Panel Moderator: J. BRADFORD DELONG (University of California-Berkeley)
- CARLO COTTARELLI (International Monetary Fund)
- PAUL KRUGMAN (Princeton University)
- VALERIE A. RAMEY (University of California-San Diego)
- HARALD UHLIG (University of Chicago)
Between 1985 and 2007--the period of the "Great Moderation"--the Federal Reserve and the rest of the U.S. government on the west edge and the central banks and institutions of the European Union on the east edge of the Atlantic Ocean provided a broadly stable macroeconomic environment within which private-sector businesses, workers and investors could make their economic plans. In the U.S., on an annual basis: the rate of nominal GDP growth dropped below 4% for only 3 of those years and rose above 7% for only 2 of those 22 years; the rate of consumer price inflation rose above 5% for only 3 and fell below 2% percent for only 2 of those 22 years; and the civilian adult employment-to-population ratio remained between 60% and 64% for that entire period. And Western Europe experienced a similar "Great Moderation" with low inflation, relatively smooth growth, and diminishing unemployment.
Then in 2008-9 the rate of nominal GDP growth in the U.S. crashed to -3%--a major, major downward surprise to anybody expecting and relying on a continuation of "Great Moderation" rates of nominal spending growth--the rate of consumer price inflation on an annual basis bottomed out at -2%, and the employment-to-population ratio dropped from 63% to between 58% and 59%, since when it has flatlined. In Western Europe the initial recession was smaller, but the subsequent labor market performance was even more disappointing, so that now the net fall relative to trend in Western European productio and employment exceeds that in the United States.
In this context, we are here to explore four questions:
Are their policies that the Federal Reserve and the rest of the U.S. government on the west edge and the ECB and the governments of the European Union on the east edge of the Atlantic Ocean could adopt that would quickly move the civilian adult employment-to-population ratio back toward what from 1985-2007 we thought of as "normal"--that could produce in the next couple of years rates of employment growth that are, say, within shouting distance of those the U.S. economy experienced over the Reagan boom of 1982-1989?
If so, what are those policies?
If so, are those policies desirable ones that the Federal Reserve and the rest of the government should adopt?
How is your view on questions (1) through (3) different today than it was six years ago?
Alas! I failed in my task as moderator: communication among the panelists was by and large not achieved…
Valerie Ramey brought bad news for multipliers--but left a glimmer of hope in that there is still no evidence or argument that the multiplier at the ZLB would not be much greater than the normal-time monetary-offset multiplier. She talked about the need for comprehensive cost-saving health-care reform, an argument would have applied just as well to 2007 or 2017 as to today.
Carlo Cottarelli presented the IMF’s new, revised view on the multiplier. He did not promise that there were policies that could lead to a rapid recovery to full employment or criticize government.
Paul Krugman ably presented his view, which is my view, that governments should borrow and spend more to boost employment and production and that the limits to fiscal policy for credit-worthy governments are so far beyond the bounds of the politically-feasible that there is no point in talking about them.
Harald Uhlig… I am going to have to listen to Harald’s presentation again. It is clear that Harald Uhlig agrees with Valerie Ramey that there are no policies “that the Federal Reserve and the rest of the U.S. government on the west edge and the ECB and the governments of the European Union on the east edge of the Atlantic Ocean could adopt that would quickly move the civilian adult employment-to-population ratio back toward what from 1985-2007 we thought of as ‘normal’”. But it is not at all clear to me why he believes this…