Broken Rules.

Prior to the coronavirus economic meltdown, workers were returning to the U.S. labor force at unexpectedly high rates, contrary to the secular stagnation theories of several years ago. Did this development suggest that today's low labor participation rate was not the new normal? What are the implications, if any, for the Phillips curve and for Federal Reserve monetary policy from these recent developments?

Economists in both parties were just blowing smoke when they beat the drums all these years about the danger of inflation arising from some kind of Phillips Curve trade-off

THOMAS FERGUSON

Professor Emeritus, University of Massachusetts, Boston, and Director of Research, Institute for New Economic Thinking

Debates over economic policy in this election year often seem right out of Borges--or maybe Brecht. Few economists associated with the Democrats can bring themselves to admit that the Trump administration could do anything right. Republican economists, by contrast, usually sound like the Tweeter in Chief is really on the verge of MAGA--Making America Great Again.

Part of the problem is that assessments center on a glass that can be made to look either half full or half empty thanks to decades of bipartisan economic policy failure. By selectively picking your baseline, it is easy to create dramatic contrast effects that seem to tell radically different stories.

Income growth under Trump is a case in point. A favorite variable in many models of presidential voting--real disposable per capita income--is up by more than $3,000 from 2016, and median family income has risen, too. But because the improvement started in the waning days of the Obama administration, if you want you can try to write it off as a cyclical phenomenon that has little to do with Trump.

But that retort is too clever by half. It gives the Obama administration a free pass for its timid economic policies that delayed recovery for years and helped lose the White House for the Democrats. More importantly, it ignores Trump's incessant drumbeating against Federal Reserve rate increases. Whatever you think of the "proper" relationship presidents should maintain with the central bank, his stance against rate rises has surely intimidated inflation hawks. It has also neutralized the vast GOP netherworld of gold bugs and other monetary partisans who saw inflation around every corner as long as Democrats were in power.

Thanks to this striking natural experiment, it is now obvious that central bank and mainstream economists in both parties were just blowing smoke when they beat the drums all these years about the danger of inflation arising from some kind of Phillips Curve trade-off. It is equally apparent that the complicated mainstream econometric models of potential output were just as wide of the mark...