Phillips Curve

How the Phillips Curve Shaped Full Employment Policy in the 1970s: the Debates on the Humphrey-Hawkins Act

This article relates the history of economists’ influence in shaping the content of the Humphrey-Hawkins Act (1978) and its immediate consequences. The Act committed the federal government to reduce as soon as 1983 unemployment to 4 percent and inflation to 3 percent. Initially, the Humphrey-Hawkins bill was conceived as a project to favor economic integration of African Americans and economic planning, and only targeted the unemployment rate. The Republican senators successfully pushed for integrating a numerical inflation target during the debates in Congress in 1978. The Humphrey-Hawkins Act eventually appeared as a bill putting on an equal footing inflation and unemployment. I argue that the economists in Carter’s administration, and notably the CEA, were instrumental, even if unintentionally, in favoring the integration of an inflation target and such an interpretation of the bill. In the debates that opposed them to the supporters of the bill, as well as in the analysis of the bill they produced, they constantly referred to the existence of a trade-off between inflation and unemployment (the famous Phillips curve). They endeavored to anchor their expertise on academic publications, which strengthened the role of the Phillips curve in shaping the debates. Both the business organizations and senators used this reference to the trade-off to undermine the bill and favor the integration of an inflation target.

Robert J. Gordon and the Introduction of the Natural Rate Hypothesis in the Keynesian Framework

This article studies the dissemination of the Natural Rate of Unemployment Hypothesis (NRH) in macroeconomics during the 1970s, by studying the reaction of Robert J. Gordon to the argument of Friedman (1968). In the early 1970s, Gordon opposed the NRH, arguing that the estimated parameter on expected inflation was below one. Confronting to new data and to rising inflation, Gordon adopted the NRH after 1973. Nevertheless, the adoption anticipated any clear empirical proof. We explain that this conversion was due to Friedman’s influence on Gordon, but also to the fact it did not prevent Gordon to support active stabilization policies.