Under the influence of the neo-classical synthesis of Samuelson and Solow, the long-term correlation between inflation and growth was perceived as positive in the early 1970s: a slight increase in inflation would have led – within limits – to an increase in employment and growth.3 But by the end of that decade, studies by Bob Lucas and Tom Sargent were to show that long-term inflation and growth are not correlated.4 Monetary policy, while very effective in the short term, only affects inflation in the medium and long term. It is, in other words, neutral. Today, new models and advanced computational techniques allow us to simulate the effects of inflation on incentives to save and to work, on the formation of physical capital, and therefore on the prospects for growth. The correlation has become negative: higher inflation reduces growth and employment. For example, vector autoregressive models with  3  Paul Samuelson and Robert Solow published their article entitled “Analytical Aspects of Anti-Inflation Policy” in the May 1960 edition of the American Economic Review. The article discussed the causes of inflation and the Phillips curve. 4  Bob Lucas then assembled the empirical evidence which motivated his study on the theory of neutrality in his Nobel lecture entitled “Monetary Neutrality”, 7 December 1995. The absence of a correlation between inflation and growth is documented in McCandless, G.T. and Weber, W., “Some Monetary Facts”, Federal Reserve of Minneapolis Quarterly Review, No 1931, 1995.
The unequal sharing of the “cost of flexibility”, only affecting young people, an eternal flexibility with no hope of stabilisation, leads among other things to companies not investing in young people, whose skills and talents often decline in jobs with low added value. The underuse of their resources reduces growth in various ways: it makes the creation of start-ups less likely – and they are on average more innovative than others – it causes a decline in skills in the long run, slowing down the assimilation of new technology and acting as a brake on efficient production  1  Tiberi, M., “Ricordo di Federico Caffè”, in Rivista italiana degli economisti, April 1997, p. 132. 2  Caffè, F., La solitudine del riformista, edited by Acocella, N. and Franzini, M., Bollati Boringhieri, Turin, 1990, p. 258. BIS central bankers’ speeches  1  processes. In addition to undermining society’s sense of fairness, it is a waste that we cannot afford. I think it’s essential to ask how economic policy conducted in various Member States has done its duty in the way desired by Caffè.