The “Bum” Phillips Curve

“She’s too ugly to kiss goodbye!” [The Rude Awakening] August 15, 2023 [WEBSITE]( | [UNSUBSCRIBE]( 🤠The “Bum” Phillips Curve - A.W. Phillips’ curve shows an inverse relationship between unemployment and inflation. - Though that relationship was debunked in the 1970s, economists use it to this day. - But perhaps an old NFL head coach can tell us why economists haven’t given up on it. [[LEAKED MEMO] AI Opportunity]( A leaked memo from Google on AI could prove that it's [the biggest opportunity of the decade](. [Click here to learn more]( Silicon Valley insider, James Altucher, shows that a tiny AI company could be in the crosshairs of major NASDAQ players — and [a buyout deal]( could be announced at any moment. And if you don’t get in this stock before a potential deal is announced... You’ll miss out for good. Take a look at this research, and [this urgent buy alert]( before it’s too late. [Click Here To Learn More]( [Sean Ring] SEAN RING Happy Tuesday from crystal clear Catalonia! This is our last full day in Barcelona before we take the train north for a quick stop in Paris. When I got married, I knew I was a lucky man. Sure, I was wandering around the world, but I found a woman happy to follow me on my travels. Odysseus, my literary hero, was gone for a full twenty years before he returned home. His wife, Penelope, stayed home and waited for him by sewing and unsewing Laertes’ burial shroud. My Penelope was just as faithful but wanted to be at my side. That’s why I never understood other bankers with different girlfriends in every city they traveled to. I thought that a terribly expensive and potentially dangerous habit. After all, why travel alone when you can bring your wife? Former Houston Oilers and New Orleans Saints coach Oail Andrew "Bum" Phillips Jr. had a different reason. When a reporter asked him, “Bum, why do you always travel with your wife?” he inimitably replied, “Because she’s too ugly to kiss goodbye!” And so one of history’s great ironies is that Bum Phillips’ quote tells us why we can’t stop looking at the defunct A.W. Phillips Curve: because it’s too ugly to kiss goodbye! What’s the Phillips Curve? The Phillips Curve is an economic concept that illustrates the inverse relationship between unemployment and wage inflation. When unemployment is low, wage inflation tends to be high, and vice versa. Economist A.W. Phillips initially proposed this idea, which has been the subject of economic analysis and debate over the years. That it’s been debated makes sense because the idea was utterly disproven in the 1970s. How? Because both wage inflation and unemployment were high, which was previously thought impossible. Milton Friedman and other economists then attacked the Phillips Curve. Friedman won a Nobel Prize in part for that. [Phillips Curve] Phillips curve. (2023, July 2). In Wikipedia. [Warning: Could Massive Civil Unrest Come To U.S. Cities In 2023?]( [James Altucher]( The streets are mayhem… Everyday supplies at the grocery store are cleaned out… In the parking lot outside, you see a large guy yelling at an elderly man… The big guy has something in his hand, and rage in his eyes... Things look like they could get out of hand at any moment. Is this disturbing scenario set to play out in U.S. cities across the country? [Click here now for an urgent warning from a former advisor to the CIA and Pentagon](. [Click Here To Learn More]( Criticisms of the Phillips Curve Critics of the Phillips Curve have raised several arguments against its validity: - Long-Run Expectations: One essential criticism is that, in the long run, people and businesses adjust their expectations based on inflation. This means that if policymakers attempt to maintain low unemployment by creating inflation, people will come to expect that inflation and the trade-off between unemployment and inflation will break down. - Supply-Side Factors: The Phillips Curve doesn't take into account supply-side factors that can influence both unemployment and inflation, such as changes in productivity, technology, and labor market regulations. These factors can impact the relationship between unemployment and inflation. - Adaptive Expectations: The Phillips Curve assumes that people's expectations about inflation are based solely on recent history. However, if people's expectations become more sophisticated and forward-looking, they might respond differently to changes in unemployment. - Globalization: In a globalized economy, factors such as international trade and capital flows can impact inflation and unemployment in ways the Phillips Curve doesn't account for. Supply chains, outsourcing, and global competition can influence domestic labor markets and inflation dynamics. - Rational Expectations: Rational expectations theory suggests that people make predictions based on all available information, including government policies. If this theory holds, attempts by policymakers to exploit the Phillips Curve trade-off may not be successful because people will anticipate and adjust to these policies. - Lags and Uncertainties: The relationship between unemployment and inflation might take time due to various economic lags, such as information and policy implementation lags. Additionally, there might be uncertainties in estimating the natural unemployment rate, which can affect the effectiveness of using the Phillips Curve for policy decisions. - Non-Monetary Factors: Other non-monetary factors, like changes in taxes, regulations, and technological shocks, can influence unemployment and inflation, making the simple trade-off depicted by the Phillips Curve less accurate. Simply, the Phillips Curve doesn't fully capture the complexities of real-world economic dynamics. So Why Do We Still Use the Phillips Curve? This is something that’s always stuck in my craw. Why do economists still use the curve if it was disproven in the 1970s? But here are some reasons why we shouldn’t throw out the baby with the bathwater: In the short run, there can be observable relationships between changes in unemployment and inflation. Economists use historical data to identify trends and correlations, which can help predict the potential impact of changes in one variable on the other. The Phillips Curve is often introduced in economics courses to help students understand the basics of macroeconomic relationships, how different factors affect the economy, and the complexities of policy decisions. I’m not keen on this, as the relationship doesn’t hold. The Phillips Curve provides a framework for discussing the possible trade-offs between macroeconomic goals like low unemployment and stable prices. It prompts economists and policymakers to consider the potential consequences of different policy choices. Looking at historical data and examining periods where there appeared to be a clear trade-off between unemployment and inflation can help economists understand how the economy responded to various policy decisions in the past. Wrap Up Uncle Miltie Friedman was right: inflation and unemployment have no long-term relationship. Milton Friedman in 1976 and Edmund Phelps in 2006 won the Nobel Prize in Economics partly for showing the long-run Phillips Curve was vertical, so there was no trade-off between inflation and unemployment. But we’re too long short-term in our thinking as a culture, and it’s also reflected in our economic thought. Sometimes, you’ve just got to kiss ugly things goodbye. Have a great day! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( In Case You Missed It… Greetings From Barcelona! [Sean Ring] SEAN RING Bon dia from a gorgeous Barcelona, Catalonia, Spain. Hang on… shouldn’t it be “Buenos dias?” Nope, that’s Spanish. Or perhaps, “Bom dia?” Nope, that’s Portuguese. “Bon dia” is good morning in Catalan, that mish-mash of Spanish and French the Catalonians speak. Sure, they speak Spanish, too… as a second language. But to fit in here, you’ve got to speak Catalan. [Spain] In the extreme northeast of Spain lies the region of Catalonia. Three of my wife’s five siblings arrived, along with her parents and her mom’s cousin. I finally got to meet my new brother-in-law, a lovely Belgian chap. More on him later. We arrived Friday night, so Pam’s brother, Roi, and I went to Flaherty’s, a great Irish pub in Barcelona’s Gothic Quarter. I was excited because I hadn’t been to this bar in eight and a half years. And it didn’t disappoint. The bartenders also said they would show the Arsenal-Nottingham Forest match on Saturday. I was over the moon! “We’ll be back!” I shouted. Then we walked around the Gothic Quarter and Ciutat Vella (Old Town) for the rest of the night, eating, drinking, and being merry. It was superb. Among other things, we devoured jamon iberico (Iberian ham), which is even better than Italian prosciutto. [Italian prosciutto] Jamon Iberico Then on Saturday, the rest of the family arrived. 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[ La Sagrada Familia] Yes, that’s it. That’s La Sagrada Familia in Barcelona. Credit: [Rethinking the Future]( The cathedral isn’t even done yet. It’ll be completed in 2026, according to the latest estimates. Looking from the outside, it almost feels like the building is moving. It’s a remarkable achievement, though, like the Taj Mahal, the exterior is far better than the interior design. After visiting La Sagrada Familia, we took the spotless and easy bus to the beach to eat lunch. Again, the paella and fish, along with the beer, flowed. [ paella] In case you’ve never seen paella… My sister-in-law, Meg, and I enjoyed a scallop and bacon paella. I need to improve my command of English to convey to you how delicious it was. The rest got the usual seafood and meat paellas which were delicious, I’m sure. But my father-in-law opted for the catch of the day. Always a wise choice in a harbor city. Luckily for us, the ladies wanted to go shopping and knew they couldn’t drag us along with them. So we headed to the pub. This is where my unintentional lesson in economics happens. A Real-Life Lesson in Marginal Utility I write about marginal utility because it’s so damn important. And it’s straightforward to understand. But ordinal marginal utility is something we unconsciously do every day. First, the definition: Ordinal marginal utility refers to the concept that individuals rank their preferences for different goods or services based on the additional satisfaction they derive from consuming an extra unit. While it doesn't precisely measure the level of satisfaction, ordinal marginal utility allows people to compare the relative desirability of different choices. I can’t overstate how important this is. But I’ll show you right now. Remember how happy I was that Flaherty’s was showing the Arsenal game on Saturday? Well, here’s my ranking of pubs I was going to watch that match in: - Flaherty’s - Dunne’s - Any other pub that had the game on. Flaherty’s and Dunne’s are both great pubs, but I happen to be closer to Flaherty’s and seem to go there first. But on Saturday, Roi and I headed to Flaherty’s long before kickoff time. And we were turned away at the door! The big brute bouncer said, “It’s full.” Ok, there were many people in there, but it wasn’t “English pub full” on a game day. Since my brother-in-law was there, I quietly acquiesced. But I was incandescent with rage. Where were we going to watch the game? Ok, Dunne’s is second on my list. Let’s head there. So we went. And luckily for us, it wasn’t close to packed. We watched Arsenal beat Nottingham Forest 2-0, and I was happy as a clam. We dropped about 60 euros in there on Saturday that Flaherty’s didn’t get. But that’s not the big deal. This is the big deal. My new ranking is this: - Dunne’s - Any other pub besides Flaherty’s. - Flaherty’s. That’s right. I’m not going to write a crappy review of Flaherty’s. It’s a great pub. And maybe it was really full. But I don’t care. I didn’t get what I wanted. And what they’re getting is far worse: an unhappy customer who’s not complaining about them. I’m just ignoring them until I have to use them again. And that might be years down the road. And what’s worse is that on Sunday, when the girls went shopping, we returned to Dunne’s, not Flaherty’s. Papa, Roi, and my Belgian brother-in-law, Kenneth, played pool, drank beers, and watched more football matches. We dropped another 100 euros in there yesterday. Kenneth said to me, “I really like this place. It’s the first bar in Barcelona I’m visiting when I come back.” Priceless and effortless publicity. Our bartender, Danny, who hails from Liverpool, but has emigrated to Spain, was a treat. The boys kept ordering beers, but Papa didn’t want any. So Danny brought him a paper cup with a straw and a lemon on top. He said to Papa, “I brought you a glass of nothing!” We cracked up. [Group Photo] Kenneth, Micah, Me, and Roi in Dunne’s watching Chelsea and Liverpool draw; Credit: Sean Ring Now you may think it’s just one case of lost business. But how many times does this happen? If you run a business, you absolutely have to be aware of this. The way I see it is that one pub is up nearly 200 euros on another. And in these days, that matters. Wrap Up Barcelona is one of the world’s great cities, and we’re having a great time there. Hopefully, this will whet your travel appetite. You still have time to head somewhere this summer. Barcelona is undoubtedly one great place you can head. Have a great week ahead! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. 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