Re: Interest Rates and inflation

["Alan G. Isaac" <aisaac@xxxxxxxxxxxx>]

On Wed, 20 Dec 2000, John O'Donnell wrote:
> Alan, from his Monday, 18 December message: "The standard
> Phillips-curve relationship, for example, suggests that
> *changes* in inflation are correlated with unemployment."

> Yes, one of the
> "standard" excuses for the failure of the Phillips curve is
> that the LOCATION of the curve is displaced by expectations,
> but the curve is still the same -- unemployment vs.
> inflation.

Of course, that is the standard Phillips curve
as we draw it for *given* levels of the other
variables.  But my statement is about the
predicted correlations in the data. Please look
at some of the empirical literature before
you comment further, since my explanations don't
seem to be drawing the distinction for you.

> The simple fact is that, as anyone not an economist can
> readily see, presuming an increase in employment can be
> obtained by increasing inflation is ludicrous. If such were
> the case, the relationship would determine hyperinflation to
> be the be-all and end-all solution to employment, which even
> the feeble minded can see is silly. If such is not the case
> and no action can be determined by such a curve, of what
> value is it?

Economists do not make the claims you attribute to them.
If you are willing to read a bit, you will learn that.
In fact your basic complaint was addressed even in Phillips
original paper, which I have alread suggested that you
read. Like so many critics of the profession, you simply
have your sights set on a silly mischaracterization of
what economists actually do.  And what is the point of that?

> Despite what you may think, one can actually experience
> hyperinflation, let alone inflation, without large sustained
> increases in money supply.

While this outcome is possible in some models,
under conditions that are not very interesting,
PLEASE LOOK AT THE DATA.
What kind of ``can'' are you offering here?
Nothing of interest.

> What happened when the Fed tried Friedman's foolishness.
> Money supply increased at a slow pace wile inflation roared
> ahead.

Please note the words ``large'' and ``sustained'' in
my statement. Then look at the US data (freely available
on FRED). Rather than flail about so desperately in an
misplaced critique of the economics profession
(which deserves much critique, just not yours),
you might spend some time learning what economists
actually have to say about these things
---unless that provides too much of a threat to the
glib satisfaction you clearly take in considering them
to be a bunch of silly fools.

Alan Isaac

PS Your statement that you are not willing to spend a
few dollars (or apparently to visit a library either)
to find out what economists who actually work on this
stuff have to say suggests you should reconsider your
commitment to commenting on it, don't you think?