Despite years of unprecedented policies, the old economic relationships have reasserted themselves with bold familiarity. The post-Covid economy may seem like a new world. Look a little closer, however, and it's anything but. The most extraordinary thing about the U.S. economy is how ordinary it appears. Despite years of unprecedented policies, the old economic relationships have reasserted themselves with bold familiarity. This is most obvious with the so-called inflation-unemployment trade-off. In short, the trade-off doesn't exist, and it never did.

Economists once thought they could get unemployed workers on payrolls by ginning up the demand side of the economy. Unleash some easy money on the market, and workers would be fooled by the money illusion into accepting jobs at nominal wages that, had they known about impending inflation, they would have rejected as too low. Stagflation during the 1970s and early '80s taught us this is far too simplistic. Workers don't naively ignore economy-wide changes, including policy-induced changes, when deciding whether or how much to work. Expectations matter. The correct model of economic policy isn't fine-tuning an inflation-unemployment trade-off but making fiscal and monetary conditions predictable so workers and businesses can strike the best deals possible.

The last few years serve as an event study showing why the inflation-unemployment trade-off is bunk. Before Covid, unemployment was an incredible 3.5 percent, which included historically low rates of joblessness for minorities. Voluntary and involuntary shutdowns caused it to spike to nearly 15 percent in spring 2020. As health restrictions receded and the economy opened, people returned to work. Now the unemployment rate stands at 3.7 percent, nearly as low as before the crisis.

Inflation, however, is another story. The Federal Reserve's preferred measure of prices, the PCE index, has grown faster than its 2 percent target since March 2021. It peaked in June 2022 at just under 7 percent. Now it's rising at 6 percent. Along with its more-popular cousin, the Consumer Price Index, it now appears to be falling. Yet high inflation will stay with us a while longer. The Fed's own economists don't anticipate inflation returning to 2 percent until 2025. Healthy labor markets are evidently compatible with a wide inflationary range.

Here's the takeaway: Just a couple of years ago, the economy was at full employment with negligible price pressures. Now the economy is back, yet inflation is three times as high as the Fed's goal. Economists who take the Phillips curve seriously – the idea that there's a menu of inflation-unemployment combinations – must be scratching their heads. For those who really learned the macroeconomic lessons of the late 20th century, however, today's economy is no surprise.

What we have here is a simple aggregate-demand story. Some combination of massive fiscal and monetary injections (personally I think the Fed, not Congress, is in the driver's seat) pushed the economy's total expenditures on goods and services far above trend. Before Covid, nominal GDP was growing at 5 percent per year. Now it's growing at nearly 10 percent per year. The difference is attributable not to increased real production but inflation. Economy-wide, demand can't long outpace supply. The amount of useful work depends on factors such as the availability of capital and natural resources, as well as technological progress and legal institutions. Running the printing presses doesn't affect these. That's why the economy's full employment rate is independent of the inflation rate, hence why the Phillips curve is wrong.

Supply matters, too, of course. Real income growth (measured in inflation-adjusted dollars) is a good proxy for the health of the supply side. Before spring 2020, the trend of real income growth was roughly 3 percent per year. That's fallen to about 1.5 percent since the post-Covid stabilization. Let's assume the entirety of the decrease can be explained by productivity and supply-chain problems. Here's a bit of arithmetic to help us understand dollar depreciation. Real-income growth equals nominal-income growth (measured in current-valued dollars) minus inflation. This reflects Milton Friedman's classic dictum: Inflation results from too much money chasing too few goods. All else equal, this implies real growth slowdowns yield one-for-one increases in the inflation rate. Since growth is 1.5 percentage points lower than it would be otherwise, inflation is thus 1.5 percentage points higher. Hence only 25 percent of current PCE inflation (or 37.5 percent of the difference between current inflation and the Fed's official target) is due to the supply side. By no means is this inconsequential. But neither is it the main story.

Notice how the debate shifted once we started considering demand-side vs. supply-side inflation? The Phillips curve is completely irrelevant. That's as it should be. The inflation-unemployment trade-off was never more than a statistical artifact. It's useless for understanding economic policy. Let's put it to rest.

Continued belief in an inflation-unemployment trade-off reflects what F. A. Hayek called the pretense of knowledge. It appeals to would-be experts who judiciously steer the ship of state between anemic labor markets and rapid dollar depreciation. But like many things our experts know, it just ain't so. Hayek understood the right metaphor for economic policy is not engineering, but gardening. Rather than picking outcomes, setting background conditions works best. Let's hope the Covid years taught our policy-makers some humility and that their actions soon become as ordinary as the laws of economics have proved to be.

Alexander William Salter is the Georgie G. Snyder Associate Professor of Economics in the Rawls College of Business at Texas Tech University, a research fellow at TTU's Free Market Institute, a Sound Money Project senior fellow, and a Young Voices senior contributor.