Saturday, April 14, 2012

Higher inflation will not reduce jobless rates

Even the Federal Reserve Bank disputes the view that higher inflation can lead to lower unemployment. At least, that was the view expressed by the FRB of San Francisco. "Almost all economists have followed [economist Milton] Friedman in accepting that there is no long-run trade-off that would allow permanently lower unemployment to be traded for higher inflation." ["Nobel Views on Inflation and Unemployment," FRBSF, Jan 10, 1997.]


James Armstrong said...

The word "permanently" is doing a lot of work here. In the short term there is certainly a relationship between expected inflation and unemployment. The debate is about how long the "short term" is.

For Keynes the "short term" was such a long time that it was almost all that was of import. Thus his statement that "in the long run we're all dead."

RDCushing said...

But "permanent" full employment is what we should be after, not more boom-and-bust created by government interventions and bad monetary policy.