Perhaps but they haven't figured the economy out yet. By Victor A. Canto of La Jolla Economics he U.S. unemployment rate is hovering around its 30-year low. Keynesians have been scrambling over the past several years to explain how the U.S. has kept growing without a serious inflation threat. Not only have their forecasts been off the mark, but they've been hard pressed to understand the sources of growth and to measure the impact of productivity increases. It's more than just an academic exercise.
Bad forecasts induce bad policy choices.
Keynesians argue that errant estimates of productivity gains have been in large part responsible for widespread overestimation of inflation and underestimation of growth. As the recent revision of the National Income and Product Account shows, during the 1990's the real GDP growth rate has been higher than we previously thought while the inflation rate has been lower. The doomsaying economists who fall into this latter group base their concerns on the supposed Phillips Curve relationship which says that as the unemployment rate declines, wage pressures and production bottlenecks lead to rising production costs that, in turn, lead to rising inflation. Thus, according to the Phillips Curve, the lower unemployment rate is associated with higher inflation and higher real wages. In effect, they endorse the concept of speed bumps for the economy.