Expectations

[Warning: Semi-Geeky Economics Post Ahead]

The Phillip's Curve was proposed by AJ Phillips in a 1958 paper examining the relationship between inflation and the unemployment level. The basic premise is that as inflation increases, so does employment (through a money-supply stimulus effect). The idea was that the government can push the long-run unemployment rate down by continuously printing money and pushing it into the economy.

This held sway until Milton Freidman modified the theory to include expectations about inflation - that if people come to expect a higher inflation rate, the stimulus effects of the increased inflation are lost, making this a short-term, not a long-term solution.

There is a Simpsons episode where the local chapter of MENSA takes over Springfield. They decide that since people drive fastest through yellow lights, they can increase the speed of traffic (by roughly 30% if memory serves) by only having red and yellow lights. Sure enough, we cut to Lenny sitting at a red light. When it changes to yellow, he floors it saying "aaaahhh!!! make it, make it." Obviously, the plan worked... but it is but a short term solution - eventually the rushed feeling caused by the yellow would evaporate, and traffic would settle at about the same level that it was.