Economics is not a museum of immortal models. It is a diagnostic discipline whose tools must match the condition of the economy under examination.
Dr Birupaksha Paul’s January 8 response to my earlier rebuttal, dated January 4, clarifies his attachment to the Phillips curve and its expectations-augmented variants. That clarification is welcome. Yet it also confirms that our disagreement is neither, as he suggests, about whether the Phillips curve exists in the abstract, nor about whether it has evolved. The disagreement concerns whether invoking that framework is an appropriate diagnostic tool for evaluating Bangladesh’s interim government under conditions of deep institutional breakdown.
At no point did my rebuttal claim that the Phillips curve has been “abolished,” nor did it deny its historical importance, its theoretical refinements, or its occasional empirical reappearance. Invoking Samuelson, Solow, Friedman, Lucas, Phelps, Akerlof, Mankiw, or Krugman does not settle the issue at hand. The question is not whether the Phillips curve can be rehabilitated in carefully specified empirical settings, but whether it meaningfully explains inflation and unemployment outcomes in a crisis-ridden economy where policy transmission itself is impaired.
Dr Paul argues that I “slaughtered” the Phillips curve to credit the interim government. This imputes a motive that does not exist. My critique was not a defence of the interim by theoretical fiat; it was a warning against attributing macroeconomic outcomes to policy failure when the underlying mechanisms required for those policies to operate were structurally compromised. One may praise or criticise the interim government, but such judgment must rest on an accurate diagnosis of constraints, not on the persistence of familiar theoretical instruments.
The core problem with Dr Paul’s rejoinder is that it conflates the existence of a theoretical relationship with its applicability as a performance metric. Yes, modern macroeconomics has augmented the Phillips curve with expectations, supply shocks, and price rather than wage inflation. But those augmentations presuppose functioning institutions: a credible monetary authority, enforceable contracts, competitive markets, reliable data, and reasonably intact financial intermediation. In Bangladesh, these were precisely what the interim government did not inherit.
Dr Paul correctly notes that he mentioned extortion, mob violence, fiscal weakness, and loan recovery failures in his original article. But acknowledging institutional failure is not the same as integrating them analytically. If inflation is driven primarily by cartelised supply chains, administered pricing, exchange-rate pass-through, and speculative hoarding, then the inflation-unemployment trade-off ceases to be the binding constraint. In such a setting, high interest rates can coexist with persistent inflation and rising unemployment without implying policy incoherence. That coexistence reflects structural dislocation, not the collapse or resurrection of a curve.
Much of Dr Paul’s defence rests on the claim that the Phillips curve “reappears” once expectations, shocks, and data choices are handled correctly. That may be true in economies where monetary transmission is impaired only at the margin. Bangladesh’s problem has been deeper. When banks are burdened with politically protected non-performing loans, when liquidity circulates outside productive channels, and when regulatory credibility is thin, monetary policy becomes blunt. Tightening discourages formal credit without disciplining informal market power. Easing risks fuelling rent-seeking without stimulating investment. In such circumstances, debating the slope of the Phillips curve risks mistaking noise for signal.
Dr Paul invokes the Lucas supply function and the psychology of wage bargaining to argue that the Phillips curve is rooted in human behaviour rather than statistical accident. That observation is well taken, but incomplete. Human psychology does not operate in a vacuum. When labour markets are segmented, informality is dominant, union bargaining is weak, and wage indexation is absent or politicised, the behavioural foundations of the curve weaken. Bangladesh’s labour market is not a textbook arena of marginal productivity bargaining; it is shaped by informality, migration, remittances, and political mediation. Psychological regularities alone cannot rescue a model whose institutional scaffolding is missing.
The reference to the re-steepening of the Phillips curve in the post-Covid United States further illustrates the problem of misplaced analogy. The US reencountered a Phillips-type relationship after unprecedented fiscal stimulus, intact financial plumbing, and rapid labour-market recovery. Bangladesh entered the interim period with depleted trust, distorted credit allocation, and weakened enforcement. One cannot infer from one context to the other without committing precisely the abstraction error my rebuttal cautioned against.
Finally, Dr Paul suggests that my argument seeks to lower the bar for accountability by redefining success as mere stabilisation. This misreads the point. Interim governments are not absolved of responsibility, but they must be evaluated against crisis-appropriate benchmarks. Arresting deterioration, restoring minimal discipline, and repairing transmission mechanisms are prerequisites for any subsequent optimisation. Judging short-horizon outcomes as if those prerequisites already existed confuses lagged structural damage with contemporaneous failure.
This debate, therefore, is not about defending or discarding the Phillips curve. It is about choosing the right diagnostic lens for the patient in front of us. Economics is not a museum of immortal models; it is a toolkit whose instruments must be matched to conditions. When institutional realism is absent, even elegant theory can mislead. My rebuttal argued precisely that—not that the curve is dead, but that it was the wrong instrument for diagnosing Bangladesh’s interim moment.
A serious public discourse should move beyond defending favourite frameworks and instead ask harder questions: what constraints bind, which channels are broken, and what benchmarks are appropriate to the phase of governance being assessed. On that ground, the disagreement remains analytical, not ideological, and it remains unresolved.
Dr Abdullah A Dewan is professor emeritus of economics at Eastern Michigan University in the US, and a former physicist and nuclear engineer of Bangladesh Atomic Energy Commission. He can be reached at [email protected].
Views expressed in this article are the author's own.
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