NCPA - National Center for Policy Analysis

Inflation, Growth And Unemployment

April 10, 1997

After six years of economic growth with no recession, very little inflation and low unemployment, some economists wonder if Federal Reserve Chairman Alan Greenspan has found some magic formula to keep these three competing economic factors in balance.

  • While any economic policy-maker who raises interest rates even modestly has his critics, few can complain of unemployment at 5.2 percent.
  • Greenspan's supporters say his performance seems all the more impressive when compared with that of German, French and Japanese policy-makers -- who have not been able to find a way to spring their economies out of the doldrums.
  • Many economists dearly wish they knew whether unemployment rates of 5.5 percent or 4.5 percent spark inflation -- since there would be room to create more jobs for those coming off welfare and others if the lower figure were correct.
  • It is estimated that every one-tenth of a percentage point in unemployment represents at least 130,000 jobs.

Moreover, a policy favoring economic growth rates greater than the present 3 percent plus would create those jobs. But would that, economists debate, be courting inflation?

Source: Peter Passell, "Erring on the Side of Fighting Inflation at the Expense of Jobs," New York Times, April 10,1997.

 

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