The Phillips Curve

In 1977, Studio 54 opened in Manhattan and became the most famous nightclub on Earth. Inflation in the United States that year ran at 6 and 1/2%. Unemployment ran at 7%. By 1980, inflation had reached 14%, and unemployment had crossed 8%. Studio 54 was raided. Disco died at the same time. The two things were not unrelated. For most of the 20th century, macroeconomists had operated on a comfortable assumption. When inflation rose, unemployment fell because more spending pulled in more workers. When unemployment rose, inflation fell. Policymakers used the trade-off to choose. Except a bit more inflation, get a bit less unemployment. The 1970s broke the rule. Oil prices quadrupled after the 1973 OPEC embargo.