This policy was tied to Keynesianism, which was the predominate theory in the Kennedy and Johnson era, and into the Nixon Presidency. That suggested to Samuelson and Solow that there is a trade-off if the economy is in specific parts of the Phillips Curve: by allowing a slightly higher level of inflation, you could get a big drop in unemployment. It shows very high inflation at very low unemployment, but falls quickly as unemployment rises.

The standard curve might be the one on the left. Here’s a schematic drawing of the Phillips Curve from Wikipedia: Whereas Phillips does not mention the possibility that the curve might shift, Samuelson and Solow find such shifts and offer possible explanations, such as strong labor unions. They can’t find data on the US economy similar to that found by Phillips for the UK economy, so they work up some of their own data and make some calculations showing a result similar to that of Phillips. Gordon says much of their paper is a discussion of pre-Phillips theory. Paul Samuelson and Robert Solow picked up on the Phillips paper with a paper of their own in 1960. We can substitute Equation 1a into Equation 1 to get the original Phillips Curve. Generally in these equations, lower case letters are rates of change and upper case letters are levels. Here p is inflation, w is wage growth, and k is productivity growth. Gordon says that “… the inflation rate would be expected to equal the growth rate of wages minus the long-term growth rate of productivity.” P. There was a remarkable similarity for most of the two periods, with exceptions Phillips explains away. He fitted a curve to the data, and then compared that curve to UK data from two later periods.

William Phillips published a paper in 1958 showing a correlation between wage growth and inflation in the UK between 18. Gordon is an economics professor at Northwestern and has worked on the Phillips Curve for decades. This part is based on Sections I-III of Robert Gordon’s article, The History of the Phillips Curve: Consensus and Bifurcation, Economica (2011) 78, 10–50 (behind paywall, but you can find it online at your local library). It suggests we can raise wages substantially without causing inflation by lowering corporate profits. I conclude with some observations based on an important paper by Simcha Barkai that challenges the core beliefs of neoliberalism. In this post, I discuss the derivation of the Phillips Curve, its adaption by Samuleson and Solow to manage the economy, its breakdown in the 1970s, exploitation by neoliberals of that breakdown to replace Keynesian demand-based economics with monetarism and supply-side economics, its rejuvenation, and the evidence that it doesn’t make accurate predictions. Its critics point out that its predictions are poor.

It’s especially loved by the Fed, which raises or lowers interest rates depending in part on its predictions. Gregory Mankiw as one of the Ten Things All Economists agree on. It’s listed in the popular introductory economics textbook by N. It’s an article of faith to economists of all stripes. Low unemployment is correlated with a rise in inflation. The Phillips Curve says that there is an inverse relation between unemployment and inflation.

Rise and fall of feudalism chart