Today's realities do not necessarily fit yesterday's models. In a universe where shifting paradigms are the norm, scientists are in continued search to establish cause and effect relationships between events that can be modeled. We see behaviorists scurrying for specific reasons as to why two youths could commit such heinous acts in Colorado. Their existing models could not predict such atrocity. Meteorologists and environmentalists are developing an explanation for global warming. What new factors will explain the condition? Will updated models accurately predict future trends?Economists are not exempt from this process. In today's world, where markets are defying what was previously considered rational thought, economists are continually challenged to investigate, establish cause and effect relationships and develop new models to explain and predict our economic condition.A dramatic example of this process is the economist's efforts to explain the relationship between unemployment, the failure of the economy to employ it's labor force fully, and inflation, a sharp drop in the value of a nations currency that causes a rise in the general level of prices in the economy. In the past there were numerous theories that linked the two factors in a polar relationship. Simply put, when unemployment was low, inflation was high, and when unemployment was high, inflation was low.Today, however, traditional thought that linked unemployment and inflation is being challenged. As Alan Greenspan, Chairman of the Federal Reserve, told Congress earlier this when discussing the relationship of inflation to unemployment," At some point, the general notion that a different type process is involved here is going to gain a majority view among economists."(Stevenson, April 11,1999).What did past theory tell us about the inflation - unemployment relationship? What is the current economic climate has changed to cause us to reevaluate these theories?...
