I've discussed this point before as I have discovered that even many progressives don't understand that inflation is not the great evil of history which you might assume listening to Volcker or Greenspan. I was just browsing Robert Reich and he lays it out quite succinctly:
"there's no simple link between the deficit going up and wages going down. Wall Street bankers and Federal Reserve members would have us believe that there is but their motives are far from pure.They want more than anything in the world to eliminate inflation. The bankers argue with straight faces that a lower deficit leads to more private savings, that more savings results in more capital investment, that more capital investment means higher productivity, and that higher productivity translates, as night follows day into higher wages."
Reich didn't write this now though he well could have; it's actually from his 90s book "Locked in the Cabinet" which he wrote after leaving the Clinton White House as Labor Secretary. Reich complained that the deficit preoccupation took away any ability to focus on anything else like the stagnation in wages that Americans had seen at the time for the last 17 years or so.
What is interesting is that it's only during Democratic Administrations that fears of the twin hob goblins of budget deficits and inflation rears their heads. I'm overall, very skeptical over inflation concerns. I keep going back to the fact that the period of wage stagnation and stagnation in the overall American standard of living has come concurrently with the Great Moderation. There is at least more to life than price stability in and of itself.
While Friedman is supposed to have "refuted" Phillips what he seems to have done is simply made the doctrine worse. Whereas Phillips supposedly showed that there's this trade off between wages and inflation, Friedman's "correction" is that there is no way to moderate the relationship between the two of them in a gentle, gradualist way. The punch line is that back when Nixon took office in 1968 and he faced a 3 percent unemployment rate but a 5 percent inflation rate he was wrong to think he could cut inflation slowly so that unemployment didn't rise too sharply. To the contrary he and Burns should have been willing to accept 6 percent unemployment-ie, doubling the rate in a short time-to bring inflation down to 2 percent. It's never been explained by anyone how this doctrine that inflation is the worst evil than unemployment benefits the average American.
Inflation hurts the American consumer in higher prices but helps this same consumer in his role as worker and creditor. I'm not claiming that inflation is quite as efficacious as William Jennings Bryan believed-if inflation were a panacea then Zimbabwe would have been the wealthiest country on Earth- but I do think that the inordinate fear of inflation is a terrible strait jacket we have put on ourselves and think that Galbraith is closest to the truth in his claim that it was when the Fed eschewed it's full employment mandate in favor of inflation fighting that we begin to see the American Dream become a memory rather than a reality(prior to that fiscal policy was used a lot more to keep inflation in check). I will say this again: the 70s were not as bad a time to have lived as the 30s and in many ways they were a lot better than today. Today between the financial crisis and student debt the young trail the old more than at any time in recent memory. The youth of 1979 were in much better shape than this.