A model of inflation and unemployment

This chapter, addressed in the main to economists, describes a model which the writer has found useful in analysing both the UK’s experience of unemployment and inflation since the war and the policy issues that confront us. It brings together many of the ideas from the preceding chapters and shows how they are inter-related. It allows for disequilibrium as well as dynamic equilibrium, which is essential in any useful attempt to describe what has happened, or to trace the long-term consequences of different policies, or to understand the implications of the different theories—militant, monetarist, or marksman—we have considered. Although it is a great simplification of reality, and cannot claim to fit it precisely nor to explain everything, it is still quite a complicated scheme of thought. Fortunately, it lends itself well to diagrammatic representation, but the reader must be prepared to consider each of the three basic diagrams carefully and to grasp their inter-relationships. We consider the full-employment era first, then the period of rising unemployment 1966–74, and finally the recession years since 1974, employing the same three basic diagrams A, Band C to analyse the situation in each of these periods.