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Politics : Formerly About Advanced Micro Devices
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To: combjelly who wrote (613924)5/31/2011 6:16:37 PM
From: TimF  Read Replies (1) of 1577191
 
Before the stagflation of the 70s it was generally believed that you could get lower unemployment for more than the short term, by accepting higher unemployment. By the time Volker actually severely raised rates, the experience of stagflation had caused a lot of doubt about the Phillips curve as more than a short term phenomenon, but before the stagflation it was widely believe to work over the long term.

Which does not mean that many did not think we should raise interest rates to control inflation by the late 70s, but that was after years of stagflation, and also few expected lower unemployment rates than during the stagflation period, just a few years after the rates started to go up. Believing raising rates is a good idea under particular circumstances, doesn't imply not believing in the Phillips curve as something that works over more than the short run. You can (and by the late 70s more people did) believe that the unemployment hit was worth it.
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