ON PHILLIPS CURVES, MARKET IMPERFECTIONS , DOCTORAL ORALS, AND OTHER VAGARIES OF LIFE D. B. Timmins I wrote my doctoral dissertation while living in Europe, and following its approval by mail by my Committee, I returned to Cambridge for its oral defense. The Committee detained me for hour or so defending several non-traditional elements of my dissertation, including a conviction I'd arrived at that Economics is but the Politics of the market place, i.e. reasoned voting for or against the available choices among the products of man's material, external environment, access to which is limited by time and scarcity of resources, while Politics is the Economics of intra-human behavior, i.e. a benefit/cost trade-off in our relationships with other members of society (domestic and foreign); that there is more imperfection in both domestic and international markets than those wedded to teaching economics courses based on perfect competition are willing to admit, leading to gross distortions in access to goods and services (the Nobel Prize in Economics was awarded in 1994 to two economists for devoting their lives to establishing this very view); and that international organizations such as the O.E.C.D. create an additional degree of freedom to member nations' policy choices to achieve full employment, price stability, and other objectives of economic policy as a result of the International Economic Coordination Instrument (within the decade Richard Cooper, Provost of Yale University published an entire book preaching the virtues of the International Economic Coordination Instrument). The Committee then began firing at will to test my general knowledge of economics. I'd been abroad for over a year, and while I'd spent three or four hours in the Library of the Harvard Economics Department the day before the Orals, catching up on journal articles I'd missed while out of the country, somehow I ran across no articles on the Phillips Curve in the back issues I'd reviewed -- possibly because the notion that there was a direct relationship between high employment and high inflation had just been published and was only then becoming a subject of current discussion. Assuming that low unemployment implied near full utilization of plant and equipment, and hence near maximum output of goods, I gave the Committee an answer exactly contrary to what they expected, saying that low unemployment implied low inflation because the high flow of goods to the market meant there would be maximum competition among sellers to clear their shelves, hence price shaving. And, recalling the facts of the Great Depression, I said that high unemployment implied low output, low inventories, and a reluctance on the part of both producers and retailers to take a loss by cutting prices, resulting in price stickiness and thus some inflationary pressure. I remember that Professor Haberler afterwards told me that my argument had been very imaginative, but wrong: that high unemployment meant lowered wage demands by labor unions, and since labor was a major element in the cost of production, this meant low inflation. While low unemployment meant high demand for products and labor, hence high wage demands, high sales, high inventories, and high inflation. I remember wondering what had happened to classroom arguments that producers in the modern world had little control over union wage demands and that labor unions had demonstrated extreme reluctance to allow wage cuts under any circumstances. So where was the "wiggle room" for moderated wage demands in periods of high unemployment? And where did inflationary pressures really arise from after all? I'd read of both demand pressure and supply pressure. But all the big guns, like Leon Keyserling, had come down on the side of demand pressure. And when the economy was operating at full steam, it still seemed to me that strong competition and adequate supplies of goods would be more likely to keep inflation under control than hopes that unions would accept wage cuts during periods of high unemployment. In short, I'd identified the phenomenon and provided the theoretical unperpinnings of Stagflation, until then unknown in the American economy. Indeed, I'd anticipated the notion of Rational Expectations which won Robert Lucas of the University of Chicago the Nobel Prize in Economics some thirty years later. Well, as we know, the next twenty years kept economists (and others) perplexed about the perverse wonders of "stagflation" and inflation-free high employment. Wonder of wonders, it has only been during the first Democratic presidency in twelve years that the Chairman of the Federal Reserve Board has been willing to come out and say that the statistical evidence of the past twenty-five years reflects no relationship between full employment and inflation. And on a recent (October 1994) CNN talk show, the Chief Economist of Chemical Bank analyzed current conditions in the U.S. economy in much the same terms I'd argued to my Doctoral Examination Committee thirty year ago. And this time the argument was listened to with great attention and respect. My imaginative answer may have been taken as wrong by my PhD Committee (I passed anyway, apparently based on the logic of my off-the-cuff reasoning and adequate defense of my dissertation), but it would be amusing to reassemble the group today for another discussion of the issue. Of course we've all been exposed to the excessive, misplaced confidence in Supply Side Economics during the Reagan Administration, in ways that my Committee, made up almost exclusively of economic liberals, could never have anticipated -- which itself might make the task of defending my point of view considerably easier.