Brad DeLong's opening remarks at the "Stimulus or Stymied?: The Macroeconomics of Recessions" session at the ASSA meetings. The panel inlcuded Carlo Cottarelli (International Monetary Fund), Paul Krugman (Princeton University) Valerie Ramey (University of California-San Diego), and Harold Uhlig (University of Chicago):
Stimulus or Stymied?: The Macroeconomics of Recessions: 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.
As Robert Lucas put it in those halcyon days: “the problem of depression prevention has been solved”.
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.
The problem of depression prevention—and of depression cure—has not been solved.
In this context, we are here to explore four questions:
1. Are there policies the Federal Reserve, the ECB, and the rest of the government 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 within shouting distance of those the U.S. economy experienced over the Reagan boom of 1982-1989?
2. If so, what are those policies?
3. If so, are those policies desirable ones that the Federal Reserve, the ECB, etc. and the rest of the government should adopt?
4. How is your view on questions (1) through (3) different today than it was six years ago?
Carlo Cottarelli from the International Monetary Fund? ...[continue reading rough transcript of remarks from participants]...