Is The Downward Sloping Phillips Curve Back?
Is The Downward Sloping Phillips Curve Back?
Maybe. We have gotten so used to the idea that to the extent it is even meaningful it is flat at an inflation rate of 2%, nobody talks about the old textbook Phillips Curve that slopes down. But there is some evidence that out of all these pandemic upheavals it may be back, at least for a while. If this is the case then indeed there may be a tradeoff, and the higher inflation the US is experiencing may be due partly to strong fiscal and monetary stimulus, with that also bringing about higher growth and lower unemployment, the latter somehow not getting noticed by much of the media in all the moaning and wailing about inflation.
A possible simple measure of all this might be to compare the US and the EU. So as of the first Economist of the year, the US had an inflation rate of 6.8% last year while the EU had one of 4.9%. The US had a GDP growth rate of 4.3% while the EU was at 3.3%. And on unemployment, the US had a 4.2% rate versus the EU at 7.3%.
The most recent annual numbers for the US seem to push this even more, with inflation at 7.0% and the unemployment rate down further to 3.9%. I do recognize that the advantage of the US on unemployment is exaggerated in that many European nations have done better on labor force participation than has the US.
I also note that part of the higher inflation we are seeing does reflect global supply chain problems associated with the pandemic. The EU rate of inflation, higher than in the past, is a good sign of that. So maybe whatever higher inflation we see in the US is due to US policies might be that extra 2% the US has.
Barkley Rosser
Article is somewhat useless with an illustration of the curve.
Most of us have not memorized every economic concept.
The p curve … Microcosms and Macrocosms
Black Monday 24 January 2022 vice Black Monday 19 October 1987.
Black Monday 24 January 2022
Is the global macroeconomy – whose valuation growth is qualitatively propelled by debt expansion and qualitatively limited by bad debt accumulation, overproduction, and over valuation – is the global macroeconomy a quantitative highly ordered self assembly system conforming to very simple time dependent mathematical laws of valuation growth and decay which integrates and correlates the system’s actual maximum asset valuation to its maximum bad debt load(unpayable debt) accumulation?
Jimmy Carter lost the 1980 election in a landslide fashion, not primarily because of the Iran hostage crisis, but rather because Paul Volcker’s Federal Reserve increased the prime rate to 21.5% to control inflation. This rate very effectively shut down the US economy.
Black Monday 19 October 1987 resulted in a one day 22.5% devaluation of US equities. It occurred within less than 20 percent of the time span from the November 1980 presidential election 21.5% prime rate to the current 2021 3.5% prime rate with 2021’s even lower 30 year mortgage subprime rates underwritten by Federal Reserve backed securities.
The composite Wilshire comprising all US stocks peaked at 49.17462 trillion valuation in November 2021 following a 31/62/62 month :: x/2x/2x three phase fractal growth series from its March 2009 low.
From 20 Sept 2021 to Monday 24 January 2022 the composite 47-49 trillion Wilshire 5000 is following a 17/36/37 day :: y/2y/2y fractal decay series.
Black Monday 19 October 1987 occurred on day 10 of an interpolated 21 Sept 1987 4/9/10 day:: y/2y/2y three phase fractal decay series. (The complete 4 phase series was 4/9/10/7 days)
Black Monday 24 January 2022 will occur on day 10 of an interpolated 20 December 2021 Wilshire 5/11/10 day :: y/2y/2y decay three phase fractal series. (The complete 4 phase series is expected to be 5/11/10/7 days)
The 19 October 1987 crash occurred in the early portion of a 1932 90 year cycle with two subcycles one 10-11/21-21/21-22 :: x/2x/2x year cycle from 1932 to 1982 and a second 13/29 year :: x/2-2.5x fractal growth series starting in 1982 with cascadingly falling lower interest rates from President Carter’s election day 4 November 1980 21.5% Volcker induced prime rate. After the global property collapse in 2008, politically facilitated and financial inductry facilitated global central bank ex nihilo trillion dollar money creation started via the Emergency Economic Stabilization Act on 3 October 2008, continued for years with a series of quantitative easing US federal reserve strategies and negative interest German long term debt, and has exploded with ex-nihilo global debt since the appearance of the covid pandemic crisis in March 2020 resulting in the current equity and commodity superbubbles, the later associated with the highest annual inflation rate at the consumer level since the 1980 Volcker 21.5 percent prime rate.
Black Monday 24 January 2022 will not be equivalent to Black Monday 19 October 1987 which occurred in a relatively healthy 1980’s economy with miles and miles ahead of cascadingly lowering of the peak 1980 Volcker prime rate. 24 January 2022’s Black Monday is occurring at the end of a United States 1807 36/90/90 year :: x/2.5x/2.5x maximum valuation fractal growth expansion with peak Wilshire composite US equity valuation occurring on 8 November 2021 at 49.17462 trillion dollars. The Buttonwood agreement in 1792, 16 years before the 1807 initiation of America’s great three phase x/2.5x/2.5x fractal maximum growth series served as an initiating 16 year fractal to the follow-on 1807 36 year base first fractal. The panic of 1837(at peak asset valuation) with a nadir valuations of stock equivalents and commodities in 1842-43 and the 1929 peak valuation collapse with nadir asset valuations in 1932 marked the ends of the first 36 year and 90 year US Great First and Second Fractal cycles, respectively.
Black Monday 24 Jan 2022
A 65 trillion dollar equivalent property bubble in China is past its peak valuation and will wreck havoc on the population’s predominant investment vehicle. Evergrande, already with a 90 % devaluation over the last year is following an 8 November 2021 to Black Monday 24 January 2022 decay fractal series of 9/24/23 days :: y/2.5y/2.5y. The Shanghai property index is following a 30 July 2021 to Black Monday 24 January 2022 22/46/56 day ::x/2x/2.5 xy decay series terminating in a 17//(12/29 =40) day 56 day third subfractal and a terminal 30 December 2020 3/8/8 day :: x/2.5x/2.5y 3 phase decay fractal series.
For Bitcoin in US dollars: Black Monday represents day 46 of a 29+/73/73/46 day 4 phase x/2.5x.2.5x/1.5 xy fractal series and Month 59 of a 27/59 :: x/2-2.5x) month fractal series with an expected low in October 2022 (27/68 months:: x/2.5x) From its nadir valuation in March 2020 Bitcoin in US dollars is following a 7/17 :: x/2.5x fractal series of an expected 7/17/10 month series ending in a low or secondary low in October 2022
For Gold in US dollars Black Monday 24 January 2022 represents day 12-13 of a 5/12/12-13 day :: y/2.5y/2.5y three phase decay fractal series and week 11 of a (7/18/15/11 of 11 week) 4-phase fractal series :: x/2.5x/2=2.5x/1.5xy Gold in US dollars nadired in 2000 and is following a x/2-2.5x/1.6xy :: 5/11/8 year fractal series.
From 1994, the Shanghai composite 29 year equivalent to the Wilshire is composed of two subfractal series of 3/7/4 years and starting in 2005 3/7/6/5 years.
This is a self -assembly macrocosm picture of the global asset-debt macroecnomy. The global macroeconomy its financial systems are interconnected. Black Monday 24 January 2022 will be a global nonlinear devaluation event of historical import.
I am no doubt with you that we are seeing asset bubbles and all bubbles deflate when too high in the atmosphere. I don’t think your astral projections have much to do with it as this is more boom and bust 10/30 year cycle. We missed the 10 year and accelerated the 30 year upside, making the next 10 year cycle probably 2x worse. But hey, if Venus is in retrograde, maybe?
These ‘astral projections’ are based on the real and easily observable composite global equity, commodity, and cryptocurrency valuation saturation curves. The predictions follow two elegantly simple three phase and four phase growth and decay fractal mathematical “laws’, which are empirically derived from the repetitive patterns and composite peak and nadir (boom and bust cycle) asset valuations of those readily available valuation saturation curves.
A nonlinear and singular event on Black Monday 24 January 2022 is a very specific prediction based on those empirically derived laws.
It seems to me that with unprecedented government spending allowing for demand without employment, you would have difficulty sorting out the important transitional factors.
Main transitional factor I see is labor participation. 7 million that could be working said, nah, it’s time to hang out with the kids or grandkids or cats. A small group yanked a fine margin play on Bitcoin and retired in Costa Rica, but those guys are a Ferrari, expensive girlfriend, and Spanish seaside condo trifecta away from having to go back to humping it like the rest of us.
The transition I was considering was in the inflation – the other axis of the Philips curve.
Dave Barnes,
The Phillips curve has the rate of inflation on the vertical axis and the unemployment rate on the horizontal axis. The original curve due to Phillips had the rate of wage increase on the vertical rather than the rate of inflation. His was based on British data over several decades and it was downward sloping: lower unemployment rate associated with higher wage increases.
In 1960 Samuelson and Solow wrote a famous article in which they made the change and argued that the curve showed a fundamental tradeoff between inflation and unemployment. They actually allowed that it could shift due to a variety of reasons, but this was largely forgotten, and the curve came under much criticism after 1973 when with the oil price shocks we got stagflation, higher inflation and higher unemployment.