ures by the American government, to the economic shock of the significant increases in the costs of imported crude oil, and to other factors which held a strong potential for distorting economic relationships.
The advent of the Reagan Administration in the United States saw economic policies introduced which resulted in the most severe economic downturn recession seen in the United States since before World War II, during the economic depression of the 1930s. There was some thought that this massive shock to the American economy may have eliminated a sufficient amount of the distortion in the economy to cause the Phillips Curve to become a useful predictor once again.
During the first term of the Reagan Administration, the unemployment rate soared, as the rate of inflation steadily dropped. This relationship pumped new life into the theory of the Phillips Curve. Adding emphasis to this new support for the Phillips Curve was the severe recession, for, as the Federal Reserve Board clamped down on the economy to control inflation, and as the Reagan Administration reduced governmental spending increases, the level of activity in the American economy plummeted. The interrelationships between inflation, recession, and unemployment was not supported as strongly by the performance of the American economy during the second term of the Reagan Administration. Inflation, however, was generally under control, and, while the unemployment rate did occasionally rise, much of those rises could be attributed to the country's international balance of trade deficit, rather than to efforts to control inflation. During this four year time period, the level of economic growth was not spectacular, nor was it even throughout the economy. It was, however, steady for the overall economy.
During the first two and one half years of the Bush Administration, unfortunately, the performance of the American economy has provided further support for the...