How the Phillips Curve Shaped Full Employment Policy in the 1970s: The Debates on the Humphrey-Hawkins Act

Abstract

This article relates the history of economists' influence in shaping the content of the Humphrey-Hawkins Act (1978) and its immediate consequences. The act committed the federal government to reducing unemployment to 4 percent and inflation to 3 percent as soon as 1983. Initially, the Humphrey-Hawkins bill was conceived as a project to favor the economic integration of African Americans and economic planning and targeted only the unemployment rate. Republican senators successfully pushed for adding a numerical inflation target during the debates in Congress. The act eventually put on equal footing inflation and unemployment. This article argues that the economists in the Carter administration, and notably the Council of Economic Advisers, were instrumental, even if unintentionally, in favoring the integration of an inflation target and such an interpretation of the bill. In the negotiations that opposed them to the supporters of the bill, as well as in the analysis of the bill they produced, they insisted on the existence of a trade-off between inflation and unemployment and referred frequently to the famous Phillips curve. They endeavored to anchor their expertise on academic publications, which strengthened the role of the Phillips curve in shaping the debates. Business organizations and senators used references to the trade-off to undermine the bill and favor the integration of an inflation target.