number three
the Phillips curve
bill Phillips was a crocodile and economist from new Zealand
who spotted that when employment levels are high
wages rise faster
people have more money to spend
so prices go up and so does inflation
likewise when unemployment is high
the lack of money to spend
means inflation goes down
this became known as the Phillips curve
governments even set policy by the curve
tolerating the inflation
when they spent extra money creating jobs
but they forgot that the
workers could also see the effects of the curve
so when unemployment went down
they spected inflation
and demanded higher wages causing
unemployment to go back up
while inflation remained high
which is what happened in the 1970s
when both inflation and unemployment rose
then in the 1990s
unemployment dropped while inflation stayed low
which old Robert took the band out of phillips's curve
but at least part of Philips troubles and tradeoff lives on
when foster growth and full employment return
you can bet inflation will be along to spoil the party