Running Hot
This morning I had a great opportunity to discuss my new book, An Extraordinary Time, live on the C-Span program Washington Journal. The host, John McArdle, was thoroughly prepared, and I found it a great relief to be able to talk about the history of the 1970s and 1980s without ending up in a conversation about Donald Trump. You can see the program here.
Viewers phoned in with a number of good questions. A key point I tried to make in responding is that the basic economic trends I write about, the slowdown in productivity growth after 1973 and the related slowdown in income growth, occurred across all the wealthy economies in Western Europe, North America, and Japan. Every day, it seems, we hear comments from politicians that they know exactly how to make our economy grow as fast as it did in the good old days. Some of the callers to Washington Journal echoed those views, blaming slow growth on something they don’t like–President Obama’s environmental policies, high CEO pay, budget deficits, tax treatment of carried interest, and so forth. I think it’s useful to point out to such people that since the end of the Golden Age in 1973 we’ve seen slower growth and higher unemployment in countries where none of those policies are in place. You may not like the low tax rate on carried interest, but it’s a considerable stretch to claim that it is causing our economy to grow at 2% a year rather than 5%.
Sometimes we get a bit carried away with our own power and insist we can make the economy roar like we think it ought to. The current lingo for this is to “run the economy hot.” What advocates of that approach seem to mean is that we should accept a higher inflation rate as a tradeoff for lower unemployment and big wage increases. As I explain in my book, this is not a new idea. We spent most of the 1970s believing that we could keep unemployment low if we were willing to accept just a little more inflation. That ended badly, and I’m not eager to repeat the experiment.
Tags: inflation, productivity, unemployment
I found your appearance on the Washington Journal to be quite riveting. None of the callers were too unhinged and you had a very adept knack at extracting the most relevant points of the caller questions and providing a thorough and insightful answer.
Based on your appearance, I will probably purchase your book. My takeaway from the interview was that growth is going to be what growth is going to be, and there isn’t much for any particular entity, group, or government to do about it. That tautological conclusion is fine for a history book. But maybe a little meek for an economics book – even one that is at least partially divorced from politics. I’ll reserve any more remarks until after I read the book. I’ve recently read books by Stiglitz and Reich. I hope that I’m able to sort it all out into some sort of understanding after I’ve read yours.