Is economists' favorite tool to crush inflation broken?

Planet Money

NPR

Business, News

4.6 • 29.8K Ratings

🗓️ 8 September 2023

⏱️ 26 minutes

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Summary

When economists and policymakers talk about getting inflation under control, there's an assumption they often make: bringing inflation down will probably result in some degree of layoffs and job loss. But that is not the way things have played out since inflation spiked last year. Instead, so far, inflation has come down, and unemployment has stayed low.

So where does the idea of this tradeoff – between inflation and unemployment – come from?

That story starts in the 1940s, with a soft-spoken electrical engineer-turned-crocodile hunter-turned-economist named Bill Phillips. Phillips was consumed by the notion that there are underlying forces at work in the economy. He thought that if macroeconomists could only understand how those forces work, they could keep the economy stable.

On today's show, how the Phillips Curve was born, why it went mainstream, and why universal truths remain elusive in macroeconomics.

This episode was hosted by Willa Rubin and Nick Fountain, and produced by Sam Yellowhorse Kesler. It was edited by Molly Messick, and engineered by Maggie Luthar. Sierra Juarez checked the facts.

Help support Planet Money and get bonus episodes by subscribing to Planet Money+ in Apple Podcasts or at plus.npr.org/planetmoney.

Transcript

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0:00.0	The world is changing every hour and catching up once or twice a day might not be enough.
0:04.8	For quick updates throughout your day, there's the NPR News Now podcast. Every hour on the hour,
0:11.7	we bring you up to speed on the latest news from around the world in five minutes.
0:16.7	Listen now to the NPR News Now podcast from NPR.
0:22.3	This is Planet Money from NPR.
0:24.8	There's this thing that has kind of been a mystery to me.
0:32.4	Why when inflation really set in recently? Why did so many of us assume that to get it under
0:38.0	control, there would have to be massive layoffs and unemployment. We now know that isn't true.
0:44.9	We didn't need tons of people to lose their jobs to get inflation down. So why were so many of us
0:51.4	convinced? That idea turns out comes from somewhere. One person who changed how economists and
0:58.6	central bankers think about inflation and how to fight it. I heard his story from none other than
1:04.9	Planet Money producer Willa Rubin. I will. Hi Nick fountain. All right, where should we start?
1:11.1	We should start with his name. Good call. Bill Phillips had a very adventurous life. He was born
1:18.6	in New Zealand in 1914. He was an electrical engineer. He worked at a gold mine at one point.
1:25.2	He was a crocodile hunter. He was fairly short. He was a change smoker. He had a strong New Zealand accent.
1:32.8	This is Richard Lipsy. He was a colleague of Bill Phillips way back when they were friends.
1:37.8	And he told us a story about how Bill Phillips became an economist that I love because it
1:43.3	captures just how young and weird economics was back in the 1940s when Bill Phillips started off.
1:50.1	Bill Phillips landed at the London School of Economics after World War II. He didn't have much
1:55.0	formal economics training, but he gets consumed by an idea that there are underlying forces at work
2:01.2	in the economy. And if you could just understand how those forces work, you could keep the economy stable.
2:07.6	Right, but Bill Phillips' friend, Richard Lipsy, says he had a pretty unconventional way of trying
	...

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