Did they claim that it showed a permanent tradeoff between inflation and unemployment.
Is the intellectual history and self image of modern macro based entirely on the critique of the legend to a figure which can be read out of context deliberately ?
Serious people don’t put it that way, but I do.
Update: in a comment at economistsview.typepad.com Kevin Donoghue provided a link to a free version of the paper which I have (finally) read. Samuelson and Solow repeatedly stress the importance of expectations and the difficulty of identifying causal relationships. The conventional view of the paper is closer to being the opposite of what they wrote than to being fair. They give equal weight to the conjecture that high inflation will be persistent due to changes in expected inflation and that high unemployment will be persistent as the long term unemployed are effectively excluded from the labor market. The data are equally kind to each conjecture, yet the first is held to be a known fact which proves the author’s who conjectured it to have been fundamentally wrong in a very important way, while the second is discussed only when the data make it unavoidable and is excluded from the models used for forecasting and policy analysis. Also Solow stressed the endogeneity of technological progress. Finally, they are very puzzled by the data from the depression and don’t discuss the possibility that employees of the WPA might have been counted as unemployed as they were.
Paul Krugman, John Quiggin and others (including me) have argued that the one success of the critics of old Keynesian economics is the prediction that high inflation would become persistent and lead to stagflation. The old Keynesian error was to assume that the reduced form Phillips curve was a structural equation — an economic law not a coincidence.
Quiggin and many others including me have noted that Keynes did not make this old Keynesian error and instead explicitly argued that the relationship between inflation, employment and output was not stable and no equation asserting that it was should be introduced into macroeconmic models.
The old Keynesian error, if it occured, was made later. I have claimed (in a lecture to surprised students) that it was made by Samuelson and Solow. Was it ?
This is an important question in the history of economic thought, because the alleged error serves as a demonstration of the necessity of basing macroeconomics on microeconomic foundations. For a decade or two (roughly 1980 through roughly 1990 something) it was widely accepted that, to avoid such errors, macroeconomists had to assume that agents have rational expectations even though we don’t.
The pattern of a gross error by two economists with impressive track records and an important success based on an approach which has had difficultly forecasting or even dealing with real events ever since made me suspect that the actual claims of Samuelson and Solow have been distorted by their critics. To be frank. this guess is also based on a strong sense that the approach of Friedman and Lucas to rhetoric and debate is more brilliant than fair.
I am very lazy, so I have been planning to google some for months. I finally did. I find that I would have to pay for Samuelson’s collected papers. That the Wikipedia argues that a large fraction of Riksbank Nobel Memorial prizes in economics have been awarded to critics of the old Phillips curve and that many people assert that Samuelson and Solow presented an un expectations augmented Phillips curve as a structural equation. Then I googled
samuelson solow phillips curve
The third hit is the 2010 paper by Forder which discusses Samuelson and Solow (1960) (which I have never read).
Use the google.
This isn’t very hard (one just has to read the paper). Forder quotes p 189
‘What is most interesting is the strong suggestion that the relation, such as it is,
has shifted upward slightly but noticeably in the forties and fifties’
So in the paper which allegedly claimed that the Phillips curve is stable, Solow and Samuelson said it had shifted up. Rather sooner than Friedman and Phelps no ?
So how has it become an accepted fact that Samuelson and Solow said the Phillips curve was stable ? This fact is held to be vitally centrally important to the debate about macroeconomic methodology and it is obviously not a fact at all. How can it be that a claim about what was written in one short clear paper is so central to the debate and that no one checks it ?
They did caption a figure with a Phillips curve “a menu of policy choices” but (OK this is a paraphrase not a quote)
After this they emphasized – again – that these ‘guesses’ related only to the ‘next few
years’, and suggested that a low-demand policy might either improve the tradeoff by
affecting expectations, or worsen it by generating greater structural unemployment.
Then, considering the even longer run, they suggest that a low-demand policy might
improve the efficiency of allocation and thereby speed growth, or, rather more
graphically, that the result might be that it ‘produced class warfare and social conflict
and depress the level of research and technical progress’ with the result that the rate of
growth would fall.
So, finally after months of procrastinating, I spent a few minutes (at home without access to JStore) checking the claim that is central to the debate on macroeconomic methodology and found a very convincing argument that it is nonsense.
If that were possible, this experience would lower my opinion of macroeconomists (as always Robert Waldmann explicitly included).