NAIRU, the Gospel

Here is an interesting animation of the economy from a paper by Roger E. A. Farmer entitled "Farewell to the Natural Rate: Why Unemployment Persists". The video allows you to see three factors evolving over time:

• Unemployment


• Vacancies - efforts by firms to fill a job position


• Inflation

The only thing clear to me is that there are trends and eras, that patterns persist but change, and the whole thing looks complex and chaotic.

Here's the conclusion from the author:

Most policymakers subscribe to the theory of the existence of a natural rate of unemployment. The data suggest that this theory is unconfirmed at best. To make the theory consistent with data, one must posit that the natural rate changes between recessions in unpredictable ways. This version of natural rate theory is difficult or impossible to refute. It is religion, not science.

I remember the late 1970s when the bewitchment with Friedman "religion" was rampant and NAIRU was like a god walking the earth leaving economists moaning, gnashing their teeth, and wailing that nothing could be done to lower unemployment. I don't remember whether NAIRU was the sackcloth or the ashes with which workers were supposed to comfort themselves.