DRAFT: Did Macroeconomic Policy Play a Different Role in the (Post-2009) Recovery?: Conclusion
J. Bradford DeLong
U.C. Berkeley
October 15, 2016
Thus we are left where we are today. We have essentially a full recovery as far as the unemployment rate is concerned. We have a half-recovery as far as the rise-of-the-robots-corrected prime-age employment rate is concerned.
It would be very rash to say that we have confidence that the economy is near full employment right now. But it would also be very rash to have confidence that the missing prime-age workers will appear in the labor force without a very high-pressure economy indeed.
We have seen substantial convergence of output to potential. But the convergence has come about not because of output growing faster than reasonable trend, but from potential growing slower than any reasonable trend based on the growth of resources and technology, even accepting that the “new economy” of the 1990s was a ten-year blip rather than a permanent shift. The major lessons, in a world in which shocks like that of 2007-9 are possible, seem to me to be three:
If independent central banks are going to retain primary responsibility for macroeconomic stabilization, they need more and better tools in order to do the job.
If fiscal policy is to step up and reassume its stabilization policy role, then either fiscal institutions really need to step up their technocratic game, or some fiscal authority needs to be transferred to organizations that can play the technocratic game.
If we seek to rely on better prudential regulations to avoid shocks like 2007-2009, it is perhaps time to remember Hyman Minksy: Minsky pointed out that the same currents of thought that lead financiers to generate systemic risk keep regulators from being able to see and control it ex ante. And the very large current gap between the earnings yields of equities and the returns to safe debt would seem to argue very strongly against policies that seek to avoid macroeconomic risk by reducing market risk tolerance.
