My decision to leave applied mathematics for economics was in part tied to the widely-held popular belief in the 1960s that macroeconomics had made fundamental inroads into controlling business cycles and stopping dysfunctional unemployment and inflation.
Rising prices or wages do not cause inflation; they only report it. They represent an essential form of economic speech, sincemoney isjust another form of information.
During the 1970s, inflation expectations rose markedly because the Federal Reserve allowed actual inflation to ratchet up persistently in response to economic disruptions - a development that made it more difficult to stabilize both inflation and employment.
In fact, the wage-price spiral is the functional counterpart of unemployment. The latter occurs when there is insufficient demand; the spiral operates when there is too much and also,unfortunately, when there is just enough.
If a rise in wages does not raise prices, a fall will not reduce them.
[U]nemployment is ... a side effect of the cure for inflation.
Inflation does not lubricate trade but by rescuing traders from their errors of optimism or stupidity.
There is a big logical jump between acknowledging the destructive nature of hyperinflation and arguing that the lower the rate of inflation, the better.
If you continue to use monetary policy to attempt to promote full employment the result would be that you would have higher inflation, and that you would not have lower unemployment.
