Robert Waldmann: Policy-Relevant Macro Is All in Samuelson and Solow (1960)
Robert Waldmann's Stochastic thoughts:
The rational expectations revolution was based on fraudulent intellectual history…. Their claim to have improved on the thought of Samuelson and Solow (1960) is based entirely on critiquing the legend of one figure quoted out of context… figure 2 which shows a stylized Phillips curve…. I quote the immediately following three paragraphs, as published in May 1960 before I was born:
Aside from the usual warning that these are simply our best guesses, we must give another caution. All of our discussion has been phrased in short-run terms, dealing with what might happen in the next few years. It would be wrong, though, to think that our Figure 2 menu that related obtainable price an unemployment behavior will maintain its same shape in the longer run. What we do in a policy way during the next few years might cause it to shift in a definite way.
Thus, it is conceivable that after they have produced a low-pressure economy, the believers in demand-pull might be disappointed in the short run; i.e., prices might continue to rise although unemployment was considerable. Nevertheless, it might be that the low-pressure demand would so act upon wage and other expectations as to shift the curve downward in the longer run--so that over a decade, the economy might enjoy higher employment with price stability than our present day estimate would indicate.
But also the opposite is conceivable. A low-pressure economy might build within itself over the years larger and nd larger amounts of structural unemployment (the reverseof what happene from 1941 to 1953 as a result of strong war and postwar demands). The result would be an upward shift of our menu of choice, with more and more unemployment being needed just to keep prices stable.
[From] "Analytical Aspects of Anti-Inflation Policy" Paul H. Samuelson; Robert M. Solow American Economic Review Vol. 50, No. 2, Papers and Procedings of the Seventy-second Annual Meeting of the American Economic Association (May, 1960), 177-194.
I don't think that Milton Friedman [(1968)] had anything useful to add…. Samuelson and Solow did not… write what Friedman insinuated… in 1960 they said the Phillips curve showed a short term but not a long term tradeoff… that… would shift for two reasons…. It would shift up and down with expected inflation…. Not to put to fine a point on it, [Friedman] plagiarized them when pretending to critique them.
But wait, there's more.
In the next paragraph [Samuelson and Solow] went on to note that the Phillips curve will shift out as cyclical unemployment becomes structural [what] Samuelson's nephew (and OJ Blanchard) presented… 25 years later… [as] "hysteresis".
In standard watered-down… public-histories of macro… Samuelson and Solow claimed the Phillips curve was… stable long-term… Friedman and Phelps achieved a scientific revolution by noting that the Phillips curve depended on expected inflation. Further research suggests… the NAIRU can shift due to hysteresis (this is still so brand new that it hasn't been incorporated into standard macro models after an alleged 28 but actual 52 years)….
It is all there in Samuelson and Solow 1960.