The impossible happened in the late-1970s. Inflation and unemployment simultaneously went vertical. Leading economists were baffled. This contradicted their academic training.
The Phillips curve said there’s an inverse relationship between inflation and unemployment. When unemployment goes down, inflation goes up. Conversely, when unemployment goes up, inflation goes down.
Economist William Phillips first sketched his curve using wage rates and unemployment data in the UK in the years 1861 to 1957. The depiction of explicable order was impressive. And it provided an economic model central planners could use to somehow optimize inflation and unemployment rates through economic intervention.
How could it be, in the late-1970s, that both inflation and unemployment went up in tandem? According to the Phillips curve they were mutually exclusive.
In reality, the Phillips curve was elegant nonsense. Like most elegant nonsense, it was right until the precise moment it was wrong.
When unemployment began creeping up in the 1970s the U.S. Treasury, with backing from the Federal Reserve, did what Keynes had told them to do. They ran deficits to stimulate the economy and spur jobs creation.
Per the tenets of the Phillips curve, with rising unemployment the central planners could have their cake and eat it too. They could print money without price inflation.
Yet something entirely unexpected happened. Instead of jobs…they got inflation. Then, when they tried it again, they still didn’t get jobs. Rather, they got more price inflation.
Phillips’ study will forever stand as a shining example for why economic theory cannot possibly be derived from empirical data. The 1970s experience took its deliberate curves and twisted them inside out.
The 1970s episode of rising inflation and high unemployment also demonstrated the economy is hardly predictable. One decade people borrow money and spend it. The next, they save and pay down debt. No graphical curve can predict what way people’s behavior will swing from one period to the next.
Moreover, any pre-1971 dataset used to discern a relationship between inflation and unemployment was rendered useless once the last vestiges of gold were removed from the monetary system.
Logically, when the unemployment rate goes up the economy sinks. But when the unemployment rate goes down, shouldn’t the economy go back up? Not always.
From January 2010 to January 2020 the U.S. unemployment rate slid from 9.8 percent to 3.5 percent. But the economic boom over this time was hardly a boom at all. GDP growth was lethargic – averaging 2.3 percent over the entire decade.
Perhaps this had something to do with the labor participation rate’s general decline over this period. The official unemployment rate may have gone down. However, that didn’t mean more people were working.
Or maybe the weak GDP growth during the 2010s was the result of countless other factors? Who knows?
The fascinating thing about the economy is not that it’s predictable. Or that it’s not predictable. It’s that it appears to be almost predictable.
More fascinating are the abundance of academic impostors that view the economy as a combustion engine. Some even win the Nobel Prize for their ventures into nonsense.
Armed with line graphs, curves, and plotted dots, statist economists attempt to explain how the great big economic machine works. What’s more, they justify and employ intervention to improve it.
High unemployment. Slow growth. Mandatory hunkering. Poverty. Terrorism. Global warming. Teachers. Liquidity traps. Drugs. Polar bears. Roughnecks. Sustainability. Shell Oil. Workplace equity. Meatpackers. Kamala Harris. Meanies. Russians. Right wingers. You name it…
No challenge is too great. The central planners at the Fed are working overtime to somehow bring heaven to earth.
Alas, their stimulus efforts stimulate greater chaos and distortions while concentrating wealth and power for the elites. And now the Fed’s and Washington’s extreme interventions in the name of coronavirus salvation have doomed the earth’s creatures to a decade – or more – of misery that will far and away dwarf the 1970s.
How Central Planners Corrupted the World
On Wednesday, the Bureau of Labor Statistics reported that consumer prices, as measured by the consumer price index (CPI), have increased 7.0 percent over the last year. This marks the largest 12 month surge since the period ending June 1982, when the CPI hit 7.1 percent. And if the CPI was still calculated in the same way it was in 1982, it would be over 15 percent.
President Biden wants to scapegoat rising consumer prices on greedy price gouging meatpackers and oil companies. These industries have come under Biden’s line of fire. He wants to distract and divert the attention of the public from Washington.
You know it. We know it. Biden’s scapegoat storyline is one great big giant lie.
Biden knows, along with Fed Chair Jay Powell and Treasury Secretary Janet Yellen, that Washington’s fiscal and monetary policy collusions are 100 percent responsible for price inflation. Of course, you’ll never hear this from Anderson Cooper. In fact, there’s a lot you won’t hear from the mainstream press.
For example, consumer price inflation is not rising prices. It’s declining money. Because money, like gumballs and tennis shoes, is subject to supply and demand. When the quantity of money goes up, the value of each money unit goes down.
The Fed’s and the Treasury’s fake money policies – somewhere on the order of a combined $8 to $10 trillion over the last 24 months – have wrought raging price inflation (i.e., mass dollar debasement). They’ve also wrought extreme wealth disparity and a grossly stratified society.
During his July 2019 congressional testimony, Fed Chair Powell remarked that the relationship between unemployment and inflation has, “…gotten weaker and weaker and weaker to the point where it’s a faint heartbeat that you can hear now.”
At the time, Powell was providing justification for cutting the federal funds rate when the unemployment rate was just 3.5 percent. The official CPI, in July 2019, was rising at an annual rate of just 1.8 percent. So, apparently, the Phillips curve was dead.
But now, after trillions of dollars of fake money stimulus, and with the CPI at 7 percent while the unemployment rate’s at 3.9 percent, the Phillips curve is apparently no longer dead. Actually, according to several eggheads, it has been hibernating…
In a recent Financial Times article titled, The flaws in the Fed’s approach to inflation, former Fed Governor and Columbia Business School professor Frederic Mishkin stated:
“Research that I presented with co-authors at the US Monetary Policy Forum several years ago suggests that the Phillips curve is not dead, but rather is hibernating.”
Go figure. The Phillips curve is alive, then it’s dead, then it’s hibernating. This model is about as good as flipping a three sided coin.
The point is, central planners are barbaric. They have no business in a civilized society. Their actions are based on garbage and backed by force. And through their money printing and interest rate price fixing schemes they’ve corrupted the world and concentrated wealth and power for the elites.
Meanwhile, they’ve unleashed a wave of price inflation that will soon surpass their late-1970s / early-1980s handiwork, as it rockets towards the 19.66 percent CPI that was hit in 1917.
Are we having fun, yet?