Finally I Disagree with Paul Krugman
I have had some trouble disagreing with anything written by Paul Krugman. Now I think I have a case. Also it was written in 2007 well into the shrill phase.
In 1958 the New Zealand–born economist A.W. Phillips pointed out that there was a historical correlation between unemployment and inflation, with high inflation associated with low unemployment and vice versa. For a time, economists treated this correlation as if it were a reliable and stable relationship. This led to serious discussion about which point on the “Phillips curve” the government should choose. For example, should the United States accept a higher inflation rate in order to achieve a lower unemployment rate?
In 1967, however, Friedman gave a presidential address to the American Economic Association in which he argued that the correlation between inflation and unemployment, even though it was visible in the data, did not represent a true trade-off, at least not in the long run. “There is,” he said, “always a temporary trade-off between inflation and unemployment; there is no permanent trade-off.” In other words, if policymakers were to try to keep unemployment low through a policy of generating higher inflation, they would achieve only temporary success. According to Friedman, unemployment would eventually rise again, even as inflation remained high. The economy would, in other words, suffer the condition Paul Samuelson would later dub “stagflation.”
The word “economists” is vague. I suppose it is possible to find at least two economists who wrote that, technically justifying the plural. I was not an economist in 1967, so I shouldn’t be too bold, but I did recently note that neither of those economists was named Samuelson or Solow. I am prepared to be convinced that Krugman’s claim is not just techically accurate but a reasonable contribution to the study of the history of thought. But right now I disagree with his claim.
I took Economics 101 and 102 back in the early 1970s, and there were plenty of text books describing the Phillips curve more or less in those terms, and I assumed they were written by economists of some sort or another, though it is possible they were all written by one guy. My professor, who could probably have qualified as an economist, noted that the Phillips curve was no longer as reliable an indicator as it once was giving the impression that at one time it was considered to be so.
Maybe Krugman ran into the same books and economics professors that I did.
A long, long time ago, I read an essay arguing that the view on the surface of Venus would be infinite as the clouds above and atmospheric effects would bounce light about and channel it an infinite reflecting chamber. Everyone I mentioned this to regarded it as nonsense, so at one point I barely believed that I had understood the essay properly. Then one day I was at the Smithsonian and there was an exhibit explaining the whole theory just as I remembered it. Obviously, it was taken seriously in some quarters.
Somewhere I noted that a stable Phillips curve appeared in undergraduate textbooks. Similarly, I took Physics 101 (called physics 12). The textbook taught Newtonian mechanics. I would not claim to have revolutionized physics in 1979 by coming up with special relativity. Undergraduate textbooks don’t always reach the limit of the then current scientific debate. In this case, I think it is clear that it was assumed that expected inflation caused the Phillips curve to shift as soon as the Phillips curve was described.
There clearly was never a period in which the leading figures in the field agreed that the Phillips curve was probably stable. The quotation from Samuelson and Solow (1960) proves this. The standard intellectual history is clearly false.
You could have heard someone who might or might not qualify as an economist confidently assert in a lecture that Samuelson and Solow claimed that there was a stable long term Phillips curve if you had taken my macroeconomics course. I have learned that I was wrong through the extreme method of actually reading what they wrote.
It certainly was widely asserted in the early 70s that it had been believed in the 60s that the (expectations unaugmented) Phillips curve was a stable long term relationship. This does not mean that it was true. I didn’t follow the academic economics literature in the mid and early 60s (because I hadn’t learned how to read yet). I am prepared to be convinced that many more than 2 economists thought this in the 60s. However, I have found no evidence which supports that claim.
Krugman got his BA in 1974. I know he wasn’t in economics from the very start of his undergraduate career. I think he tuned in to economics some time on the order of 1971 or 72. 1960 was ancient history by then. The paleo Keynesian straw man had been constructed.
More generally I am very aware of the fact that, in the early 70s, the realization that there was not a stable long term Phillips curve was presented as a major advance. That doesn’t mean that it was an advance. I am lookikng for a case of a prominent economist asserting it in the first person rather than asserting that others used to believe it.
Oh I should have included a link to Forder (2010) http://www.economics.ox.ac.uk/research/WP/pdf/paper516.pdf.
This is a history of thought working paper which I found when I finally googled
Samuelson Solow Phillips (or something). I read it actually before I read Samuelson Solow (1960). Forder attempted to find all the papers which
discussed Samuelson and Solow (1960). He wrote
“Whilst this catalogue of those citing Samuelson and Solow up to about 1968 is
certainly not complete, it does not appear that there is any author then who could be
said to have learned the benefits of inflation from the idea that Samuelson and Solow
had found a stable Phillips curve. Most see them as propounding the instability of the
Phillips curve, or of describing the requirements of anti-inflationary policy, or simply
pointing to a problem, or if they are seen as suggesting inflationary policy, the authors
in question reject that proposal.”
[skip]
They did not say the
Phillips curve was stable, and they certainly did not deduce the desirability of
inflationary policy from any supposed stability of it. Some people say they did either
or both of these things, but there you are. Other people have said that Samuelson and
Solow convinced other people of these things. Some of those who say that have kept
quiet about what Samuelson and Solow actually said, or have recognised that they did
not say these things themselves. But they are wrong too. Samuelson and Solow did
not convince anyone of such things. Their real role in the story is that long after it had
ended, some people incorrectly said they had convinced other people of something
they did not say themselves. “