I realise that I've been banging on about this for years but Richard Layard was arguing this point all through the 80s. (I, along with at least a generation or two of LSE undergrads got it as part of the course.)

The aim of welfare reform was precisely to get those both out of work and out of the labour market back into the labour market, if not work, so as to reduce NAIRU.

Of those recorded as being unemployed, all too many simply were not really in the labour force at all, and thus not restricting inflation by being that reserve army of the unemployed.

Whether or not this is the real story is another matter, but I'm impressed with the fact that in the 80s an academic said, if we reform welfare by insisting that people at least attempt to get work then NAIRU will fall. We did that in the 90s (both UK and US) and then in the late 90s and 00s we find that NAIRU has fallen.

A reasonably convincing tale?

Dean- I'm not sure that is entirely true. It is correct that if you measure accurately how many people are working then the inaccuracy in productivity measurement would be the same as the inaccuracy in the GDP measurement (I think; maybe I am missing a subtley). I think they point Greenspan was making was that computer technology (or whatever) made it possible for each person's output to grow faster than in the past. If this is true, then you can increase the money supply faster than in the past and not create inflation. So I think he must have meant not the nominal growth in GDP, but how much of it was real new stuff making rather than just inflation.

here is a completely non economist's take:

"money supply" is not money printed by the gummint. it is money "lent" by banks in repsonse to demand for money.

the inflation of the 70's was ... the best reading i can put on Paul, that Samuelson's "explanation" in his intro text of that time would be that workers would not take jobs at too low a pay. not because they were perverse, but because they could see where inflation was going and they needed to "demand" a pay that was going to meet their needs.

the rise in prices/wages was a response to the oil shocks. the price of oil itself would not "cause" inflation, but merely a "lower standard of living" due to spending more of your money on oil, or products with oil "in" them.
but as long as people chased their former standard of living by asking for wage increases, and sellers chased theirs by raising prices... then you get inflation.

point of all this is that the employment level did not cause inflation... the conditions of the times did. the times have changed.

and of course it was never a matter of the gummint "printing money."

Dean, isn't it possible that while the economy may grow arithmetically, productivity may grow exponentially? Was Greenspan anticipating the effect on economic growth that widespread production of computers and the introduction of robotics would have? Perhaps what he didn't anticipate that as these new technologies were introduced, companies laid off a commensurate number of workers instead of increasing product units. The monopolization of industries allow for control of production to meet price targets does it not? In the years gone by of real competition, the drive was to produce more product as the primary mechanisim for maximizing profits. Today, as is the case with oil refining, industrial capacity is closely monitored to insure that supply does not get too far ahead of demand.

The fall of the dollar was inevitable. It is the only way to get the trade deficit down to size. The real problem was allowing the dollar to rise to the point that it made such a painful adjutsment necessary. This was the Clinton-Rubin high dollar policy. It felt good in the short-term (except for manufacturing workers), but just like tax cuts that lead to big budget deficits, it could not be sustained.