WHAT HAPPENED TO THE INFLATION/UNEMPLOYMENT TRADE-OFF?
Whatever else may be said of macroeconomic performance under the Clinton presidency, the simultaneous fall of unemployment and inflation clearly defied the expectations of virtually all orthodox economists. Between 1993-2000, the unemployment rate fell steadily from 7.5 — 4.0 percent. Meanwhile, the inflation rate also declined steadily, to a low point of 1.6 percent by 1998. Inflation did increase in 1999-2000, but only to 2.2 percent in 1999 and 3.4 percent by 2000. Most economists, adhering to the Natural Unemployment/Non-Accelerating Inflation Rate of Unemployment (NAIRU) doctrines dominant since the early 1970s, had long predicted that unemployment in the region of 4 percent, or even 5 percent, must lead to headlong inflation. This is because with low unemployment rates, workers would gain increased bargaining power. They would demand higher wages and businesses, in turn, would pass on their higher labor costs to their customers through price increases. An inflationary wage-price
