Yesterday, I had the rare opportunity to quiz four of the smartest economists who have ever served in government – Ben Bernanke, Michael Boskin, Joseph Stiglitz and Maurice Obstfeld – on the five things that puzzle me about today’s economy. The panel was put together by David Wessel of the Hutchins Center at Brookings as part of a celebration of the 70th anniversary of the President’s Council of Economic Advisers.
My five mysteries, and some takeaways:
The productivity mystery: If we are in a new industrial revolution, why isn’t productivity growing?
Lively disagreement on this, but the answer seems to be a combination of bad statistics, long lags in achieving productivity gains from technology, and a recognition that the “internet of things” may not be as big as electricity. Some talk about Robert Gordon’s new book The Rise and Fall of American Growth, which I haven’t read. Who has time for 784 pages?
The inflation mystery: With unemployment below 5 percent, why isn’t there any? What happened to the “Philips Curve” relationship between unemployment and inflation?
Bernanke said the Philips Curve is probably still the best framework economists have to understand the macro economy. Obstfeld says that may be true in the U.S., but globally, the relationship has vanished.
The oil mystery: Why aren’t falling oil prices a good thing for the economy?
Stiglitz, who is fond of asymmetries, said big price movements have both good and bad economic effects, but the bad ones tend to win out in the short term.
The China mystery: Will its problems spill over into the rest of the global economy?
All agree China is a problem, but Bernanke played the optimist: “The good news is that the Chinese government has large resources and is willing to use them.” He also pointed out most Chinese debt is held inside the country, not overseas, limiting contagion.
The inequality mystery: Why is it getting worse?
Boskin and Stiglitz tussled over this one, as expected. Boskin’s argument: that global inequality has fallen; that inequality within developed countries is driven primarily by technology and globalization; and that it’s better to focus on lack of growth overall than on inequality. Stiglitz referred to Thomas Piketty’s book Capital in the Twenty-First Century which, at 696 pages, I also haven’t read.
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