N. Gregory Mankiw wrote an article for the Sunday New York Times, 8/11/19, entitled Ties That Bind Inflation and Unemployment. His final paragraph states:
The Fed’s job is to balance the competing risks of rising unemployment and rising inflation. Striking just the right balance is never easy. The first step, however is to recognize that the Phillips curve is always out there lurking.
We have emphasized that the Fed’s responsibilities are a.) to be admonitory and supervisory to the banking system, and b.) to supply the economy with the quantity of money needed for orderly execution of the magnitudes and frequencies of operative payments. And it is the responsibility of the enlightened private and government sectors – not the Fed, because it does not possess sufficiently effective tools – to manage production, employment, and philanthropy properly. By so doing, enterprise and government can effect production, pricing, interest rates, and dividend rates consistent with the opportunities and risks in the system; and they can achieve the full productivity made possible by the invention, gumption, and hard work of free people, yet properly constrained by the state of technology, culture, and resources. Contrary to what Mankiw seems to be approving in his conclusion, it is wrong to assign responsibility to the Fed for adjusting inflation and unemployment in the economic process by artificially manipulating the interest rate. And, despite all the hype about the effectiveness or ineffectiveness of manipulating the rental price of money (i.e. the interest rate), no one has yet developed the ability to separate the effect of self-healing from the positive or the negative, counterproductive effect of interest-rate manipulation. For further perspective, click here for critical treatment of the IS-LM, AD-AS, and Phillips Curve Models, including notes explaining stagflation and the need to transition from a single-circuit analysis to a double-circuit analysis; here, for Notes Regarding FRB Monetary Policy and a Theoretic of Credit; and here for Practical Precepts for Free People – Consumers, Entrepreneurs, Bankers, Investors. Also see Summary of the Argument (CWL 15, 5-6) and The Cycle of Basic Income (CWL 15, 133-44).