Today, Explained How Dylan got inflation wrong
Apr 19, 2022
Dylan Matthews, a Vox correspondent known for his economic insights, reflects on his past inflation predictions and the broader misjudgments of economists. He highlights how the prevailing optimism about inflation proved misguided as rising prices persisted unexpectedly. The conversation dives into the evolution of inflation theories, including the Phillips Curve, and discusses the impact of massive government spending during the pandemic. Matthews also unpacks the significance of consumer prices and wage growth, drawing attention to the challenges facing workers today.
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The Phillips Curve and Inflation
- The Phillips curve, a core economic theory, links inflation to unemployment.
- Low unemployment forces wage increases, driving inflation; high unemployment lowers it.
1970s Inflation
- The 1970s saw two inflation waves, worsened by Nixon leaving the gold standard and the Arab oil embargo.
- These events, coupled with high unemployment, challenged the Phillips Curve's validity.
The Volcker Shock
- Paul Volcker, Fed chair in 1979, combated inflation with two recessions by raising interest rates.
- This 'Volcker Shock', though painful, curbed inflation and influenced later Fed policy.