Thursday, May 29, 2014

Why the Correct Answer to “What Should we do About Slowing Growth?” is “Nothing.”

There has been a lot of agonizing lately about slowing economic growth. Some of it understandably laments the slow recovery from the Great Recession, but the more interesting part concerns long-term growth prospects. Brad DeLong has recently written a thorough review of the stagnation literature under the title “Is Economic Growth Getting Harder? If so, why, and what can we do about it?”

DeLong is a little less pessimistic than some of the others. He thinks the growth of real GDP per capita will slow only by three-tenths of a percentage point from its historic norm of 2 percent. But, more importantly, he suggests an entirely different way of thinking about growth policy—one that changes the question from “What can we do about slow growth?” to What should we do about it?” If we follow DeLong’s reasoning to its logical conclusion, I think the correct answer is that we should do nothing.

The rest of this post will highlight a couple of DeLong’s key themes and flesh out some of his generalizations with relevant data.>>>Read more

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