A Philips curve augmented with inflation expectations is a theory of stagflation. I don't claim any prescience in having blogged on this topic just the other day.
Milton Friedman's theory of the natural rate of employment is closely related to Phelp's theory. Friedman's theory has never made much sense to me. I don't know what it means to talk about the rate of employment ground out by the Walrasian model of general equilibrium, when theory provides no reason to think such a rate will be unique. Furthermore, economists have found the Walrasian model to be logically inconsistent, while the very short run Arrow-Debreu model does not grind out rates of unemployment. Instead, it grinds out time paths of employment rates. I think the theory indicates such paths will not be empirically observed, anyways. Finally, due to hysteresis, the natural rate has turned out to be an empirical failure in giving policy guidance. (See Galbraith 1998 for more on at least some of these points.)
I'm getting used to the "Nobel" being awarded to authors who have at least some works I have read long ago. In this case, I can mention Phelps (1961), for example, which is closely related to Robinson (1962).
I sometimes run into some mainstream economists who whine about my attitude. Given this, I don't know what they are talking about.
- Galbraith, James K. (1998). Created Unequal: The Crisis in American Pay, Free Press
- Phelps, Edmund (1961). "The Golden Rule of Accumulation: A Fable for Growthmen", American Economic Review, V. 51, N. 4 (Sep): 638-643
- Robinson, Joan (1962). "A Neo-Neoclassical Theorem" (in Essays in the Theory of Economic Growth), Macmillan
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In Friedman's defense, I believe he made that statement before the DMS theorem, or at least before the theorem was more widely known. Perhaps it had something to do with his, or at least the economic profession moving away from idea of "natural rate" to that of NAIRU - which could be argued is just a way to sneak the idea of 'natural rate' back into the theory. On the other hand one can look at NAIRU as a purely empirical concept.
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