my name is Lars Hanson I'm the research
director the representative and we're
very pleased to be hosting an event like
this this is an edition of our host
thing I will also acknowledge the
support of a deep layer of innocence
help make it happen this our third
Friedman forum and our aim here is to
try to allow young scholars like
yourself to be engaged with some of the
00:34
best researchers and to discuss some of
00:37
the economics of the day of what the
problems are I want this take this
opportunity to also advertise our nest
that will be hosting under graduates as
well on December 1st we've been fighting
in three of the regional presidents of
the feds Charlie Evans from that Chicago
Fed and Arianna Carlin from the
Minneapolis Fed and Charlie posture from
that Philadelphia better evening session
that will explore what the future
challenges are for monetary policy so
this will be another opportunity to kind
of engage in this case some of the top
policymakers you know two of these
happen to be alumni of our department so
today is my great privilege to introduce
Bob Lee that's who is - you probably
01:26
know is the won the Nobel Prize in 1995
01:29
in my news which was I don't want to
tell you how long ago I was the work of
Bob Lucas and Andy and others basically
led by Bob's pioneer he advances pretty
reshape how we do macroeconomics how
active macroeconomic modelling
developing models appear with empirical
content relevant for policy analysis and
just say just like a fundamental changes
on the whole field certainly believe
this you follow this up with some very
insightful work on the economic growth
just absolutely fundamental
contributions to economic science it's a
great opportunity today for us to hear
I'll talk about both the recent
recession and all right can I can I be
heard yeah great okay well I all I have
is pictures so I'm gonna get the
introduce to see some words before I
start I'm gonna talk about the current
recession because an economist can't
stand up in front of a general audience
and not say anything about the recession
in this in this situation it's a very
serious issue
but I want to start out with some some
some evidence on long-term economic
growth to kind of set a set a background
for the discussion of this recession I
don't have anywhere near a full hours
worth of material so so and I'm already
can talk about you know my career or
economics as a career I mean I open for
questions on anything but I thought it
would make a better discussion to get
some sub data in front of us the econ
econ economists love data get it in
front of us and talk about some
substantive questions just to start to
start the ball rolling so here's the the
blue curve here is is is gross domestic
product in the per capita in the United
States from 1870 up to more or less the
present I'll tell you about the red
curve
but the data here are the blue curve
these data are taken from Terry I tell
you my sources from a worldwide dataset
that they economic historian Angus
Madison put together and it's great for
comparing across countries which I want
to do in a minute and it also goes back
you know a long ways it goes back to 180
but you better tell me to get back to
180 the data on GDP is kind of weak and
then data on the United States economy
obviously it doesn't it doesn't it
doesn't exist if you're interested in
this data they email me and I'll return
I'll give you a return just saying
Madison and I'll give you a an excel
file it's got all this stuff it's just
it's really nice and got population as
well okay so look here's the US economy
and the average growth rate I broke up
into periods but the way you want to
think about it is per capita income and
say living standards grows at about two
percent a year in the United States and
and this red curve is kind of what you
get looks like a pure exponential curve
but you'll see in a minute it really
isn't quite it's just basically
smoothing out the bumps in the data it's
so it's removing business cycle or
short-term fluctuations of any kind and
if you're focusing on economic growth
that that's one of the things you want
to do these are natural units so this is
2,500 current dollars so that means the
typical
person in 1870 in the United
States had about had the ACT production
per person was about 700 about $2,500 so
the family of four would be ten thousand
dollars in in in in current dollars of
course much less prices are much much
different back then
and the thing is growing two percent
growth means you're doubling every 35
years
so you figured out some eight or ten on
that order and we multiplied this income
up and by now it's up to I stop at about
two thousand eight on this picture I at
that point we're about thirty four
thousand dollars per person in the
United States so a family of four is not
a one hundred twenty thousand or
something
now this is not take-home pay this is
total production so everything is in
here with the government spends what
business's spent on investment what
households spend on consumption it's all
in there
but maybe fifty sixty percent of it is
going to be is gonna be in consumption
at individual households so this is it
is a pretty good measure of the rate of
growth of living standards in the US
economy that's a pretty nice picture I'm
going to switch to a picture that for my
purposes a little bit different a little
bit more convenient and here I've just
taken the log of per capita income
just taking the logs of the on the
vertical axis so now you have to be able
to know what the antilog of seven points
it you know you can't pick out the you
know the the the you have to think about
it to get the dollars back but it shows
in logs as straightly a perfectly
constant growth rate would give us there
was a straight line and this thing
oscillates a little bit there were
periods of slightly faster than two
percent growth
slightly larger than two percent growth
but you can see how this constant growth
rate is kind of revealed in this and the
hash marks here are fifty percent I'll
use those fifty percent difference so in
terms of percentage differences logs are
though our way to go it's a pretty nice
picture it's not uniformly happy I mean
here's the crash of the 1930s and you
can see it's just completely singular
and you know there's been nothing like
it before since and then and it lasts
for a long time so we're we're below
this this red line which I'm taking is
kind of an
arm until the 1940s until Pearl Harbor
really and then the u.s. started
mobilizing for World War two and then
you get this huge spike which i think is
1943 and then what do you know the
system comes back to the same old trend
line so you get even we had large
displacements from this trend line
there's obviously a force pulling us
back to it and now what do we say about
this this is this is this is an
achievement of of capitalism whether you
like it or you hate it you gotta respect
it and and there was no wasn't any
five-year plans in this picture there's
there's no stimulus packages please know
that whole idea of a stimulus package
didn't even enter our vocabulary tale
about here and so so it government plays
a role but it's a background role of our
motion is history you got a stable
government which is which is you know
well we've got a good government well as
a government's go and property rights
are protected and individual rights are
protected and we've also got a tradition
of schooling which goes way back into
the 19th century and and I think has
played a huge role in that so you know
it's it's not a free-market achievement
100% of the free-market supported by
some important government policies that
have remained you know we can count on
them now
the depression was a big blow to that
vision and a lot of people were thinking
maybe it's this growth is over maybe it
was just a transient boom that was kind
of the Marxist view it was not a few
there's not a silly idea because until a
19th century economic growth per capita
growth stimulated larger population
growth and contended to drive the
standards back to the original level huh
so and when this huge and this is a
worldwide thing yet a lot of people
thought it's it's over and and what what
got us out of this recession was a
massive government intervention I mean
mainly was an intervention by the
governments of Germany and Japan but but
but but but our government responded and
you know just port started you know
mobilizing to a war shipping people off
in the military equipping the military
with you know factories were car
factories turned in a airplane factories
that you know just the whole economy was
drawn into it
my dad was unemployed and his business
had gone broke during this downturn and
he had pretty much trouble finding a job
this was not a great time to find a job
and and then when the war came he moved
to Seattle and they say he got a job in
the shipyards so that was you know and
there were millions of people going
through that kind of experience so
that's why this idea of a stimulus
package come get it get it
Keynes started talking about those
issues in the 30s and and then there and
then when this this this recovery hit a
lot of people thought Keynes was right
just get the government to buy up enough
stuff and you're gonna move this system
back to see prosperity so we'll come
back to that when we get into talking
about current recessions if you want me
to I'm sure I'm forgetting important
things to say so so so if you notice
something missing please raise your hand
oh but the next thing I want to talk
about is other countries because this
this this this this
this is not a us this is not an American
thing if you had a really pinpoint where
the Industrial Revolution started
most people would talk about the UK and
maybe the US as a kind of outpost of
British culture you know maybe we free
roll it off the UK and any of that I
plotted the two together on this graph
and you can see that back in the start
of it the UK was quite a bit richer in
terms of per capita income and then they
kind of kind of took turns you know
basically the same same world same
economy lots of interaction with each
other ideas from one country quickly got
to the other one the cultural
backgrounds are quite similar and you
say the same thing about I'm not gonna
put it on the graph but you know Canada
Australia there are other other parts of
the British dominated world now we'll
come back to this too after World War
Two there was about a 40 percent income
gap GDP per person gap between the US
and the UK
so this equality that it characterized
it it vanished
and now both countries are growing at
the same rate you can see the slope of
those curves they're like parallel lines
they're both about 2% of your growth
economies but but there's a butter fool
Americans produce about 40% more goods
and services than their English
counterparts do and we'll come back to
that I'm just going to add in some more
pictures so the US and the UK are both
on this well I change the colors I
really am sorry about that but you know
here's a hue K they're not only out of
their purple and here's the US which is
sort of some kind of I don't know gray
or something and then I added in France
Germany Canada Italy Spain and
and and just want to talk about this
because there's so much history the
whole 20th century among the wealthy
countries and now wealthy countries is
pretty much on on this on this grass so
I like it now if I put in you know
Sweden and Belgium they'd fit right in I
just just a question of how many how
many how many how many curves you can
put on a single graph without are
becoming unreadable most exciting
country besides from the leaders is
Japan no you pay this income again
natural units this is about a maybe $700
income per Japanese person in 1870 and
that's about 
I don't quite know anything
about subsistence income but you can't
keep a society going with much less than
that maybe five hundred dollars and in
Japan at this point was not exception
exceptional within Asia they were all
the great agricultural societies which
Japan was most agricultural in those
days you know China and India Japan was
just they weren't in terms of production
and economy they weren't an exception
but what was exceptional this is the
Meiji Restoration where the Japanese
government knew Japanese government made
a conscious effort to incorporate as
much of Western technology as they could
without sacrificing their own their own
culture it was not it was never a colony
of the West and they did it their way
but they did it and they started growing
and slightly gaining on the west this
may not look too big but I understand if
I plotted China and India on this curve
they'd just be
there was no economic growth in these
countries the whole colonized world
everything things happen in 1960 the
whole colonized world is basically a
world of of constant living standards
for the at Rideau for the average
working guy in China yes
Indonesia these countries and so so
Japan is exceptional because of this
because it's the only non-european
country on the picture and and there's
no other ones I could have put in a
picture that would that would that would
work I mean this is like a in this vein
I wanted to I want to talk about the
rest of the world because it's my main
interest right now but but but here I'm
talking about I'm setting up background
for talking about the u.s. recession so
I'm really gonna be talking entirely
about the rich get in the world and here
here we have Spain Italy southern Europe
was also way poorer than in the north
that's what what Max Weber got to
thinking about the Protestant Protestant
ethic but if he but if he'd waited for
another hundred years he would have seen
some Catholics who were having a pretty
good ethic if anyone who sees the
pictures who aren't Christians at all
who do it you know so it turns out that
this this call this the West but but
there's nothing Westerners don't have
anymore access to whatever it is that or
abilities to whatever it is that at
least he can on a Grove and the rest of
the world does it's any it's a game that
anybody can play and culture as long as
culture doesn't interfere with orderly
government and a certain amount of
freedom doesn't seem to be central and
most economists I think we're kind of
alone among our fellow social scientists
on this issue but but I think we're
right
now there's a lot of parallelism except
for Japan which is gaining there's no
the ketchup growth the gaining of them
of the relatively poor to the relatively
rich you can see a little bit of it
especially up before World War one and
then after World War one Europe fell
into a sort of beggar-thy-neighbor high
tariffs we'll look out for ourselves
that was a big factor in the United
Stated States after World War one is a
big factor in a lot of the European
countries and then the way the ketchup
growth just fell apart there wasn't any
real gaining of the poor of the poor
countries on the richer countries then
you have the war which you know has this
huge you know you can see the losers
Japan Germany and Italy Spain was a
loser to be but they got blasted in the
30s he couldn't wait for the 40s to
destroy their destroy their economy and
then you see the winners like us the
British the French Canadians but after
the war he was really a very statesman
like the winners agreed is without a
time for revenge on on the losers it was
it was not a time for every country for
itself and really focus do you think
about the European Common Market
there was a within Europe hugely but but
but the European Common Market wasn't
they didn't set up tariffs against us in
the Japanese so and basically it's a
free free trade economy for free trade
woman for everybody on this picture and
and and it's a capitalist world I mean
I say the winners got together I didn't
I'm not talking about the Soviet Union
and then you can see what happened it's
just that is one of the most dramatic
period for like 1950 to the 1970s just
this tremendous compression and Japan
had a miracle Italy had a miracle Spain
had a miracle and then the countries
that had already been pretty rich like
the Germans were recovered quickly but
you know they kept on going -
everybody's grown now everybody's all
these people are going way faster than
2% obviously you can't catch up to
somebody let's go on a 2% unless you're
going faster than that Japan had a long
period of maybe 8% per capita income
growth now other countries have done
that - like South Korea and Taiwan so
but it can happen anywhere but this is
this is and the final thing I want you
to notice is that something happened to
this compression somewhere around 1970
and from 70 on you see this among them
these countries all of which are highly
successful countries but they're
basically parallel lines we thought the
Japanese were going to catch up they
didn't in the Europeans so this this
picture I showed about the gap between
America and UK's is sort of a gap
between America and everybody else it's
a little bit different from country to
country so I want to talk about that
later on - it's not a I want to talk
about all right I'm gonna switch to say
a little bit about about recessions but
I'm gonna get back to this videos
picture these pictures all right
let me just you really can't see you
can't miss the Great Depression and the
war but it's hard to see these little
Wiggles around the red curve in sort of
normal times so what I did was I just
subtracted off the the blue the red
curve from the blue curve to get sort of
deviations from trend or a trend as my
is my is is that red curve so when you
do that you get this picture and again
you can't miss this is 1933 where the US
economy is 30% below trend and and they
were starting in 1929 for 10 percent
above trend so this is just there's
nothing like this in you know is there's
no war there's no natural disaster all
of a sudden these hugely productive
people cut their production by 40
percent in over a course of four years
and then the war snapback now after the
war before the war you're talking about
four normal recessions something like
plus or minus 10 percent deviations from
trend here are just way outside those
limits and then here's like plus or
minus five percent so the post-war
period the recessions became who cares
you know everybody in the world knows
about 1929 in 1933 ask your parents or
yourself what were the peak dates in the
end and the trough dates in the US
economy you know we know one can or even
if you're an economist you can't
remember you know it's just little
Wiggles that go on and the dominant
factor is this sustained 2% growth rate
and and then you get to here so this in
the I cutting this off in 2008 so I'm
gonna have to show you some pictures
more recently but this is bit a big time
it's not the 1930s but there's been
nothing like it in the post-war period
either for the depth or the duration of
this recession so it's it's it's a it's
when it first started people were kind
of oh it's just another little wiggle
and the post-war period don't worry
about it let the finance guys worry
about it but but but now we know it's it
is it's an important event and you know
there's the urgent to find out what
happened and what can be done about it
alright so here is I wanted to move to
quarterly data so I'm not using
Madison's data anymore I'm using Bureau
of Economic Analysis you know official
US government statistics I'm still
plotting the dots are our our GDP total
in this case well in this case total GDP
not per capita total GDP grows at about
3% in the States and 2% per capita cuz
you know 1% immigration makes the
difference population growth from
whatever source no yeah and I do the red
curve but I didn't let you in the dirty
part the red curve kind of got pulled
down by a long stretch of a hoof of you
know it had a his rig to sort of meet up
with the dots here here I've just taken
they fit the curve to these periods and
just asked you know I got a 2.9 percent
growth rate just projected thinking if
this is like any other post-war
recession we got forces pulling us back
to the trendline
I mean the first time I gave this talk
was in the you know the fall of 2009 so
so I didn't know when all US other stuff
was was this what's happening and I just
keep updating the day day it's just
there is nothing like it in the post-war
period this is I'll show you some
comparisons today maybe I'll do that now
but
so again hash March about 50% so by the
peak we are about a little over 10%
below what I'm calling the normal line
and then we're not gaining that we're
losing ground not because we're not
growing but because we're going small in
the 2% growth rate that's I think it was
normal 3 percent growth rate I think of
as normal and and and but maintaining a
growth rate when you're down on the
bottom means you never recovered that's
why unemployment rates haven't gone
haven't we've been growing but
unemployment hasn't been coming down any
sizable amount because there's no we're
still in a recession if you can recover
her mission you have to go faster than
2% and I don't know why I call this the
recession of 2007 to 2012 I was going to
put a question mark after the ending we
don't know what never we have there's no
clue in these numbers that there's any
tendency for this thing to end I think
there is but it seems to be offsetting
tendencies or something I don't want to
talk about this for a moment that's the
same picture
here's some other pictures you can get
this this is from something called the
the cooling Rupert snapshot so you can
get if you if you write down coolly
Rupert these guys are two good
economists you can you can get this you
can get the these pictures and many more
and what does this snapshot do I think
it's a nice way I like my way there's no
normal here what these guys are doing is
taking each each of the five recent
recessions seventy-three eighty one
ninety two thousand one and the current
event okay and they're calling it the
zero is is the GDP that you were at when
once people declares decided officials
decided that that this was the peak that
was and then and then a downturn
followed that thing now you can see it's
a little bit like how why isn't this the
peak the beginning of the recession
rather than this one you know so maybe
sometimes maybe you want to shift some
of these curves these aren't these
datings of recessions is very arbitrary
stuff so you might want to slide they
curse back and forth but anyway the blue
one is our recession we're falling in in
in in six quarters maybe so he only four
quarters or three we're falling five
percent below the previous peak and then
sixteen quarters four years later were
painting the the retaining the original
you know that the 2006 level see what
I'm saying my pictures look different
because I I'm doing things relative to a
trend this is four years we should have
been going at 2% or 3% a year so we
should have been twelve we should have
been at plus twelve not at zero after
those sixteen quarters and in fact if
you look at all these other curves
that's exactly what they are
they returned and they returned to the
growth trend more or less you know 12%
those plus or minus 2 for all these
previous recessions and it just didn't
happen in this recession it's a real
outlier it's a different event I mean
some of these events I think people just
declared this a recession because they
were getting bored and waiting waiting
for a real one so so they so let's call
this a recession but these two are all
this is the one room right now knowing
belittles that one then this is this
yellow curve as they Volcker recession
that occurred early and well late Carter
early Reagan years and it was also
serious down to bigger downturn than
normal but then it took off and by 16
you know quarters later you're ahead of
the trend line so it's it's and and then
this this is this 1973 cycle is similar
so we've had this recession isn't
strikingly different in in in the fall
in in the low points through my other
recessions although it is the biggest
but what's striking is the is the
absence of a recovery that's that's kind
of typical and again I want to show you
one more coke Cooley Rupert picture they
do this for business investment okay
investment in capital goods and
construction and now here we're not
talking about -10 we're talking about
minus 30 percent but you can see there
in all of at least the three serious
recessions you know investment takes the
biggest hit
people maintain their living standards
as best they can during a recession
but-but-but-but it but but business
firms don't take big new initiatives or
the until until something happens they
so so and the recession and the
investment spending you know aren't
recession you know it's really low in
sixteen four years later we're still
like fifteen sixteen percent below not
the trendline now but where we started
back in in in 2006 so it's it's business
firms have just they've just stepped out
a system for a while or something
we could talk about but maybe I'll wait
and see what the questions are you know
so how did this happen and and what role
did the banking crisis plan so and
played a huge central role in my opinion
but but I think that role was that
problem was kind of resolved early on
and and something else is it is is
prolonging the depression so I'm gonna
go back to this picture
so we've returned to 2% we're still a 2%
growth economy just as the UK was after
World War Two so the differences between
successful and unsuccessful among the
rich countries is the differences in
growth rates we're all around 2% we
settled down to around something like 2%
growth rate but but it's the level and
and so so now what do I think about the
idea you know I'm getting into
speculation but I'm gonna speculate as I
please
after World War 2 the British economy
had a low labour government a socialist
government they nationalized a lot of
industries they set up by government-run
medical system socialized medicine
unions had a much more central role in
in in in in
it was the Labour government I mean so
they they won the election too so of
course they had a more central role in
governing the system and the British
just went much deeper into the welfare
state much more wide role for government
compared to their own history and
compared to the United States and I just
believe that had something to do with
that gap and I think this has something
to do with a gap there's evidence on
this between the United States and the
rest of Western Europe now the gap
between the u.s. and Japan is a
different story because the Japanese
like us
stayed away from from extremes in the
welfare state but I'm thinking that
something is going on today is and
because none of us really knows are we
headed are we gonna are we gonna head
from the blue curve down to the red
curve is that what we're doing next case
it's more than a transient recession
this was not a temporary thing for the
UK it's their history for the last 60
years yeah and so we talk about trend
lines returning to trend lines but
there's nothing magic about that the
British never returned to their their
trend line and maybe they will but but
but but they haven't so far a lot of the
other European countries have not if
we're going toward a European a more
european-style welfare state then I
guess we're going to have to pay the
same price that the Europeans paid now
we haven't done it even Obamacare is not
really in in place yet you know I mean
sell us a lot that's what I say this is
speculation but but these business firms
are worried about the future they're
worried about the future taxes they're
going to pay how much of the medical
bill they're going to have to shell out
for because everybody knows that the
numbers don't add up for this for
Obamacare you know so the question is if
I launch a project gonna pay off 10
years down the road or five years down
the road how much of those returns are
my shareholders going to get and how
much is going to go to somebody else
there's no question that's a concern
now what but if whether these guys are
right about about that you know I don't
know Lucy okay
I don't don't don't take any of this as
some established facts that every
competent economist knows about the data
our data and I didn't make them up the
interpretation is mine and and anyone
whoo-hoo anybody can chip in on that we
don't really have an well agreed-upon
analysis of depressions that we share we
economists share so there's no reason
for you guys to let economists push you
around on how you feel about this
recession but I did want to talk about
how I feel about it
okay any questions or comments I hope
there is yeah
productive productivity
growth with like what kind of like
fundamental changes cause that trying to
change yeah that's a great question
that's a great question
do they should read the communist
manifesto now okay I mean it's a fab
reading that when I was in undergraduate
here you know I still go back and reread
it and I mean most of Marx is completely
unreadable
but but the Communist Manifesto it is
beautifully written and just you know
just carries you away and the first part
of the communist manifesto is about the
achievements of the bourgeoisie the
achievements of capitalism so so Marx
more than any other 19th century
economist saw that something that
happened
I mean Ricardo and Smith there's nothing
in wealth of nations or in David
Ricardo's work which talks about
sustained economic growth you know year
in year out changes in living standards
they were talking about some countries
being different from others but but not
widening gaps
I mean Smith talked about whether you
the ordinary Englishman would be
was better off than the African King I
don't know how oh that's a tough call to
me but but he said they were about the
same but he wasn't it wasn't you know
what happened was the gap just kept
getting wider and wider Smith didn't you
know who how could he you've seen it
coming Malthus was a not not only an
influence on these guys he was a great
scientist and he and his theory of
population and income fit the data of
that time you know the kind of data we
had but you know fit the evidence of
that time very well it was a good theory
and David Ricardo put it at the
centerpiece of his his his his economic
theory and David Ricardo is recoverable
Marx is the economics in Marx's or
Ricardo is this class struggle that's we
Ricardo described but but a lot happened
in the 50 years between you know
Ricardo's writings and in the Communist
Manifesto and Marx saw it all and saw
something was going on but here's what
he thought
he's a Ricardian he's a Malthusian that
the working class people have a who are
getting no better off that that can't
last that population growth returning
this we're going to return to some
Malthusian equilibrium and the only
people benefiting from it are going to
be the landowners and the capitalists
and so they you know that was the
picture he saw the world you know I
don't think it was bad reasoning for the
point of view the economic theory of
that day now we look back on it with
hindsight and say what an idiot the guy
was but believe me nobody else was no
nobody else was doing better in it in
the beginning in the middle of the
nineteenth century but it didn't it
didn't it didn't he didn't persist I got
so excited about Marx I forgot your
question
oh sorry I just wanted to ask like what
kind of yeah why didn't involve this
yeah why didn't the moth Uzi and
Dynamics take over you know I think
that's it that's it I'll get I'll give
you my opinion I'm an economist I have
an opinion on everything but but but
it's this is a controversy as well this
is sort of a Becker's when it went
animals that when an animal population
or for centuries human population
something good happens to it like the
glaciers recede or something like that
more little arable land becomes
available for human cultivation people
flow into these areas it's rich there's
lots of you know land and you know think
about the or think about the settle in
the United States but then there's the
population grows you get this Malthusian
force driving you back to the original
thing so why not for capitalism
so anyway people like to have more kids
and one of the things you do when you
get richer is have more of them they're
great guys to have around even if you
don't put them to work in the mill you
know until they're you know mixed eight
or nine years old so they've got to be
some other factor offsetting this for
the Industrial Revolution to take place
so so so so the idea is that the the the
bourgeois bourgeoisie the bourgeois
society it is you can enter it if you're
smart if you get if you get educated
you can't enter the land owning class by
being smart or well schooled okay
the landowners own it there's only so
much land and you're either you're one
of the owners or you're not that's
that's the class conflict that that
Ricardo analyzed but this
between the bourgeoisie and the
proletariat is not of that character you
can you can you there's at least a
potential for for for for moving and now
that puts a family decision
the family has got some choices to make
now you can either have lots of kids or
you can have a fewer kids and and invest
more in each child more schooling more
more parental concern and so on Gary
Becker called this the sort of quality
quantity trade off you got to have a
second dimension to child planning in
addition if you just say I got more
income I'll have more kids
then you're in malthus's world but if
you say well now I've got some options
that my grandparents didn't have of
educating my children and moving them up
the ladder from where I am if that
factor is added in there that then you
can get you know and that I think that
had to be I think is it's this quality
quality trade office this decision
people made to invest more per child and
not just have more children it was an a
is an essential part of of transitions
from agricultural to traditional
agricultural society and in a in a in a
modern society or successful society now
there's people call this the demographic
transition the transition from one more
income ceases to mean more kids and
means more income per child and that's
taken place in all the countries you saw
in the earlier graph and if you look
around the world Nigeria is now 170
million people they were just yesterday
it was it was 100 million so Nigeria is
benefiting from their participant in the
modern world but it's playing out in
terms of bigger families now I think
that's going to change it just because
we all went through it then when Mexico
went through it typical families in the
United States and colonial America had
ten kids or you know his land was out
there was free a whole world
you know there's no limit so so it
wasn't a question of having a family
farm and only one person can get it
there's there's you know so any that
Malthusian forces still exist but but
they modern educated education focused
society you know rewards those who don't
don't go all the way so I think that's
the key difference it wasn't that new
tech there's a lot of new technology in
the industrial they've been new
technology you know forever and you know
the domestication of the animals and the
invention of metallurgy and so on those
were great inventions and Madeley made
people more productive but but but they
didn't make their living didn't raise
living standards it all came out on a
Malthusian population so it's not it's
not that inventiveness began in the 18th
century but but but it's the social
structure or something altered in such a
way that the inventiveness had different
consequences so if that's true it's a
good answers your question but is until
we got to keep looking
a recession like this well that that's
definitely not a known thing but but up
until this point this is this is that
this is the fourth quarter
of 2008 took us from here to here and
the first quarter of 2009 took us from
here to here up to this point I thought
this was just another one of these minor
recessions involving nothing special in
the part of government but but this is
when Lehman Brothers collapsed and and
maybe people expected the Fed to bail
them out
but anyway scared everyone and everyone
just rushed into cash held onto cash was
that just sucked all the liquidity out
of the system it's and this kind of
financial crisis he looks a lot like
they run on the banks that occurred in
the 1930s which Milton Friedman thought
was the trigger for that recession and
now what should have been done in the
1930s if people need to look the Fed
could put more liquidity into the system
anytime they want to it's one thing
that's easy to do and the Fed didn't do
it and in this case the Fed did so so
the bank reserves which is what the Fed
controls at the before laymen fear was
about forty billion dollars and this is
late September or September and by
Christmas there was like 800 billion so
Bernanke just put out you know
multiplied the the the reserves by 20 or
something huge influx and and by but
early 29 the this credit freeze this
panic this rush to liquidity it it it it
halted I mean didn't get better that
fast but it didn't get worse so so you
know this is the phase at which we did
way better I think and Freeman would
have thought and Bernanke thought that
maybe it in the 1930s okay now that
story I think it's a pretty good story
for why we're we didn't keep going down
at this point as you saw how we went
down kept going down in the early 30s
that did happen for this recession but
but the lack of a recovery that this is
not a liquidity problem banks are
holding massive amount of reserves way
more than required to hold corporations
are sitting on lots of cash interest
rates are low so I mean if anybody wants
to launch an investment project they got
the cash on hand probably if not they
can borrow it from the banks or you know
there's there's no there's no liquidity
problem that's holding the system back
now and yet the system we stayed down so
somebody I mean that's kind of where my
story ends or I get back into the fears
of the business world that that this is
a poor wrong time to invest I don't know
and that also the 1930s lasted a long
time for what maybe similar reasons yeah
somebody
yeah well I sort of listed some things
that that that that people are concerned
about that are that are that are
depressing investment and I should have
put that on the list Lee maybe I'm
here to put that at the head of the list
I mean this deficits going to have to be
dealt with it's going to have to be
dealt with in part by by taxes and and
then nobody quite knows yet who's to
who's gonna pay those taxes the promises
for medical care based on
over-optimistic I believe and everyone
believes I think estimates of what costs
are going to do somebody's going to have
to fill in that gap either cut back on
medical services that were promised or
get somebody else to fill in the dollars
maybe that'll be you know University of
Chicago maybe you know you look for for
companies that person so so I think it's
very much related now I think they did
there's some lot of good ideas about how
to do what to do with this deficit but
they're not going to they're long as the
whole thing is unsettled and it's
obvious can't be settled now and and
within the middle of the election year I
mean we never do that so so it's a
question of waiting to Lex green then
we'll see what happens there good ways
out of this but but I don't think the
Obama administration found them focused
on on short-term stuff but the
investment stuff doesn't depend on
short-term issues it doesn't depend on
postponing the Bush tax cut for a couple
more months these guys are concerned
about projects they're going to start
paying off five years from now and what
they want to know is what kind of
axes are we gonna be in pain then and so
on I think that's what's central I don't
know the complicated question you yeah
well he's keeping her pretty well to
himself I don't know he's got some good
advisors Sookie if you asked me just
Glenn Hubbard have some good ideas or
Greg Mankiw I'd say yeah sure those guys
I want those guys in charge but but
that's not what this campaign is about
this for sure yeah do you think that any
of the deviation between those two and
especially the 30 years of stagnation
for England could have been due to the
destruction of England and Empire yeah I
think they've probably helped I wouldn't
call this stagnation first of all sorry
uh between 1900 and 1940 well that was a
rough time for a lot of us here this is
the ID on't think the colonial age I
were talking this in in Japan I saying I
think Japanese got more out of Korea in
the modern period than they did back
when when they were called colonias
running the show you know this these
colonial relationships they were bad for
the colonize that the colonized people
and they weren't that good for the
obviously a subset of people in Japan
and Britain made big bucks in South
Korea in Korea or India or Africa
there's no question some people got rich
off it but in terms of the overall
living standard which is what we're
measuring here I I don't think the
colonial thing I think it was probably
good to get rid of it
and it's certainly good for the further
colonized countries we started to grow
everyone focuses on the disappointments
in growth in the in Africa and South
Asia you know they could have done
better but but but it's they're better
off now and they were were in the
colonial age it could be hard to find a
country in the world that doesn't
couldn't say that yeah beats me I don't
know he should have asked sergeant
winning he gave his gave his freedom
form yeah nice nice analogies between
the British now and the u.s. back when
we were the Articles of Confederation
but
it's certainly us a big operator in this
world were big buyers and so it's going
to hurt people another country us
recession one as long as in deep as this
one is going to affect people all over
the world but the the British financial
system I don't know I don't really
understand it very well at all like I
don't understand why why it would matter
to anybody if Greece got out of the
eurozone
you know just there's a faction in
Europe that thinks we ought to have a we
they ought to be more centralized as a
single government but I thought the
whole eurozone was set up so you could
have a good monetary policy without a
single government I don't work great for
a while I don't know I don't think it's
tied up with us our financial guys look
those guys are all tied up together
because they're all investing in the
other guys you know it's just a single
world of financial financial world but
but in terms of u.s. GDP I think it's a
second-order thing I don't like my day
I'm getting outside of my territory here
yeah
I thought I thought the the yes and no I
think there's a Federal Reserve action
and you can maybe throw in you know tarp
and the I think that stuff stopped a
recession that could have gotten a lot
worse okay and I think probably would
have gotten a lot of worse if they just
told the bankers well you guys are on
your own people are really going under
at that point I think there were things
the Fed could have done better before
Lehman Brothers failed but but but
whatever it was once it failed it was
clear things were really coming and
turning in a bad way and and it wasn't a
financial institution in the country
that wasn't threatened yeah and you know
would have been a bad thing and in the
30s we didn't matter the Fed just sat by
and said it's not our problem and in the
present situation the Fed stepped up
stepped up to the plate now the fiscal
issues that there's no evidence anywhere
that the stimulus package had any
constructive and it hasn't been there's
no evidence from the past that you need
a stimulus package to get back to trend
and there's no evidence in the recent
past that this our stimulus package did
anything at all so there I now is there
something they could have done I mean
some people say oh they should have done
it three times as much but you know I
think that's I think that's a little
weak if you can't if you can't tell any
effects from near a trillion dollars
injecting in the economy then I think
you better think twice before you
recommend tripling it so yeah I don't
in terms of economic theory
most people I know and read we're not
optimistic about the stimulus this is
after the fact stuff a lot of people
signed petitions and so on economists
wrote editorials saying it was a bad
idea I didn't do that I wasn't sure
whether there's a good idea or a bad one
but but with hindsight we just thought
what I'm talking about now you know the
guys who designed those petitions we're
on the right side of that issue I think
well you know it's tied up with his
question about the deficit it certainly
enlarged the deficit deficits got to be
dealt with sooner or later and and and
that obviously has connections with
future taxes and that that has has an
effect on current decisions so so it's
it's not it's a reasonable argument yeah
you're spell a lot quantitatively that's
I don't know we have I don't know I
can't do that for you
you know
no here's here's what you Pantheon I
don't want us to do it too so here's
your pan plugging along gaining on the
thing gaining up then they decide that
they want to do things the European Way
and start colonizing their neighbors and
and and eventually fighting this
suicidal war so that took them down to
here okay now so so and then they grew
as you see well I guess we could do that
and if we did and then stopped it
you know I feel the same way about
mainland China you know here the free
Chinese and Taiwan and relatively free
in Hong Kong Singapore those guys they
took off soon after the war and got up
to Western levels of income and so on
meantime they the mainlanders kept their
workforce locked up in some communist
prison camp or something like that for
decades and while the rest of the world
was growing like man so then they wised
up and opened up and then and there
they're having something like what the
Japanese had here but I think a part of
it is that they're bad policies drove
them so far down that it was easy to
snap back up the rest of the world is
getting more technology you know good
things are happening to proactivity the
world around once you open up and and
start catching hold of some of that that
knew those new ideas then you grow fast
way faster than 2% talking about eight
ten percent growth like the Chinese are
doing now so it's a great thing that
they're doing it no I'm not belittling
at all it's when when so many people are
getting opened up to to productive
interesting lives it's a great event but
but it's it's not
it's not something you want to imitate
yeah that's a tough issue it's nowhere
in my slides is it there's a huge age
affected well you know so so so a lot of
this talk and not all of it but a lot of
it is just it's just we say soak the
rich you just sing
we had a soak the old I mean I didn't
have any money 30 years ago and now I'm
pretty well-off my kids are some of them
are struggling my grandkids are dude
they're just there's get out of school
so they're you know see if you start
looking at the income different
inequality difference between the Lucas
family there's a pretty pretty pretty
big differences now all that is lost so
I think looking at wealth in some sense
is is it's always more concentrated than
income because you start earning an
income long before you build up savings
until your wealth is small I think it's
to me it's it's better to look at living
standards but of course there's lots of
income in I mean we're far from an equal
68:1
society in terms of of living standards
too so I don't know I
- me it's that's the way things are but
well I say corporations they're big you
know it's but I don't know what you mean
by should be investing what they want to
do is make livings is there an income
for themselves in their shareholders
which seems to be right I guess if they
thought that that was going to it would
be a lucrative thing for their company
to to invest they do it do you want to
add you add more from that I don't know
I mean they're already paying a lot of
69:10
taxes but they could pay more but why
69:12
should they i I don't think it's a
responsibility of someone to invest in a
project that they don't believe in I
know the government subsidizing a lot of
this stuff but I think that's more you
know wind wind wind for arms or that
kind of thing
[Music]
but what it's a relic now a dead doesn't
the the poster child for Keynesian
economics and and I did talk about it is
is is this you know and because the US
had been stuck until Pearl Harbor the
u.s. still had more than ten percent
unemployment we're talking about a peak
profit nineteen thirty thirty three
never got below there's some recovery
but never got below ten percent until a
war and then it just took off and it was
obvious to the government I mean I'm not
criticizing me but you know the
government played an enormous role in
that I think I don't fight a war the
government's kind of got how to do it so
you know natural question is can it
can't we find peacetime peacetime
70:49
analogs to that like Lyndon Johnson
70:52
talking about the war on poverty you
70:54
know I can't you Marshall the same
70:55
government forces to do something good
in there and in the process stimulate
the economy as a whole well then I
thought was the promise of it and I'm
like I say I didn't sign the petition
against the stimulus maybe there's
something to it but it hasn't played a
big role in the post-war recessions the
the tax cuts in the Kennedy
administration and the Reagan
administration we're not really designed
they weren't massive government projects
or anything they were designed to
stimulate investment but by tax cuts and
they did that's not a bad idea but
that's that's a long run a long run a
longer run issue so the occasion theory
is not it's more you want to think about
more like a Keynesian beliefs
or you know when the administration
proposed the stimulus package and it had
a lot of estimates about about how much
it was going to affect unemployment so
on down the road they're sort of
embarrassing now but but no any kind if
we didn't you can always efficient no
one knew what the hell they were talking
about where do these numbers come from
they were not there was nothing in the
in the literature or that that seemed to
back them up robert barro did Simpson
very nice you know
I mean you just you couldn't what the
hell were they talking about so I think
it was kind of a stab in the dark in a
mist
you
