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24-08-2017, 04:38 PM
If I'm not mistaken, the Philips curve is an empirical model. i.e. somebody in the past fitted data to a model and uses this to "predict" things. The problem with an empirical model is that it is just that - "empirical". it does not actually track underlying causes from first principles.
In my opinion, lots of cash floating around, lower unemployment, yet subdued inflation can mean any one or all of the following:
- capital is being exported (i.e. goes elsewhere for investment).
- secular stagnation (google "Larry Summers" and "Secular stagnation").
- capital is now very very efficient. e.g. google is a huge company, but it has relatively few employees. e.g. adding 1 billion of revenue may only take an additional 1 million in wages.
For the last point, basically, you are talking about capital being much more important than labor in economic growth. In economics, capital and labor are part of what economists call factor markets. The relative contribution of each factor may have shifted significantly likely permanently.
In my opinion, lots of cash floating around, lower unemployment, yet subdued inflation can mean any one or all of the following:
- capital is being exported (i.e. goes elsewhere for investment).
- secular stagnation (google "Larry Summers" and "Secular stagnation").
- capital is now very very efficient. e.g. google is a huge company, but it has relatively few employees. e.g. adding 1 billion of revenue may only take an additional 1 million in wages.
For the last point, basically, you are talking about capital being much more important than labor in economic growth. In economics, capital and labor are part of what economists call factor markets. The relative contribution of each factor may have shifted significantly likely permanently.