We don’t get to do many controlled experiments in economics, so history is mainly what we have to go on. Unfortunately, many people who imagine that they know how the economy works go with what they think they heard about history, not with what actually happened. And I’m not just talking about the great unwashed; quite a few well-known economists seem not to have heard about FRED, or at least haven’t picked up the habit of doing a quick scan of the actual data before making assertions about facts.

And there’s one decade in particular where people are weirdly unaware of the realities: the 1980s. A lot of this has to do with Reaganolatry: the usual suspects have repeated so often that it was a time of extraordinary, incredible success that I often encounter liberals who believe that something special must have happened, that somehow the events were at odds with what the prevailing macroeconomic models of the time said would happen.

But nothing special happened, aside from the unexpected willingness of the Fed to impose incredibly high unemployment in order to bring inflation down.

What did orthodox salt-water macroeconomists believe about disinflation on the eve of the Volcker contraction? As it happens, we have an excellent source document: James Tobin’s “Stabilization Policy Ten Years After,” presented at Brookings in early 1980. Among other things, Tobin laid out a hypothetical disinflation scenario based on the kind of Keynesian model people like him were using at the time (which was also the model laid out in the Dornbusch-Fischer and Gordon textbooks). These models included an expectations-augmented Phillips curve, with no long-run tradeoff between inflation and unemployment — but expectations were assumed to adjust gradually based on experience, rather than changing rapidly via forward-looking assessments of Fed policy.

This was, of course, the kind of model the Chicago School dismissed scathingly as worthy of nothing but ridicule, and which was more or less driven out of the academic literature, even as it continued to be the basis of a lot of policy analysis.

So here was Tobin’s picture:

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Here’s what actually happened:

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Unemployment shot up faster than in Tobin’s simulation, then came down faster, because the Fed didn’t follow the simple rule he assumed. But the basic shape — a clockwise spiral, with inflation coming down thanks to a period of very high unemployment — was very much in line with what standard Keynesian macro said would happen. On the other hand, there was no sign whatsoever of the kind of painless disinflation rational-expectations models suggested would happen if the Fed credibly announced its disinflation plans.

So how does the decade of the 1980s end up being perceived as a defeat for Keynesians? To see it that way you have to systematically misrepresent both what happened to the economy and what people like Tobin were saying at the time. In reality, Tobinesque economics looks very good in the light of events.