In an overlooked essay extending John Maynard Keynes’ The General Theory, Joan Robinson set out a theory of the Phillips curve based, in line with Keynes, on a realistic account of human behaviour that acknowledges the difference with which people value gains and losses. People are happy with a gain, such as an increase in money wages, and are very unhappy, indeed indignant, with a loss, such as a cut in money wages. This realistic behaviour anticipated the concept of loss aversion, developed 40 years later by Kahneman and Tversky. Robinson inferred from her ‘realistic’ account that the inflation–unemployment relation had a more or less vertical slope at full employment and a negative-to-horizontal slope at high rates of unemployment. Phillips’ empirical investigation, 20 years later, confirmed this pattern, although he did not refer to the link with Robinson’s description of realistic behaviour. However, 30 years later, Friedman, Phelps and Lucas derived a natural or equilibrium rate of unemployment from the unrealistic account of human behaviour in which there is no marked contrast between gains and losses so that the inflation–unemployment relation is significantly negatively sloped at both low and high rates of unemployment. By making this unrealistic assumption, they and their followers went backwards.
Purchase
Pay to Access Content (PDF download and unlimited online access)
Institutional Login
Log in with Open Athens, Shibboleth, or your institutional credentials
Personal login
Log in with your Elgar Online account
- JEL codes
- 1 INTRODUCTION: REALISM VERSUS SYMMETRIC BEHAVIOUR
- 2 THE ROBINSON PHILLIPS CURVE
- 3 BILL PHILLIPS’ CORROBORATION OF THE GAIN–LOSS DICHOTOMY
- 4 MILTON FRIEDMAN’S ERROR IN ASSUMING THAT THERE IS NO GAIN–LOSS DICHOTOMY
- 5 EDMUND PHELPS ALLOWS FOR THE GAIN–LOSS DICHOTOMY THROUGH ‘MONEY ILLUSION’
- 6 THE ROBINSON PHILLIPS CURVE AND THE EXPECTED RATE OF INFLATION WHEN THE AVERSION TO LOSSES BITES
- 7 ROBINSON’S METHODOLOGICAL STANCE
- 8 LUCAS AND RAPPING IGNORE AVERSION TO LOSS AND ‘MISS’ 13 PERCENTAGE POINTS OF UNEMPLOYMENT
- 9 CONCLUSION: MACROECONOMISTS HAVE IGNORED REALITY
- REFERENCES
| Since 2022 | Since May 2022 | Past 30 Days | |
|---|---|---|---|
| Abstract Views | 591 | 591 | 104 |
| Full Text Views | 200 | 200 | 114 |
| PDF Downloads | 16 | 16 | 5 |
