Why is the slowdown not so bad

Via Mark Thoma, the highly intelligent Tim Duy offers an explanation.  Here’s one small bit:

The impact of the consumer slowdown is partially offshored, a point which
I think deserves greater attention. This shifts job destruction to an overseas

Most important, in Duy’s view, are the ongoing injections of liquidity from abroad.  And here’s a new NBER paper on the sources of the great moderation; the abstract reads:

The remarkable decline in macroeconomic volatility experienced by the
U.S. economy since the mid-80s (the so-called Great Moderation) has
been accompanied by large changes in the patterns of comovements among
output, hours and labor productivity. Those changes are reflected in
both conditional and unconditional second moments as well as in the
impulse responses to identified shocks. Among other changes, our
findings point to (i) an increase in the volatility of hours relative
to output, (ii) a shrinking contribution of non-technology shocks to
output volatility, and (iii) a change in the cyclical response of labor
productivity to those shocks. That evidence suggests a more complex
picture than that associated with "good luck" explanations of the Great

Other work suggests that superior inventory policies, and information technology, have smoothed out slowdowns.  It might also help that wages have lagged productivity for some time down; negative shocks might lead to less unemployment than otherwise would be the case.  Here’s a look at the international evidence, which shows a moderation across many countries and points a finger at monetary policy and inventories.  Jim Hamilton looks at oil and the great moderation; read here too.  Circa Jan. 2007, Mark Thoma thought financial innovation was not the answer.

I don’t think it is crazy to cite "globalization" as the best single-word, seat of the pants response.  But for any longer treatment, the answer is quite complex.


Comments for this post are closed