Benyamin Appelbaum writes in: “The Great Moderation Is Back”:
Perhaps you remember the Great Moderation, the comforting term economists pinned on the period of relatively steady growth that began in the early 1980s.
Perhaps you’ve even looked back and laughed at the very idea.
Jason Furman has a more complicated view. The head of the president’s Council of Economic Advisers argued in an interesting speech on Thursday that the Great Moderation is still in progress. The growth of jobs and economic activity over the last five years has snapped back into the same kind of steady pattern that prevailed before the recession, a pattern documented in the chart below.
Including the Great Recession does not change the basic pattern. Economic volatility, on average, is still lower now than in earlier decades.
This is a hollow victory for those who championed the idea of a Great Moderation. They saw the trend as evidence that the economy was less likely to experience a dramatic downturn. Mr. Furman is essentially arguing that those economists were right in describing the phenomenon, but not its implications.
“The Great Recession certainly does reveal serious limitations of the concept of a Great Moderation,” he said. “After all, there is no sense in which the recession itself — which witnessed the largest peak-to-trough downturn in G.D.P. on record — was indicative of a more stable economy than in the 1950s or 1960s.”
Just as Mr Furman was speaking I was (quite independently) concluding a post commenting on the IMF´s High-Level Conference:
But we have been shown by events that even nominal stability is not enough. No one can question the fact that over the past 4 years (since 2010) nominal spending growth (NGDP growth) has not been stable or that inflation has not been low. But business and households have had a hard time planning and the economy is certainly not operating efficiently.
That´s where the ‘level’ in NGDP targeting, level targeting comes in. With level targeting what you do is avoid getting stuck-in-a-slump, thus remaining depressed, as the chart illustrates. But instead of objectively discussing a change in the monetary policy framework that would be effective in getting the economy back on the right track, what we see are efforts to explain (or even justify) why being “stuck-in-a-slump“ (Secular Stagnation) is the” new normal”! Very sad.