Halfway to a lost decade
At the Aspen Ideas Festival yesterday, Chrystia interviewed the iconoclastic and polymathic economist Justin Wolfers of the University of Pennsylvania’s Wharton School of Business. Here is a transcript of some of the highlights of their discussion:
On the U.S. economy’s lost half decade:
JUSTIN WOLFERS: If you go back, you look at how bad the economy’s been for so long. So the NBER says the recession started in 2007. Actually it may have started as early as 2006… One of the difficulties is we keep revising what happened to history. And if you look at the latest revisions of history, our current understanding is the economy actually peaked in late 2006. This I’m sure is something you’re going to hear a lot about during election season, ’cause they’re going to call this again, you know, the Bush recession. They’re going to be very keen to get that story out. But, you know, the first part of 2011 looks like it’s pretty grim. It’s very hard to see– a lot of strong growth. And certainly, you know, things are well below potential now. You know, people talk about a lost decade, and if you think about 2006 to the present, we’re halfway there. And if you want to be the real pessimist — and I’m not — I’m not this pessimistic. But, you know, if you look at things like median family income, it actually fell during the Bush years. Which actually means if you’re the median family– we’re well past a lost decade.
On the Fed’s need for a new marketing campaign:
JUSTIN WOLFERS: See this is where we’ve got the branding all wrong. So QE1 and QE2, they sound complicated. What are they, they’re the government buying bonds to reduce interest rates. What’s monetary policy, standard run-of-the-mill monetary policy? The government buying bonds to affect interest rates. We’re just changing different interest rates. So let’s change all of ‘em and let’s keep changing ‘em. There’s nothing–
CHRYSTIA FREELAND: And you’d push ‘em down as far as you could go?
JUSTIN WOLFERS: Let’s just keep going…
CHRYSTIA FREELAND: And you would start now?
JUSTIN WOLFERS: I’d start yesterday. And when we do this, let’s have the Fed not say we’re going to spend X billion dollars. That scares the public. The public thinks — this is like we’re building bridges or we’re throwing money away. We’re not doing that. We’re — we’re buying bonds. We’re changing the structure of the balance sheet. Nothing too crazy. The same way the Fed says we’re going to set the Fed funds rate at zero percent, let’s say we are going to keep buying until the three-year Treasury is at .2. You know, set an exact quantitative target like that, and let’s also commit.
On the “idiots in Congress” and their misguided macro policies:
JUSTIN WOLFERS: We’re in a very odd situation, which is normally we have idiots in Congress, both houses. And that’s just a norm of political economic life… But normally it doesn’t matter because they can do idiotic things on macro policy and the Fed just undoes it. And the people who are really setting macro policy at the Fed, the problem is the Fed’s at the zero lower bound. Which means the idiots are now making macro policy, and it’s worse than that. Which is Congress has a very different incentive with respect to stimulating the economy than my unemployed father-in-law and than the president. And then, so, you know, there’s a strong bias towards inaction… I can’t see inside the minds or hearts of these people. But to believe that austerity is the order of the day when we have millions of people, long-term unemployed strikes me as problematic.
How money buys happiness:
JUSTIN WOLFERS: When you move from $25,000 to $30,000 you get happier. When you go from earning $50,000 to $100,000 you get happier. All the way. I mean, it turns out — this is in empirical fact. It’s not a theory. It’s just that I stare at the data, I crunch spreadsheets. That’s what it tells me.
CHRYSTIA FREELAND: And all over the world, it’s not just like, say, Americans really like money but.
JUSTIN WOLFERS: The Swedes love money too. And the Australians do. In Burundi, they love the stuff. So, you know, it’s absolutely a global thing. there’s nothing complicated here. It’s just richer people are happier than poorer people. Richer countries are happier than poorer countries. As countries get richer, they get happier.
On why having children may not make you happy and the shortcomings of happiness-targeting policies:
JUSTIN WOLFERS: When I ask other people who would say their kids had made them always happy, they’d say they’d still have kids and the reason is they get meaning from them. Or some deeper sense of something or other. And so it turns out there’s more to life than happiness. That’s actually really important because if you go back and think about these happiness debates, people are saying politicians should target happiness. Well if we really believed that, the first thing we should do is have mass sterilization policies. Now it turns out that that’s an absurd suggestion. And it’s absurd because there’s a whole bunch of other things we also care about. Now what that suggests is not that the happiness project is– is wrong and needs to stop, but it suggests that it needs to expand and start to take account of these other things. These crazy things that make us do things like go out and have kids.