Paul Krugman: Reagan and Inflation

Paul Krugman is a columnist for the NYT.

Hmm. I thought I might respond to something that has been coming up in comments and emails recently. I’ve been writing about how macroeconomic reality under Ronald Reagan didn’t actually match the myth, and many people are inevitably upset. And one of the things they tend to bring up is the hoary old myth that the 80s success in taming inflation was somehow a terrible shock and surprise to Keynesians, who had no explanation.

This is, as it happens, completely wrong: what actually happened in the 80s was, quite literally, a confirmation of the validity of textbook Keynesian economics.

OK, first the facts: the 80s were marked first by a simultaneous surge in unemployment and plunge in inflation. Then unemployment came down but inflation stayed low(ish):...