Less important comments are:
1. “The natural rate moves!” (p vii)
Comment:
The book suffers from the emphasis on the novelty of this idea. However, the nonconstancy is part of its definition, and this was not so revolutionary, in 1994. For example, see Solow (1976). It was a common notion to me in 1989/90 when I generated my analysis, and Phelps (p xii) mentions a 1979 paper by Jeffrey Sachs. But note that the book reflects a 20 year research project, e.g. Phelps discusses on page ix early models of the early 1980s that assumed a constant NAIRU. So it may well be that some researchers settled for constancy, and that it was a struggle for Phelps to get rid of constancy; and we should be tolerant of struggles like this. But, objectively, the emphasis on a non-novel idea is out of touch with modesty.
2. The opposition of “structuralism” to “neoclassical” (p14-19) is rather constructed, and not modest again.
3. “(...) historical evidence that unemployment is (or was) trendless (...)” (p x)
Comment:
Agreed.
Note, though, that my analysis is that due to differential indexaton of taxes and subsistence, there is a trend in a component of unemployment (namely, minimum wage unemployment, and poverty (underemployment)).
4. On technology: “the theory averts any implication that secular productivity growth puts the equilibrium unemployment rate on a trend (...)” (p xi)
Comment: Talk to H&M.
5. “(...) the present study is the most comprehensive econometric model of unemployment to date” (p 313).
Comment:
Well, there is Lawrence Klein’s Project Link, there is .... etcetera.
6. Phelps (p352) relates to Jude Wanniski, an ‘amateur fiscal theorist’ who wrote ‘an interesting book’, and dismisses him as a serious thinker. On p353 Phelps speaks about ‘professional theorists in the supply-side movement’ without mentioning names.
Comment: See Krugman (1994b).
Note that the editorial of the Wall Street Journal of October 17 1995 quotes the then new Nobel Prize winner, Lucas: “I have called this (...) an analytical review of ‘supply side economics’, a term associated in the United States with extravagant claims about the effects of change in the tax structure on capital accumulation. In a sense the analysis I have reviewed supports these claims. In what I view as conservative assumptions, I estimated that eliminating capital income taxation would increase capital stock by about 35%. (...) I believe we would be a better society if we followed their advice.”
Also, in 1999 it appears that the 1999 Nobel Prize winner Robert Mundell has been the leading force behind that Reagan Supply Economics programme - though he let Laffer take much of the credit.
Addition 2004:
Phelps (1997) is advised reading and usefully available on the internet. It is short, eloquent, compelling. The reader comes away from it for 99.99% convinced. My first impression was to support it also for the remainder. However, there is the Keynesian point that investments cannot be left to the market. There must be some macro-economic management and an Economic Supreme Court to safeguard that management. Phelps (2000:88) unfortunately states: “The extraordinarily low unemployment rates in continental Europe in its “glorious years” from the 1950s to the mid-1970s were the result of special circumstances” This is either an open door, in that 1950-1970 are not the historical average, or a misguided view that they cannot become the average. Phelps’s (short) analysis of that period does not include the analysis of the tax void yet.
Similarly, Phelps (2000:90) “It is now dawning on policy discussion, in Europe and to some extent in America, that countries can engineer a reduction of unemployment without a sacrifice of low-end pay or a rise in low-end pay rates without a sacrifice of employment (or some of both). This can be done by means of tax-subsidy measures that produce a favourable shift of the inclusion locus. Already several countries have introduced, some many years ago, fiscal programmes aimed to do just that, though generally on a small scale and often targeted at particular sub-groups in the low-wage population. Taking such a step on a large scale – large enough to make a big difference – involves a paradigm shift in political economy that some policy makers are not yet ready to take.” This issue has been discussed by this author since 1989 and in this present book again and one would wish that Phelps got time to read it.