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Handre
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Economic Historian. Storyteller.
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Millions of poor black children in South Africa are disallowed this connectivity by the ANC because it is provided by white people.
As your AI would say: Let that sit with you.
As your AI would say: Let that sit with you.
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The Phillips Curve gave policymakers exactly what they wanted: a scientific alibi for printing money. The theory, built from A.W. Phillips' 1958 study of UK wage data, claimed a stable trade-off existed between inflation and unemployment. Push inflation up, unemployment falls. The Federal Reserve and Keynesian advisors from Cambridge to Washington treated this as settled science.
Then the 1970s arrived and burned the whole model down.
Between 1973 and 1975, U.S. unemployment climbed from 4.6% to 8.5% while CPI inflation simultaneously surged past 11%. This was not supposed to happen. The Phillips Curve said you got one or the other. Now you got both?
Richard Nixon had closed the gold window in August 1971, freeing the Fed to monetize debt without constraint, and Arthur Burns obliged with years of credit expansion. The result, they named stagflation, a word Keynesian economists had to invent because their models had no room for the concept.
Milton Friedman warned Congress in 1968 that the trade-off was an illusion. Workers, he argued, would eventually expect inflation and demand higher wages to compensate, eliminating any employment gain. The short-run curve would shift. Friedman was correct on the mechanism, though the deeper point goes further: inflation is a tax on your savings, your wage, your planning horizon.
Unemployment is not a price phenomenon you can adjust with monetary dials. It follows from capital misallocation, regulatory rigidity, and distorted price signals. The Fed flooding credit markets in the late 1960s created an artificial boom in sectors that could not sustain real demand. The bust produced real unemployment, then more inflation on top of it.
By 1980, CPI hit 13.5%, and unemployment reached 7.5% simultaneously. Turns out the curve was fictional. Just another excuse Keynesians used to justify governments printing more money. Jimmy Carter's Council of Economic Advisers kept forecasting a trade-off that the economy refused to deliver.
Stagflation exposed the entire premise that central planners can calibrate employment through monetary manipulation without consequence hitting your wallet.
Then the 1970s arrived and burned the whole model down.
Between 1973 and 1975, U.S. unemployment climbed from 4.6% to 8.5% while CPI inflation simultaneously surged past 11%. This was not supposed to happen. The Phillips Curve said you got one or the other. Now you got both?
Richard Nixon had closed the gold window in August 1971, freeing the Fed to monetize debt without constraint, and Arthur Burns obliged with years of credit expansion. The result, they named stagflation, a word Keynesian economists had to invent because their models had no room for the concept.
Milton Friedman warned Congress in 1968 that the trade-off was an illusion. Workers, he argued, would eventually expect inflation and demand higher wages to compensate, eliminating any employment gain. The short-run curve would shift. Friedman was correct on the mechanism, though the deeper point goes further: inflation is a tax on your savings, your wage, your planning horizon.
Unemployment is not a price phenomenon you can adjust with monetary dials. It follows from capital misallocation, regulatory rigidity, and distorted price signals. The Fed flooding credit markets in the late 1960s created an artificial boom in sectors that could not sustain real demand. The bust produced real unemployment, then more inflation on top of it.
By 1980, CPI hit 13.5%, and unemployment reached 7.5% simultaneously. Turns out the curve was fictional. Just another excuse Keynesians used to justify governments printing more money. Jimmy Carter's Council of Economic Advisers kept forecasting a trade-off that the economy refused to deliver.
Stagflation exposed the entire premise that central planners can calibrate employment through monetary manipulation without consequence hitting your wallet.
The Fed manufactures every boom, then oversees the bust.
Look at the dot-com bubble. Between 1995 and 2000, the Federal Reserve under Alan Greenspan expanded M2 money supply by 40 percent. That cheap credit had to go somewhere. It flooded into the NASDAQ, inflating valuations of companies with no earnings, no revenue model, and sometimes no actual product. Pets(.)com burned through $300 million and collapsed within a year of its 2000 IPO. Webvan raised $375 million and went bankrupt in 2001. This is the rational response to irrational money.
Greenspan delivered his famous "irrational exuberance" speech in December 1996, four years before the crash. He saw the bubble. Then he inflated it anyway, cutting the federal funds rate to 4.75 percent in 1998 after the Russian default crisis and Long-Term Capital Management implosion. Investors took that signal and leveraged into equities harder. NASDAQ peaked at 5,048 on March 10, 2000, then fell 78 percent over the next 30 months, destroying $5 trillion in household wealth. People watched their retirement accounts crater while Greenspan pivoted to explaining why nobody could have seen it coming.
Ludwig von Mises described the mechanism in his business cycle theory: artificially low interest rates misdirect capital into projects that only pencil out at that fake price of money. The moment the Fed tightens or the market corrects rates upward, malinvestment collapses. Every dot-com bonfire was a malinvestment.
Entrepreneurs, engineers, and retail investors absorbed the losses. Greenspan absorbed none. He collected his salary, retired in 2006, and published a memoir. The institution that created the catastrophe survived it completely intact, ready to run the same cycle again with mortgage-backed securities.
Which, of course, it did.
Look at the dot-com bubble. Between 1995 and 2000, the Federal Reserve under Alan Greenspan expanded M2 money supply by 40 percent. That cheap credit had to go somewhere. It flooded into the NASDAQ, inflating valuations of companies with no earnings, no revenue model, and sometimes no actual product. Pets(.)com burned through $300 million and collapsed within a year of its 2000 IPO. Webvan raised $375 million and went bankrupt in 2001. This is the rational response to irrational money.
Greenspan delivered his famous "irrational exuberance" speech in December 1996, four years before the crash. He saw the bubble. Then he inflated it anyway, cutting the federal funds rate to 4.75 percent in 1998 after the Russian default crisis and Long-Term Capital Management implosion. Investors took that signal and leveraged into equities harder. NASDAQ peaked at 5,048 on March 10, 2000, then fell 78 percent over the next 30 months, destroying $5 trillion in household wealth. People watched their retirement accounts crater while Greenspan pivoted to explaining why nobody could have seen it coming.
Ludwig von Mises described the mechanism in his business cycle theory: artificially low interest rates misdirect capital into projects that only pencil out at that fake price of money. The moment the Fed tightens or the market corrects rates upward, malinvestment collapses. Every dot-com bonfire was a malinvestment.
Entrepreneurs, engineers, and retail investors absorbed the losses. Greenspan absorbed none. He collected his salary, retired in 2006, and published a memoir. The institution that created the catastrophe survived it completely intact, ready to run the same cycle again with mortgage-backed securities.
Which, of course, it did.
