Bill Phillips, who became a famous economist for his discovery of the famous Phillips Curve that shows a correlation between unemployment and inflation methods are being questioned yet again in the day and economy we are living in. Phillips attending the London School of Business for after creating the water flow model that showed how the economy affected to different changes like fiscal policy changes for example by increasing the water level. His method lead to the curve he is famous for which said that if unemployment was high inflation was low and vice versa.
Freedman in the 60s spoke out in disagreement with Phillips idea and said that there is more that goes into the correlation between unemployment and inflation like inflation expectations. He said that this curve was too simple to truly predict the true correlation.
In the 70s there was high inflation and unemployment was spiking (which went against the Phillips curve method), this is called stagnation. Stagnation made people feel lousy so economist came up with a Phillips curve 2.0 to try and combat these new issues arising. The Phillips curve 2.0 took account for all the other variables that affect the market. There was a soft landing that took place in the 80s that increased inflation (not drastically) and increased unemployment but kept the economy stable.
Then in the 90s till about a couple years ago inflation was steady despite the changing economy which introduces the new problem. In the ever changing economy of recession, pandemics, and the boom of the tech industry inflation should not have stayed the same when looking at the Philips curve.
The goal is to now have another soft landing like in the 80s decrease inflation but not to increase unemployment all at the same time. The FRBSF economic research department predicts after using the Phillips non linear curve as well as the Beveridge curve that, "a soft landing for the economy is achievable if a decline in inflation to near 2%... with only a modest increase in unemployment". The question is when will this take place and will it solve our problem?
https://www.frbsf.org/economic-research/publications/economic-letter/2023/july/reducing-inflation-along-nonlinear-phillips-curve/
https://www.npr.org/2023/09/08/1197953033/bill-phillips-curve-history
Great research Ava! I sometimes think about the relevancy of topics such as this in my classes because of how long ago they were created. It is good to know that there is constant disputing and revamping of older ideas to ensure that we are getting the best out of it.
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