https://www.project-syndicate.org/commentary/low-inflation-no-surprise-by-j--bradford-delong-2018-01?utm_source=Project+Syndicate+Newsletter&utm_campaign=96fee0cf9c-sunday_newsletter_7_1_2018&utm_medium=email&utm_term=0_73bad5b7d8-96fee0cf9c-93854061
... I showed that, when the now-standard view about inflation was developed in the 1970s, increases in aggregate demand above levels consistent with full employment were actually few, short-lived, and small, and that past inflation jumps had been incorporated into future expectations not rapidly, but slowly over time.
In fact, it took three large adverse supply shocks for expectations to adjust. In addition to the Yom Kippur War of 1973 and the Iranian Revolution of 1979, productivity growth began to slow at the same time that unions still had substantial pricing power, and previously negotiated wage increases were already locked into many workers’ contracts.
...According to this pseudo-historical retelling, Keynesian economists in the 1960s did not understand the natural rate of unemployment, so they persuaded central bankers and governments to run overly expansionary policies that pushed aggregate demand above levels consistent with full employment.
This was of course an affront to the gods of the market, who responded by meting out divine retribution in the form of high and persistent inflation. The Volcker disinflation was thus an act of penance. To expunge the original sin, millions of workers’ jobs and incomes had to be sacrificed.
...it has been more than 20 years since economists Douglas Staiger, James H. Stock, and Mark W. Watson showed that the natural rate of unemployment is not a stable parameter that can be estimated precisely....
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