, I am only repeating what was in that wikipedia note, which might be inaccurate ( well, you thinking about it from a different angle :>)) It seems to explicitly refer to wages. I got that from them and if it is wrong ok. They said: "The New Zealand economist Bill Phillips, in his 1958 paper "The relationship between unemployment and the rate of change of _money wages_(emphasis added -CB) in the UK 1861-1957" published in Economica, observed an inverse relationship between_money wage_ changes and unemployment in the British economy over the period examined." On capitalists raising prices when wages go up, that is what Citizen Weston was arguing and Marx was replying to in _Value,Price and Profit_. Prices need not go up, if profits go down ( Marx said with a revolutionary grin on his face, no doubt) ^^^^^ (There's a related concept called the "wage curve" (Blanchflower and Oswald). In line with Marx, rising unemployment implies falling real wages, and vice-versa, all else constant. However, it doesn't work very well at the macroeconomic level.) ^^^^^ CB: Hmmmm sounds like we need to bring back Phillips Curve, Blanchflower and Oswald with some adjustments for the current period. ^^^^^^ Also, the Phillips Curve causation doesn't go as you suggest. It's not that high wages mean high demand meaning low unemployment. It's much more a matter of high demand for goods and services (GDP) causing a high demand for labor (low unemployment) causing faster growth of money wages (and prices). (Some see high inflation as causing low unemployment, reversing this causation. In the end, the PC is more of an empirical generalization than a theory.) ^^^^ CB: On the prices, price control without wage control. I know that's radical, but I was trying to state it most radically - workers' dream. I guess it was sort of the Keynesian backdoor route to socialism. Amazing that with Samuelson, it was the prevailing "empirical" position in bourgeois economics. I agree that it is an empirical observation,not a theory. But for policy purposes , what works empirically works, regardless of why. Again, I'm just reading this encyclopedia item. What do you think of the following that they say ? "Similar patterns were found in other countries and in 1960 Paul Samuelson and Robert Solow took Phillips' work and made explicit the link between inflation and unemployment-when inflation was high, unemployment was low, and vice-versa. As seen to the right, when drawn on a graph with the inflation rate on the vertical axis and the unemployment rate on the horizontal axis, the relationship between the variables showed a downward sloping curve, the Phillips curve (PC). In the years following his 1958 paper, many economists in the advanced industrial countries believed that Phillips' results showed that there was a permanently stable relationship between inflation and unemployment. One implication of this for government policy was that governments could control unemployment and inflation within a Keynesian policy. They could tolerate a reasonably high rate of inflation as this would lead to lower unemployment - there would be a trade-off between inflation and unemployment. For example, monetary policy and/or fiscal policy (i.e., deficit spending) could be used to stimulate the economy, raising gross domestic product and lowering the unemployment rate, as shown by the change marked A in the diagram. Moving along the Phillips curve, this would lead to a higher inflation rate, the cost of enjoying lower unemployment rates. To a large extent, a leftward movement along the PC describes the path of the U.S. economy during the 1960s, though this move was not a matter of deciding to achieve low unemployment as much as an unplanned side-effect of the Vietnam war. In other countries, the economic boom was more the result of conscious policies ^^^^^^ Friedman was opposes to the PC because he didn't like the idea of the government choosing a low unemployment rate, balancing the benefits of this situaiton against the costs (inflation). ^^^ CB: Why am I not surprised ? Inflation is bad for the creditor class because a component of it is higher wages, but also, inflation erodes profiting from interest. Like Ford said "WIN !" But Friedman counts low unemployment as bad for his class too, doesn't he ? Tight labor market causes, well, wages to rise, because there aren't as many unemployed competing for jobs, no ? For Friedman, high inflation ( especially wage raises) and high employment are bad. He probably really doesn't have such a problem with the empirical correlation, as that in that historical context it led to policy of trying to lower unemployment and raise wages and effective income of the working class including welfare. He wants policies to make low wages and high unemployment. ^^^^^^ Instead, he wanted the gummint out of the economy (except to preserve property, profits, etc.) In his view, the unemployment rate was determined by Nature (the "Natural" rate of unemployment). If the gummint messes with Mother Nature, there's Hell to pay in his view. ^^^^ CB: I'm thinking Friedman was a necessary fake step away from gummit intervention, as Reagan was a fake step away in practice. They faked the idea that gummit had to get out of fiscal intervention to end the Keynesian/New Deal policies of backdooring to socialism. Then they brought the gummit back in to operate on the Phillips Curve in reverse. But , anyway, Friedman was always for gummit monetary intervention , wasn't he ? Monetary intervention is Natural , isn't ? The only thing unatural is intervention to lower unemployment. ^^^^^^ Jim: The natural rate of unemployment is in some ways similar to Marx's idea of the reserve army of the unemployed. Marx saw capitalism as requiring some minimum amount of unemployment to prosper (though Kalecki pointed out that this wasn't necessary under fascism; ^^^^^ CB: Did fascism prosper ? Fascism kind of blew up before it could prosper. ^^^^^ some argue that social democracy can lower this, too). For Friedman, capitalism is natural, so it's Nature that requires a minimum amount of unemployment. CB: But monetary stuff is not necessarily natural, so its ok for the gummit to adjust the money supply, m-1, m-2, m-3...? Here's the wiki not on NAIRU http://en.wikipedia.org/wiki/Phillips_curve The Phillips curve, NAIRU and rational expectations New theories, such as rational expectations and the NAIRU (non-accelerating inflation rate of unemployment) arose to explain how stagflation could occur. The latter theory - also known as the theory of the "natural" rate of unemployment - distinguished between the short-term Phillips curve and the long-term one. The short-term PC looked like a normal PC but shifted in the long run as expectations changed (see diagram above). In the long run, only a single rate of unemployment (the NAIRU or "natural" rate) was consistent with a stable inflation rate. The long-run PC was thus vertical, so there was no trade-off between inflation and unemployment. In the diagram, the long-run Phillips curve is the vertical red line. The NAIRU theory says that if the unemployment rate stays below this line, as after change A, inflationary expectations will rise. This will shift the short-run Phillips curve upward, as indicated by the arrow labelled B. This would make the trade-off between unemployment and inflation worse. That is, there would be more inflation at each unemployment rate than before. Thus, by pointing to the problem of endogenously-caused "inflationary acceleration" the theory explained stagflation. The name "NAIRU" arises because with actual unemployment below it, inflation accelerates, while with unemployment above it, inflation decelerates. With the actual rate equal to it, inflation is stable, neither accelerating nor decelerating. The rational expectations theory said that expectations of inflation were equal to what actually happened, with some minor and temporary errors. This in turn suggested that the short-run period was so short that it was non-existent: any effort to reduce unemployment below the NAIRU, for example, would immediately cause inflationary expectations to rise and thus imply that the policy would fail. Unemployment would never deviate from the NAIRU except due to random and transitory mistakes in developing expectations about future inflation rates. In this perspective, any deviation of the actual unemployment rate from the NAIRU was an illusion. However, in the 1990s in the U.S., it became increasingly clear that the NAIRU did not have a unique equilibrium and could change in unpredictable ways. In the late 1990s, the actual unemployment rate fell below 4 % of the labor force, much lower than almost all estimates of the NAIRU. But inflation stayed very moderate rather than accelerating. So, just as the Phillips curve had become a subject of debate, so did the NAIRU. Further, the concept of rational expectations had become subject to much doubt when it became clear that the main assumption of models based on it was that there exists a single (unique) equilibrium in the economy that is set ahead of time, determined independent of demand conditions. The experience of the 1990s suggests that this assumption cannot be sustained > Higher workers' wages doesn't necessarily mean higher prices, if profits are > cut. .... Profits would be cut through price controls ( without wage controls) in the US, price controls have always been associated with wage controls, with emphasis on the latter. If profits are cut, the capitalists would go ape-shit. ^^^^ CB; I get this. This "control prices/don't control wages" is a bit tongue in cheek. I think it is part of the ultimate stages of the Keynesian model of reaching socialism by "euthanizing the rentier" and the like. The capitalists would have to be asleep to let us put in policies to raise wages, lower unemployment, and keep prices and profits down, like Marx suggests in _Value, Price and Profits_. As I say, Marx had to have a big revolutionary grin on his face when he said that. However, evidently the capitalists were somewhat asleep in the early sixties , with the mainstream economics consensus being based on Phillips Curve empirical talk. Friedman is the bossses counterrevolutionary leader. To its credit, PC etc seems to suggest a peaceful economic route to socialism, like voting it in. It is radical reform. ^^^^^^ > "Into the 1970s however, many countries experienced high levels of both> inflation and unemployment also known as stagflation." >> Was this inflation higher wages or mainly higher prices ( or both ?). U.S. > wages weren't going up at the time President Ford was handing out "Whip> Inflation Now" buttons were they ? in the early 1970s (and again in the later part of the Ford administration), money wages rose more than prices. But during most of the 1970s, prices rose more than money wages. ^^^^ CB: It would seem from the standpoint of the ruling class, that this was a mission accomplished. Their interest in "flation" is inflating prices and deflating wages, including the effect of the relationship between the rate of change of the two on each other. ^^^^^^^ > Phillips curve > From Wikipedia, the free encyclopedia I wrote a lot of the Wikipedia text. ^^^^^ CB: Yea,I thought I remembered you saying that. So, above is you talking to yourself ? :>) You seem to be having a dialectic with your wikipedia note, if the part I quote is from you. ^^^^^ Since then, I decided that it wasn't worth it (because people come along and rewrite, sometimes messing things up totally). ^^^ CB: That's terrible . ^^^^ Because of this, instead of rewriting the entry on the "labor theory of value," for example, I'm going to write a primer on the subject and simply put a link to it in Wikipedia so that interested readers can look at it. ^^^^ CB: I think you should stick in there and fight for the wikipedia note location. Maybe we could organize a group to "patrol" the site. -- Jim Devine / "There can be no real individual freedom in the presence of economic insecurity." -- Chester Bowles
