The NAIRU should have been buried decades ago

In 1983, I started a PhD at the University of Manchester working within the Phillips curve framework. At the time, all the talk was Monetarist – eschewing the use of fiscal policy to reduce unemployment. Unemployment was high after the OPEC oil shocks and governments were abandoning their responsibilities to reduce it because they had drunk the Monetarist Kool-aide. The Monetarists invented a concept – the Non-Accelerating Inflation Rate of Unemployment (NAIRU) or the ‘natural rate of unemployment’, which became part of the dominant macroeconomic approach and influenced policy makers to pursue microeconomic reform (deregulation, privatisation, outsourcing etc) and obsessing about fiscal surpluses. My work was an attempt to show this shift in thinking – away from a commitment to full employment was based on a lie. The whole NAIRU story was a fraud. I was largely ignored along with other progressive economists who were also producing credible research that refuted the main propositions. Some 40 years later, the ECB has produced a research paper which now supports the position I took back then. Millions of jobless people later!

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