Kelton writes that the Fed’s practice of tolerating-and even engineering-mass unemployment through high interest rates is both inhumane and extraordinarily wasteful. MMT proponents argue that fiscal and monetary policy should work in tandem-using a combination of deficit spending and low interest rates to boost demand and create full employment.
Kelton contends that MMT offers a better alternative to the harsh and punitive policies of the Fed. These critics championed the natural rate of unemployment theory as a superior alternative, one that properly accounted for the damaging effects of inflation. In other words, there was a clear trade-off between inflation and unemployment.Ĭritics argued that the Phillips curve created an excuse for politicians during the 1960s and 1970s to engage in inflationary policies-if they ever wanted to reduce unemployment (especially right before an election-all they would need to do was boost inflation. The data showed that there was a clear inverse relationship between inflation and unemployment: When inflation was high, unemployment was low, and vice versa.
unemployment in the UK for nearly a century between 18. Created by British economist Williams Phillips, the Phillips curve drew on historical analysis that tracked inflation vs. The natural rate of unemployment replaced an earlier theory known as the Phillips curve.
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