Economics: I am seeing a surprisingly large amount of things like this: claims that economists and their theories had a bad time in understanding the economy in 2023—in this case it is the idea of the Phillips Curve that is “taking a beating”.

But I have been running with the Phillips Curve of: Hazell, Jonathon, Juan Herreño, Emi Nakamura, & Jón Steinsson: 2022. "The Slope of the Phillips Curve: Evidence from U.S. States." The Quarterly Journal of Economics 137 (3): 1299-1344. doi.org/10.3386/w28005>.

That Phillips Curve has certainly not taken any kind of “beating”, but has been a valuable tool.

What have taken a beating are assertions and assumptions that:

• We should gauge the inflation-expectations term by looking backward at last-year inflation or sidewise at recent oil price movements rather than looking forward at the implied expected-inflation rates measured by TIPS-nominal Treasury breakevens.

• We should believe that the short-run Phillips Curve turns sharply upward when a high-pressure labor market emerges when the inflation rate falls below

• We should not think that there is anything special about the inflation process in a time of the rapid wheeling of the economy into a new sectoral demand configuration, as it did in 1947-1948... 1950-1952... 2021-2023.

But maybe what I am saying is that the Phillips Curve is, at least as I see it, much more a comprehensive filing cabinet for organizing thinking about inflation and demand episodes than a theory that can “take a beating”. We don’t so much disprove a theory as argue over parameters in a framework flexible enough to cover the possibilities. Even so, however, there were a lot of us who saw this episode as definitely not analogous to the 1970s:

Neil Irwin: ‘We're now at 23 straight months with the unemployment rate below 4%, a period in which inflation has fallen from ~8% to ~3%. The Phillips Curve continues taking a beating… <threads.net/@jbdelong/p…>