Justin Wolfers Professor of economics and public policy at the University of Michigan, a non-resident senior fellow at the Brookings Institution, and author of a widely used i...

“What they believed in the 1950s was not just that there was a trade-off, but that it was a menu. You could sit down and say, what do I feel like this year, low inflation or low unemployment? And the problem is it can be a trade-off, but not a menu. If you try to choose moderately high inflation and low unemployment, you might actually end up with really high inflation instead.”

Platypus Economics with Justin Wolfers · Money & Markets · November 2026

Context

Continuing his Phillips curve lesson, Wolfers describes the mistake of mid-century policymakers who thought they could pick a point on the curve, and why expected inflation breaks that idea.

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Transcript

Platypus Economics with Justin Wolfers Around 18:14 into the episode

Justin Wolfers

…for America, then you've just discovered the Phillips curve. Now, what they believed in the 1950s was not just that there was a trade-off, but that was a menu. You could sit down and you say yourself, oh, what do I feel like this year? Low inflation or low unemployment? I'm just going to choose.

Augusta Chapman

Oh.

Justin Wolfers

And the problem is it can be a trade-off, but not a menu, because you might start thinking to yourself, oh, you know what? I would really like some of that delicious low unemployment. We know low unemployment comes with high inflation. But if people expect high inflation, that in itself creates inflation. And then you have the queue out the front of the Outback Steakhouse that creates more inflation. So when you try to choose the moderate inflation, you know, moderately high inflation, low unemployment, you might actually end up with really high inflation instead. And so that trade-off is not a menu. And that was one of the important lessons we learned through the 50s and 60s. I should also say the intellectual history of central banks is littered with crazy ideas that sometimes lasted a week and a half. That's the truth.

Augusta Chapman

Like what?

Justin Wolfers

When I was a young bloke in Australia, it's crystal clear the Reserve Bank of Australia was targeting the current account deficit. That people became really obsessed with Australia's imports relative to their exports in a way that is very hard to understand. And they never said it out loud, but…

Augusta Chapman

Okay, so we had somebody ask, which I think is actually a very sensible question and something I've wondered about for a long time. Why does the Fed move in these quarter point steps? Would it not make more sense to move it like smaller and faster? So you have more frequent meetings where you do…

Speaker names come from our own diarization. The position is estimated from where the line sits in the episode.

More from Platypus Economics with Justin Wolfers

“If you've got 100 seats in your restaurant, but 120 people turn up, in the long run you're going to expand the restaurant. But in the short run you've got 120 people at the door and only 100 seats. You may as well jack up your prices. If what is true for the Outback Steakhouse is true for America, then you've just discovered the Phillips curve.” — Justin Wolfers, Platypus Economics with Justin Wolfers

“Some people say, oh, well, most people are fine with unemployment because only 4% of people are unemployed. That's true. But at the microeconomic level, there's always people entering and always people exiting. And by the end of the year, many, many, many more than 4% of the population will have experienced some degree of unemployment.” — Justin Wolfers, Platypus Economics with Justin Wolfers