Edmond Phelps and etc. issues

 From Lex Column, Financial Times, 10 Oct 2006

"
.... ...

Prof Phelps since devoted much of his attention to how the equilibrium rate of unemployment changes over time. One of his ideas may be especially relevant to the hotly debated question of how much US employment might have to fall to stave off recent inflationary pressures. It has been a bit of a mystery why the low unemployment rates of the late 1990s failed to trigger inflation. Prof Phelps's startling suggestion was that economists should take a closer look at asset prices, especially stocks.

High equity valuations suggest to companies that their assets - including a well-trained workforce - are more valuable than previously thought. Companies may then hire more workers and invest more in fixed assets while accepting more moderate price mark-ups. Many capital goods industries, notably construction, are highly labour intensive. For any given level of economy-wide demand, a stock market boom would lead to increased hiring and investment - and a lower equilibrium rate of unemployment.

... ..."

This may help in explaining the situation generally but at the same time it generally explains nothing. While one could acknowledge that the low inflation low unemployment scenario is a consequense of high equity valuation, one could at the same time raise an enquiry as to the underlying drift,if not boost, of the high equity. As usual, inflation is always a monetary phenomenon, an idea I bear in mind since my first debut to monetary theory, and I am very suspectible to anything deviate from this "caveat". But for your information, the QTM suggests that PQ = MV, and that says to determine inflation, there should be more than just looking at M, but also at Q and V, the latter of which is assumed to be more-or-less a constant over the past 40 years, perhaps.

How's Q change over time? Are there any change in the status quo?
 

Let the figure, economists and statistians speak of themselves.
 

P.S. A gentleman in Appledaily addressed Mr. Phelps as Neo-"Kings", an addressee plagued me over the night. For those of you who have an in-depth knowledge of Macro / "Kings", please could you advise if that is the case (I doubt it very much).