Gimmie that old time (macro) religion

In yet another post that stubbornly ignores the common pool problem aspect of climate change, our hero PK also makes what to me is a show-stoppingly astonishing statement:

“US employment is determined by the interaction between macroeconomic policy and the underlying tradeoff between inflation and unemployment”

I have been holding off posting while thinking about this for 10 days now, trying to figure out a reasonable reading.

To me, he’s saying that the government chooses the national employment level by using monetary and fiscal policy to pick its desired point on the Phillips Curve.

You know, like Alvin Hansen in 1951!

He’s not saying short term fluctuations in US employment, or putting any qualifiers on the statement. It’s one of the most amazing things I’ve seen written in quite a while.

Am I nuts? Isn’t US employment largely determined by demographics, preferences, technology, & regulation. You know, the demand and supply of labor?

Maybe somehow PK is subsuming all those elements into the “underlying tradeoff”?

Does anyone really still think that the government uses monetary/fiscal policy to putthe aggregate demand curve where it needs to be to get the employment the government wants from the Phillips Curve relation?

I guess I now understand why PK has been so mad these past few years. In his view as articulated in the quote above, the government has deliberately chosen to keep US employment low.

People who ascribe such omnipotence to the government whether from the left like PK or the right like Scott Sumner, scare the crap out of me.


2 thoughts on “Gimmie that old time (macro) religion

  1. Correct me if I’m wrong, but I haven’t seen any empirical evidence that the Phillips curve is a valid relationship between unemployment and inflation. One can cherry pick time periods where the Phillips curve works, but one can cherry pick time periods to prove just about any economic assertion.

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