"Pride Goeth Before a Fall"
There is often a peculiar irony in human affairs. Just as it seems that we have acquired mastery over our fate, we find that we have miscalculated. The 1960s was the decade in which the business cycle was to be dispatched ceremonially to the realm of historical curiosity. With our present knowledge, we know that this was not to be. However, that is an account of events that has the benefit of hindsight. After the fact, it may be clear why the great promises of the 1960s were not to be realized. At the time, though, things seemed otherwise to most economists.
Consider the following thought experiment. It is 1969. Assume that you know in advance what the rate of price inflation will be, year by year, throughout the decade of the 1970s. This is all the advance information at your disposal. You are then asked to predict what unemployment rates will occur in the coming years. What will your answer be?
A very reasonable approach to responding to that question would seem to involve an assessment of the current theoretical notions concerning the relationship between inflation and unemployment and a review of the historical experience in this respect, especially the most recent events. The dominant theory of the time, neo-Keynesianism, is consistent with the notion of a stable Phillips curve relationship. Further, the behavior of unemployment and inflation rates in the period 1961-69 is highly consistent with that theoretical framework. This being the case, why not invoke the empirical evidence of 1961-69 and use it to predict unemployment rates for the 1970s?