 It's a pleasure to be here. I've been thinking a lot about what we've learned in the last few years about economic policy. For me, it's really a discouraging period, I have to say, as an economist, as a macro economist, as a monetary economist, because we really had a good run there for a couple and a half decades of policy and great moderation. And we now deviated from that in a number of ways. So I've been thinking about it for a while. And I want to just maybe use some slides to help you think about it and sense that you are happy with you. So this is a picture of my country, United States GDP. I hope everybody can see it. It's a pretty simple chart. It just shows you how GDP went down during the recession, the Great Recession, the financial crisis. And it shows you the previous trend from 2007 lean-up to the crisis, about 2.5%. And while there's kind of a recovery, it's not really closing the gap in the sense of where we are relative to where we could have been up in it that way. And I don't want to say this is a gap in the sense it's all demand. It's just a measure of disappointment for me. And this is so when we talk about the US recovery, we're missing the kind of recovery that I used to think we got, which is something like this. So this is the recession that occurred in the early 80s in the US, kind of the same size in terms of depth. And you can see the rebound. GDP came back to a potential much more rapidly. There were quarters of 5%, 6%, 7% growth during that catch-up period. And we have missed that. I don't think we're ever going to get it quite frankly. It's a real disappointment in terms of recovery. People are now happy if we have a 2 and 1 half percent growth rate, which is the trend. Now, as you know, this is not unusual. So I just happened to have the British picture here. So that's a trend about the same trend growth in the years 2000, 2007 up to the crisis. I've extended that, and you can see UK road GDP. So it's not even less of a recovery, but it's not making up. And this is basically true of the rest of Europe. If you look at Ireland, there's hardly any movement in the red line. You're going to drop, and it's kind of flat. France pretty much the same. Germany a little bit more of a coverage. So it's not only the great recession, but there's not so great recovery. So what's the reason? What's the explanation? And there's many explanations, quite frankly, as is always the case in economics. One that has been used for a while for at least the first few years is, hey, what do you expect after a financial crisis and a big downturn? This couldn't take a while to get back together again. And isn't it true that after all big recessions, you have slow recoveries? Well, certainly not true of the early 80s. And if you look at US history, it's not true either. So this is just a picture that I like to use for the US. It shows the growth rate during recoveries from all the big downturns associated with financial crises. And the red bar shows you the growth rate coming out of all those. And the blue line is the average, so that's 6%. And so that's averaging across all the previous recoveries from reasonably deep recessions and those associated with financial crises. And the one we've had recently is 2%. So 2% versus 6% in the first couple of years or so. And so this is very unusual in that sense, not just comparing to the 80s, but comparing to earlier periods. So I don't think it's legitimate to say, well, it should have expected this because of the crisis. Just maybe one more detail on that. One of the connections between the crisis and the slow recovery that people point out is the deleveraging. That people borrowed so much leading up to the crisis, and so they have to save a lot. And consumption is therefore low as you deleverage, as you reduce the debt. But at least for the US, and this is true for other countries, the savings rate in this recovery is actually lower than it was in the early 80s. So it's not like people are saving too much or consuming too little that's generating this behavior. In a sense, they're consuming a larger fraction of their income now than they did in the early 80s expansion. So when you go through these kind of explanations, at least when I go through them, I think it doesn't really add up. And so I've come to the conclusion, I think by process of elimination, that something else is going on. And to me, what I come to is something to go on with policy. And I'm thinking of policy in the broadest sense of the word. Monetary policy, fiscal policy, regulatory policy, you name it. And it seems to me all those policies have led to some problems. And what I'm going to try to argue is that I'm going to just give you an example of a policy I know most, and that's monetary policy, to try to describe why I think this is the case. And my idea here is not just the slow recovery. It's the recession itself. It's the crisis, the whole bag of wax, the whole 10 years or so of poor performance. And we were talking a few minutes ago that there's becoming new explanations for the poor performance in recent years. Some people refer to it as just secular, a secular stagnation. And I've never thought of it that way. I think of the 10 years as due to policy changes. So let me give you some examples. First of all, I want to just think about what I mean by good policy in the broadest sense of the word. And for me is a set of principles associated with it. And I'm going to argue that we and many other, we being in the United States and other developed economies, especially have forgot about these principles. And so for me, the first one is that policy should be predictable. It should be based on a clear rule of law. There should be the right set of incentives. For the most part, those incentives should be drawn from the market economy, free markets, if you like. But also with a clearly defined role for government. And I call it a limited role because it really should be based on a careful calculation of cost benefit analysis, what government should do and when government should not do it. And these are very general. This is actually why I teach my students at Stanford about policy. Policy should have these characteristics. And of course, it's a judgment call frequently where you fit into these five. And cost benefit analysis would be an example of that. We advocate cost benefit analysis, but so often it's hard to apply in the case of government. But that's the ideal. Now what I think when looking at first at the United States, that we have had a slippage in going back and forth in terms of these different policies. And so I'm going to say it's called shifts in the adherence to these principles. And I'm going to go back about 50 or 60 years. And I've seen the 60s and 70s, a period where we shifted away from these principles, or at least we moved away from them. Policy became quite unpredictable. Monetary policy was go stop. Inflationary unemployment rose. We had abandoned a lot of market system, imposed ways and price controls on the entire economy. Fiscal policy became quite, I would call it erratic in a pejorative sense, but quite Keynesian, and then not so pejorative sense. A lot of interventions. And cross parties, by the way, there's nothing partisan or political about this, both Republicans and Democrats. Nixon imposed ways and price controls. Gerald Ford had a stimulus package. Jimmy Carter had advocated easy money as the other presidents did. And so it was across the board. And the performance was terrible. High inflation, high unemployment. And this is the United States. And one issue here discusses to what extent these kind of ideas applied more generally. And I think they do. Then we shifted back towards these principles. And you can think about what those were, but we moved away from the short-term stimulus packages. We moved to a monetary policy, which was much more predictable. It wasn't go stop. The person who was in charge of that was Paul Volcker, appointed by Jimmy Carter. We had a regulatory policy. I hope to show you some examples of that, which became sort of reduction in the number of regulations rather than increase in the 70s. And what was the result of policy performance was really just much, much better. And I would say, if you look at other countries where similar changes were made, you'll see an improved performance as well. And I think that's a general statement about developed countries. Of course, there are exceptions. And then finally, this is kind of my point. I think that in the last 10 years, eight years, I don't know exactly when to define it, but somewhere in the 2000s, we veered away from these principles again. And I want to just describe that a little bit. I think it's true of monetary policy. I think it's true of fiscal policy. I think it's true of regulatory policy. And it's not one administration in the US versus another, but we've moved in that direction. And I think you can think about both the crisis and the slow recovery as related to that. So let me first describe this as a short talk. So I can't do all of this, but I'm going to focus on monetary policy to illustrate this and then just touch on a couple of others. So with respect to monetary policy, I want to use this diagram. And I want to focus again on the United States. I think this is a general idea, but I know the United States the best. Inflation rate, going back in the 1950s, you can see the great inflation and the better performance recently. If you draw a line at 4%, which I'm doing there, I hope you guys can see this OK, draw a line of 4%. You see two different monetary policies. 1968, inflation rate's 4%, and the Fed has an interest rate of 4.9%. So just a barely positive real interest rate, not enough to contain the growing inflation. And in fact, inflation continued to rise. And we had this great inflation in the 1970s, as you can see. I also drew a box there from 1989. And the same inflation rate, 4%. What's the interest rate by the Fed? It's 9.7%, almost twice as high. And so that's a different kind of policy. So that to me is a shift of policy that I'm talking about. That's an example of how policy changed from a very unsystematic, basically ghost stop policy, so the go there, the 4% and 8% in the late 60s into the 70s. And by the early 80s, we changed. And so I'm showing you 1989 there in a much different policy. And that really resulted in a much better performance, quite frankly. Inflation came down, unemployment came down. It was not only monetary policy, there were other changes as well. But then to illustrate the viewing away, I'm drawing a line now of 2% inflation. And I'm giving you two places to look. One is 1997. So that's still during, I consider, the principal period. The federal funds rate is 5.5%. Again, the inflation rate 2 and the funds rate 5.5. So that is part of the good policy. Economy is pretty close to normal operating conditions. And then you see 2003, inflation rate 2% still. Funds rate is 1%. So it's a completely different policy. In this case, the kind of policy that you might worry about, in fact, in retrospect, this is the period where we had a lot of accesses, search pre-yield, accentuated the housing boom, and eventually, I think, was one of the reasons we had the bust. But this is just monetary policy. And you can see it. To me, this is the easiest way to see it. It's not rocket science. But fortunately, we can document this in different ways. And one way to document it is based on this so-called Taylor rule. I always, at times like this, wish it wasn't called the Taylor rule. Because when I started talking about it, people say, oh, he's just talking about his rule. But so I'm only going to refer to research other people have done on the Taylor rule. So this is a picture to illustrate what I mean about the change in policy. The thing over there is the policy rule. The R is the short-term interest rate. P is the inflation rate. Y is GDP gap. And so it says the interest rate should move up. When the economy goes into a boom by 0.5 times Y. And when the inflation rate moves away from its target of 2%, the interest rate should change. And the two at the end is to make the equilibrium terminal federal funds rate 4% with the 2% inflation target. So this goes back into the early 90s. And the chart here is not done by the Federal Reserve in 1995, so this goes way back. But it illustrates what's going on. It shows you how off-policy was in the late 60s and 70s. The rate, actual rate, shown by the solid line well below what this policy rule would suggest. And it's another way to systematically describe a policy was not adhering to these principles. And then you see a switch. Pulled open, as I mentioned before, policy began to change. And so we started to adhere much more closely to this kind of a rule in the 80s as of this research, 1994. So more Fed research is shown in this picture that extends this. This is done in 2007 by the Federal Reserve Bank of St. Louis. It's the same kind of picture. I don't need to describe the details. It's the solid line as the federal funds rate. The blue line is an estimate of what it should be based on that same policy rule adhered to quite closely. But now look what happened as you go beyond 2002. Same thing by pull. You started to deviate. And so the rate is now much lower again than what you would have thought based on the good experience of the past. This is a chart which The Economist magazine put together based on Paul's things in 2007. And now just an easier way for people to see how the policy drifted away from what seemed to be working at that time. And it is as much of as a 300 basis point difference in this period. And I think this is one of the first pieces of evidence of our moving away from what was working with respect to monetary policy. The crisis itself, again, I think accentuated by this. When the crisis hit, especially in 2008, I think central banks did a very good job in terms of providing loans and lender of last resort, Federal Reserve in particular, but others as well. And so during that span of the fall of 2008, you would have had a return to good monetary policy, at least with respect to the lender of last resort. But then if you look at what's happened since then, quantitative easing, the forward guidance, extraordinary low rates for such a long period of time, you would be hard put to say that this is a predictable rules based kind of policy. You might think it worked. I don't think it worked. But at least it's not the kind of systematic kind of changes that we saw that worked so well before. And to large extent, you're moving away from that particular type of policy rule. So I think it's an example of this major shift in policy. And I'm not just focusing on monetary policy. Now it turns out, and I just have a couple charts, because we only have a few minutes, to illustrate some of the other policies. Again, thinking about the US. Before I do that, actually, a real question is to what extent what I'm saying here applies more broadly. And so I have one chart to help you think about that. This was, again, I didn't do this chart. It comes from the OECD. And it's 2001, 2006. They are using the Taylor rule. And they basically have just taken what I just described about policy and the Fed and looked at it for all the countries within the Eurozone. They basically accumulated the difference between the interest rate of the ECB and what a policy rule would suggest is right for each of the countries in the Eurozone. And then accumulated that over the period 2001, 2006. So it's like summing up those gaps I just showed you over a number of years for the different countries. And they plotted that on the horizontal axis. And then the vertical axis, they put a measure of the housing boom, in this case, residential construction. And they just put the different countries. You can see the countries which did have some problems or booms or bubbles, whatever you call it, with respect to housing, are just where you think they'd be located. You see Ireland, Spain, and Greece all over here on the right side, which suggests those rates were too low for those countries. Very much like what I showed for the US. The other countries didn't fare so poorly. The rate wasn't so low for them. But what I would argue, just to add a little bit to this, is it's pretty clear to me that during this period at least, the ECB was, at least to some extent, being influenced by the Federal Reserve low rates. Federal banks do tend to follow each other, even if they don't admit it or they're not forced to. And so those low rates set by the ECB kind of accentuated this. If the ECB rate was 100, 200 basis points higher, you would have avoided a lot of this spread. It wouldn't have hurt Germany very much, or Austria, or Belgium even, but I think it would have met a better policy for the countries over on the upper right-hand side of the diagram. Again, with a single currency, you have this spread inherent, but you can get closer to what's a good average for all of them. And finally, I don't have the UK here, obviously, because it's not in the Eurozone, but evidence that the former deputy central bank governor of the Bank of England reported in 2010 suggests that their rates were also somewhat low compared to a reasonable estimate of a roll. And he estimated that 46% of the housing boom there was related to that, not proof, but sort of suggested the same kind of story. Important for me to stress this part of it, because this all occurred before the crisis. And all of what I say here today is subject to the criticism that there's a difference between correlation and causation. So the 60s and 70s, poor performance, 80s and 90s, good performance, recently poor performance, different kind of policies in those three periods, is it just a correlation? I think there's a lot of evidence to say it's not a correlation, it's a causation. And it's most obvious in the first change, because it's not like the economy got better in the 80s and 90s, and then policy adapted to that. There's no question that policy has changed in advance. Paul Volcker came into the Fed, for example. And that changed the policy, and the performance changed. So there's a causation that helps you, there's a temporal relationship that helps you see the causation. And then recently, it's very easy to say, and many people say this, well, when there's a financial crisis, you just have to do different kind of policies. You just can't follow those policies before. You've got to change the rules. The rules change. But this is coming before the crisis. And so it's sort of evidence there's a temporal causation that helps you prove the causation. OK, so that's all about monetary policy. Maybe just say a couple of things about fiscal policy and regulatory policy. And then I'll stop. What was surprising to me about the last few years is how we could have had a return to the more discretionary stimulus packages that we had in the 1970s. I remember that period very well. Obviously, I was a teacher, and a policymaker, all those things then. And by the end of the 70s, there were papers being written about how much of a failure these interventions were. Tom Sargent and Bob Lucas wrote a paper after Keynesian macroeconomics, which said these policies aren't working. Really produced a lot of people. And policy changed as a result of that. And I think just in general public concern that it wasn't working. And we had a long period of time where people didn't think much about these kinds of packages. Let me call it discretionary Keynesian stimulus packages. Temporary, for the most part, not kind of long term things. We basically abandoned them in many countries. But then they came back. They came back. And they're back now. I mean, maybe we're also moving away from them as well. But they came back with a vengeance. And again, I think they didn't work again. I think they're part of our problem. My one example that I'll share with you is the US interventions with the discretionary stimulus packages in 2008 and 2009. And by choosing 2008 and 2009, I'm emphasizing this is not a partisan statement. It's two different political parties in the White House. 2008 versus 2009. In 2008, you see the stimulus package. You see how it affected personal disposable income. That's the green line. It went up as payments were made to people to get them to spend more to jump start the economy, jump start consumption. You see the 2009 stimulus too. It looks a little smaller because it was a bit spread out over time. But the same kind of concept, the temporary payments to individuals or temporary reduction in their taxes. And again, it was supposed to jump start consumption in the economy. And you can see it was no effect. And of course, you have the recession with respect to personal consumption expenditure. That's the red line going down. Obviously, that will not cause by the stimulus package. But you don't really see an impact. And this is just a chart I know. But if you look at the regressions, you see very little impact as to this is exactly what modern economics would tell you. Franco Modigliani's life cycle. No deferred permanent income. People think about their income in a longer term sense. And they don't rush out and spend it if they get a check. And so that's what happened. Over on the bottom here, they put something in. Because it's just another example, in the US, we had a cash for clinkers program to stimulate the economy where people got a little extra money if they turned in their old gas puzzler and got a new car with a jump start consumption. This is the best estimate of its impact. It's hardly noticeable. But in any case, it was offset by a reduction afterwards. If you can see, it did increase consumption. But even if it was now offset, you can't possibly think this is something that's really going to make a difference for the recovery. These things just don't help get a sustained recovery. At best, they kind of help for a little bit, and they go away. I think, basically, that's true of many of the most packages that we saw around the world in 2009. Temporary, they had the disadvantage of making the debt problem worse. Had to be offset. Had to be reduced. And whenever you think about austerity, it's sort of undoing, to some extent, these kinds of policies. So that's the fiscal policy side of it. And you can see it's that same pattern I talked about before. And then, finally, just a little bit of evidence on the regulation. Oh, I'm sorry, this is just a picture of the debt in the US. And it's going back to the 1700s. And you can see how it's both increasing and expected to increase even as they speak unless we make a change in the policy. And that's, again, I think that's a shift in policy. Let's face it, this is a different kind of policy that still needs to be corrected if we're not going to avoid a real disaster. And that projection of the debt, 2009, 2012, it's about the same, raises questions about how it's going to get resolved. Is it going to be a tax increase? Is it going to be more budget cuts? Is it going to be a debt crisis? And we don't know. That's the uncertainty. I mean, finally, just a little picture on regulation. Regulation is the hardest part of, I think, all this to document and think about, but maybe be the most important. This is just a picture of the number of employees in the federal government that do regulatory activities. And you can see the 1980s, it was declining. And that actually followed a big increase in the 70s. Not a gigantic decline, but it was declining. And you see more recently, it's increasing. And I'm taking out the guys that handle security at the airports here, which is a big increase, but that's taken out just to make it clear. So the story is very much the same. And it leads me to the obvious conclusion that we need to find a way to get back to those principles, get policy closer to those principles, mantra policy, fiscal policy, regulatory policy, you name it. I think it applies more generally. I think if we do that and we find a way to persuade the people who make these policies that this is the way to go, maybe first persuade ourselves this is the way to go, that we'll have a much better chance of having the kind of economy that we had in the 80s and 90s, which I think was pretty good. So let me lay it there. Maybe we can have a good discussion about this. Thank you.