Even more alarming was Alfred Tella's Washington Times column quoting the new chairman of the Federal Reserve Board, Ben S. Bernanke, paying homage to the idea that there is a trade-off between unemployment and inflation. The discredited Phillips Curve - which assumed economic growth causes inflation and that inflation can only be reduced by increasing unemployment - has come back into fashion relabeled the "sacrifice ratio," which, according to Tella, purports to "measure the short-term economic cost of reducing inflation, that is, the amount of employment or output that is lost, or has to be 'sacrificed,' in order to reduce the inflation rate. The sacrifice ratio is also defined in terms of joblessness, measured by the amount of unemployment required to lower the inflation rate."
Tella reports that the Fed's staff estimates the so-called unemployment sacrifice ratio has risen sharply since the mid-1980s, a view Tella says is embraced by Bernanke. In other words, the resurrected Phillips Curve demands more sacrifice from the economy today, i.e., the economic cost of lowering the inflation rate has increased.
Given the Fed's penchant for overshooting the mark and holding monetary policy too tight for too long, there is now a high probability that this economic quackery - the danger that Congress will administer an unwarranted sedative of tax rate increases and a potential Fed decision to bleed the patient with excessively tight monetary policy in the name of the sacrifice ratio - could put the economy flat on its back just in time for the 2008 presidential campaign.
So notwithstanding a decade of Republican control of the Congress and five years in the White House, and despite the fact that Republican policymakers give constant lip service to Reagan's economic policies, the supply-side revolution has failed to regenerate itself with younger scholars and activists and has been largely halted in Washington by a neo-mutant-Keynesian counterrevolution that threatens to unleash a crisis of big government interventionism and mercantilism that will make the 1970s repeat itself.