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PHILLIPS CURVE DISCUSSION
Karl Arnold Belser
12 September 2017




The Phillips curve is a relationship between the unemployment rate and the inflation rate. In short the idea is that when the unemployment rate goes down then there might be more demand for labor than the supply available and the employers might have to raise salaries which in turn would cause an increase in inflation. However, the dramatic fall in employment rate in the last few years has not caused an increased in inflation. Why?

The answer clearly is that the model is too simple. There are more variables in play. labor is always in competition with automation such as robots,  artificial intelligence and activities that can be done at home with better computers and machines. Another factor is that the employment participation rate is very low compared to past history.

Some 25 million working age people are unemployed and not looking for work. In addition about half of these unemployed are doing drugs and many are dying from drug overdoses. Others are trying to survive by criminal activity and they end up in prison. Hens if there were jobs available these unemployed might fill the need. I conclude there is really not a scarcity of labor despite the low unemployment rate.

I personally think that the world is going through an economic revolution like the industrial revolution was in the nineteenth century. The problem is that the government is trying to keep the status quo  instead of letting society adapt itself to the new reality. Here are some examples:

The government is printing money (quantitative easing). The resulting debt is consumption brought forward and will become a drag on growth in the future.

The government is giving student loans to too many unqualified people. Even if some do complete a college education the fields they study are worthless economically. To make the situation worse, the cost of college education is ten times what it cost in the 1970s in inflation adjusted dollars even though the median wage has actually decreased over the same period. The result has been that the less smart people end up becoming debt slaves for life. - all in the name of social justice.

The government has a minimum wage that continues to rise. For example a minimum wage of $15 per hour is a $30,000 yearly wage that is equal to the current median wage in the United States. Further business regulations intended to protect wage levels for certain profession prevent many people from going into business themselves.
I ask rhetorically - how can these people work their way to become a productive citizen if they are barred by government from doing so?

Half of the US population has an IQ less than 100 and these people cannot do work in many cases  that is worth the minimum wage. These people are screwed and they know it. Hence, I think many take drugs and play video games in order to escape reality. Others may start criminal businesses that are not regulated by the government.

I see no near term solution to these issues because the solutions are politically incorrect. The failure of the Phillips curve is telling me that there is something seriously wrong with the United States today.
 
Last updated September 12, 2017
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