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The question of inflation and unemployment on the State of The Union Addresses and the Economic Reports of the US Presidents (1958-1989). Searching for the Political Phillips Curve

Andrada Alexandre, Universidade de Brasília

In the November 1958, the journal Economica published a not very ambitious paper entitled “The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957”, written by Alban William Phillips (1914-1975), which would become the center of a enormous controversy among macroeconomists in the following decades. A. W. Phillips found a somewhat stable relation between those two variables. When unemployment is low (high) there is a relative shortage (abundance) of labor force, thus, the rate of change of money wage tend to be high (low). This intuitive result can be express in a graphical manner [see Graphic 1 below]. In May 1960, the American Economic Review published the papers and proceedings of the 72nd Annual Meeting of the American Economic Association, including Paul Samuelson and Robert Solow paper “Analytical Aspects of Anti-Inflation Policy”. At the last part of this paper, the authors presented a version of Phillip’s result, using data from the US, showing a negative relation between unemployment rate and the average price rise. The Phillips Curve as we had better know it was then born. The curve soon became part of the Neoclassical Synthesis basic apparatus, closing the gap of the IS-LM model, which subsumed labor market. According to the current mainstream narrative, the Phillips curve was interpreted and used as a menu of economic policy. Politicians – now supported by an apparent sound economic theory and robust statistical regularity – could choose different levels of inflation and unemployment to the public. If the nation want a low level of inflation (unemployment), it must accept the burden of a higher level of unemployment (inflation). In a sort of amnesia, economists forgot the principle of classical dichotom

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Keywords: Phillips Curve, Inflation, Unemployment, State of the Union Address, Economic Repor

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