 Welcome, colleagues, students, alumni, guests. This afternoon, Professor, I'm Michael Lash, Chair of the Economics Department. This afternoon, Professor Alan Blinder will deliver the 2013 Gamble Lecture of the Department of Economics and the University of Massachusetts. The Philip Gamble Memorial Lectureship in Downing was established by Israel Raghosa, class of 1942, and other family and friends in memory of Philip Gamble, a member of the economics faculty from 1935 to 1971, and chair of the department from 1942 to 1965. I've been introducing the lecture for a couple of years now, and I've said in the introduction that Professor Philip Gamble is beloved by students. And I just said it because it seems like a good thing to say. But at the UMass, Sesquicentennial Celebration I had the good fortune to meet one of Gamble's students, who was class of 1968, if I recall. And she described regular class dinners at Professor Gamble's house in town. So I really think that he actually was a glove attack member in some of the weeks I know. So we can look up to him. This afternoon, we're honored by the presence of members of the Raghosa family, Marty and Elizabeth Raghosa. And Israel's nephew Marty is a 1979 graduate of the Eisenberg School of Management and is the steward of our Philip Gamble Memorial Lectureship Endowment. And Elizabeth is also a UMass grad, class of 1988, in zoology. So welcome and thank you very much for joining us. The Gamble Lectureship is also supported by the Charles Al and Martha S. Gleason Fund. Charles and Martha were economics graduates in 1940 and 1942, early in Philip Gamble's career. And both are now gone. The Gamble Fund supports an annual lecture series featuring a prominent economist. Previous speakers in the series have included six previous Nobel Prize winners, including George Acherlof and the late Eleanor Ostrom, as well as other leading lights in economics, including John Kenneth Galbraith, Barbara Bergman, Marianne Berver, just to name a few. Let me now introduce today's speaker. A native of Brooklyn, New York, Professor Alan Blinder, earned his A.B. from Princeton University in 1967, a master's at the London School of Economics the following year, and his PhD from MIT in 1971. That's only three years getting the PhD in case you're counting. Professor Blinder has spent all of his career at Princeton University with several important excursions to Washington to enter our nation's service. He is now the Gordon S. Rentschler Professor of Economics and Public Affairs at Princeton University, a co-direct Princeton's Center for Economic Policy Studies. He writes a regular column for the Wall Street Journal and is active in several independent think tanks and research and consulting groups, including the Observatory Group, of which we have another representative of Rosemary Warrett, a UMass alum. In public service, however, and most prominently, Professor Blinder served as one of three members of President Clinton's First Council of Economic Advisors in 1993 and 1994. So he then served as Vice Chair of the Board of Governors of the Federal Reserve System until early 1996. I'll offer, as personal opinion, that Alan's more skeptical approach to financial markets and to the macro-economies propensity for self-regulation. He prevented his appointment as Chair in favor of the continued laissez-faire style of a reappointed Alan Greenspan, a decision that we might say had significant ramifications. So, and by the way, on that topic, I highly recommend Professor Blinder's recent book After the Music Stopped, to anyone who would like to understand the causes, the course, and the consequences of the crisis of 2008. On a more personal note, Professor Blinder was my first ever economics professor. This is a true fact. In spring 1988, as a Frosch at Princeton, I took Professor Blinder's Econ 101. At the time, Professor Blinder had just published a book called Hard Heads, Soft Hearts, one of almost 20 books he has written, and this book of Tough-Minded Economics for a Just Society truly changed my life. We also, for the course, used William Balmell and Alan Blinder's economics principles and policy, and as a man of principle, he rebated the royalties from the books to students taking his course. You know the saying, everything I need to know, I learned in kindergarten. I can in all honesty say that of Alan Blinder's Econ 101. Why the stock market cannot necessarily be trusted to allocate funds for investment. Why a strong dollar may not mean a strong economy. Why belt tightening for families and businesses across the nation may not mean that the federal government must also tighten its belt. These were the matters in his well-crafted lectures. We also had a classroom visit from recently retired Federal Reserve Chair, Paul Volker. At the time, to be asked, I did not understand everything I learned, but as I've needed it in each succeeding economic crisis, it's been there in the back of my brain just as Alan Blinder taught it, and I can still conjure his lectures and help me to find a place to keep it there. His teaching sets a standard for how universities can create thoughtful, deliberative citizens capable of taking up the political and economic challenges of the day. Before I turn over the floor, which I'm about to do, let me remind you that all are welcome to join the economics department for a reception here following the lecture. Please join me in welcoming the 2013 Gamble Lecture of the University of Massachusetts Amherst, Professor Alan Blinder. Well, thank you very much for that splendid introduction. I'll now disappoint everybody. I think this is the reason that people like me do lectures like this, for the introduction, because you hang around your own university, nobody ever says anything like that about you, nobody. Now what did I do? I leaned on something. Oh, it's not showing there, sorry. Okay, this is fine. It's a pleasure to be here as you all no doubt know when people like me and people in my profession tend to think of Massachusetts, they tend to think of Boston. This looks so much better than Boston. And especially the weather that you obviously feature here. Whoops, all right, hold on a second. The water's gonna have to move. I'll figure this out. When you think about giving a public lecture, by the way, can you see the screen from the cheap seats? Okay, good. When you think about giving a public lecture, there's always this trade-off about if you make it sort of technical enough to be interesting to the economists in the room, it's gonna leave a lot of the other people baffled or more importantly bored to death. So with apologies to the economics faculty, I aired in the other direction. I took the, I take the term public lecture seriously. So this is the theme, economic growth and what that means is economic growth in the short run and the long run. And the way I've structured this, there's kind of a lesson, an intellectual theme, and then applications to several contemporary public policy debates, both in the United States and elsewhere. So that's the kind of big, big, I haven't, in a minute, I'll give you what I mean by the long and short of it. But as everybody does know, all right, where am I, where do I, all right? I tried this before, forward. Well, how about this? No. Here is this theme that I mentioned. I'm calling it the big dichotomy and it is in some sense the nile of that previous diagram. So this diagram, which you see in your first day in economics is that everything depends on the intersection of supply and demand and it's simultaneous and you don't know anything until you know supply and demand. I wanna actually deny that to some extent and that's what the big dichotomy is about. And in particular, what I'm calling the big dichotomy is that economic growth, the growth of a whole economy, is basically determined by demand in the short term and basically determined by supply in the long term. So that in the Marshallian analogy, you can, and with some exaggeration, you can sort of look with one blade of the scissors at a time. For the short run, we're looking at the demand blade, for the long run, we're looking at the supply blade and I'm going to flesh that out if that sounded cryptic. I'm gonna flesh that out shortly. So in particular, if you're thinking about growth policy, which I wanna think about a lot in this lecture, the short term influences tend to be dominant in the short term, but they're transitory and so irrelevant or almost irrelevant for the long term. So concretely, if you're thinking about monetary policy today, what the Federal Reserve does with monetary policy today could be, and if they had more ability to move interest rates would be, very germane, an important factor on how well the economy does for the next year, two years, but probably completely irrelevant to economic growth five, six, seven years from now, totally irrelevant. On the other hand, while long run influences are small generally, and I'm gonna flesh this out more, they're lasting. So as it says, just to give you a sense of magnitudes, if you're a policy maker, I should tilt this a little, if you're a policy maker and you can devise, well first of all, American policy makers, they just can't devise anything, but so in a leap of faith, if we imagine there were rational human beings running our government in Washington, if you could devise something that added two-tenths of a percentage point to the long run growth rate, not necessarily the forever growth rate, but maybe the growth rate for the next decade or something, that would be an incredible achievement, tremendous achievement, but for short run policies that move the GDP growth for a year or so by two percentage points aren't even hard to think up. So in addition to there being a dichotomy on the short and the long run, there's a sharp dichotomy on the magnitudes. Long run policies will never, ever, ever with some exaggeration, add a half a point to this year's growth rate. Short term policies will not add anything probably to the growth rate five, eight years from now, but they can do a lot in the near term. That's the basic nature of the dichotomy. Here's a graph, very scientific graph that indicates this. This is the tortoise and the hare, in case you can't see it. So the hare is the short run policy. This is not actual data, this is just to give an idea. Classroom diagram. This is a policy without naming it, but you can think of it as a fiscal stimulus that boost GDP 1% in the first quarter, these are quarters, rising to one and a half and then falling off and hitting zero at about the eighth quarter and maybe even going negative at the end. Okay, so rise in defense spending or something. The tortoise is some long run policy of the sort I was alluding to a moment ago that adds to the growth rate of GDP here, I think for six years, I think that's six, two tenths of a percent per year, so then raising the level of GDP 1.2 percentage points after six years and then that's it. So it actually adds 1.2% to the level of GDP in this schematic forever, but by the time you get to year seven, it's doing nothing at all for the growth rate. That's kind of to give you a mental picture to go along with this, what I'm calling the dichotomy. Okay, so this is the rest of that slide. The reason I'm talking about this today is that I'm down here now, failure to distinguish between the long run and the short run effects of policies leads to tremendous confusions in public policy discussions in the United States, in Europe, in Japan, everywhere basically, and let me just very quickly take off four examples, all of which I'll come back to in a couple of them only in detail. In the U.S., you have no doubt heard unless you just never look at the internet or look at a newspaper, A, that more government spending boosts growth and B, that more government spending hurts growth because it raises the budget deficit. Both can be true, depending on whether you're talking about the near term, short term, or the long term. I'll come back to that. You have probably also heard that what we really need to get the economy going is tax reform. Now I'm a big advocate of tax reform. I think the tax structure we have in the United States is a total embarrassment. But, tax reform is not gonna do anything for near term growth, to put a slightly too fine a point on it. I'm gonna come back to that. In Europe where they're preaching austerity in order to get budget deficits down, there's incessant talk, and indeed this talk goes back decades, about structural reform. In Europe that usually means labor market reforms that make it easier to fire people and cut social benefits. That's what it usually means, but it can mean other things. This is supposed to be the growth policy that substitutes for or even overwhelms the contractionary effect of fiscal austerity, not so. These may be sensible reforms for the long run, or they may not be, but they may be, but they will not do anything for short term growth. And then we have in Japan, Prime Minister Abe came into office, campaigned on and now is the Prime Minister of Japan on strong fiscal expansion, which means bigger budget deficit, strong monetary expansion, which means concretely shooting for a 2% inflation target, which Japan hasn't achieved for decades. And then he had, he calls it the third arrow. An American would call this a third leg of the stool, but in Japan they call them arrows. And which is supposed to be a whole lot of structural reforms of various sorts. It's kind of an amorphous phrase now. And again, those things are on opposite sides of the dichotomy. The third arrow is all about the long run. It's gonna have nothing to do with the near term, but where the monetary and fiscal policy are germane. So let me now just go and don't worry this won't last long, three slides I think, to the didactic pedagogic part of this talk. The students can fall asleep now, but come back to me in about three slides. So why is this the case? What is the reasoning behind this relatively sharp dichotomy? So here's my very short economics lesson. Without going into them, there are a variety of theories supported by a considerable body of evidence. I don't wanna say every shred of evidence points in this direction, but I think the evidence is overwhelming and substantial. That actual GDP, gross domestic product, the size of the economy, has a strong tendency to return to potential GDP. So that means the GDP we would get at normal full employment. But slowly. Okay, so some people like to estimate the strong tendency to return, and some people like to emphasize, I'm sorry, the but slowly part. Sort of like a pendulum in physics. So here's the diagram. This is, you can all, can you all still hear me? I think you can. I'm a professor, I project my voice. This kind of straightish looking line, curved but not bouncing around line, is potential GDP as estimated by the Congressional Budget Office. And the other line that's bouncing around it is actual GDP. Now if I ask you for just for us 10 seconds to ignore this, this is the great recession. That looks very much like evidence for a strong tendency for GDP to return to potential GDP. Not to go off to the wild blue yonder or to just sink and sink. The great recession is also, but it looks pretty bad. In two senses. We dipped pretty far. And that means if you're living in the United States in the later part of 2008 and into 2009, it didn't really look like there was a very strong tendency to return to potential GDP. And the second thing you see that is that, well then we did start, but it's been a really slow process. So we are miles from potential GDP right now. But that has not really shaken the faith of very many American economists in the prior theory and evidence that says you do return eventually to potential GDP. So now that raises the question, why? So there are a variety of forces and this is where in economics 101 or in intermediate macroeconomics, you take a lecture and a half on this, but I'm gonna do this in about a minute and a half. And just mention one important one, which is the behavior of wages and prices. So inflation, if you will. Wages and prices tend to decelerate when the slack in the economy, high unemployment, we call that disinflation, inflation rate falling. And wages and prices tend to accelerate that is go up faster when markets are tight, where the unemployment rate is low and product markets are tight, and we call that inflation. Then there was that but that I put on there. But the evidence says that this process is a slow process. So when I phrase that original big dichotomy, I use the word transitory, you shouldn't think that transitory means fleeting. It takes a while, that's the but slowly. Ah, part. The convergence back to full employment is a slow process, not a fast process. And again, I call attention back to this tortoise hair diagram. A major reason why the blue line, the effect of a short run stimulus, peters out is exactly this return that we would return to normal anyway. And therefore, the fact that, say the fiscal stimulus, if that's what it is, gets you back to normal full employment faster, winds up having no effect after a time, because you'd have been there anyway, have a bit effect in the short run, gives the economy a kick in the butt. To move faster has no effect in the long run and that's the meaning of this thing going back to zero, the effect of the policy. So what I wanna do now, so that's the end of the didactic part, is look a little bit more at the details of what drives the economy in the short run and the long run and what that means for policy. So, what I've said so far says that if you want to boost growth in the short run, you gotta be thinking on the demand side of the economy and that's what I want to do. So depending on your age, the remember this question is, do you remember this from 40 years ago or 20 years ago or yesterday? If you've taken any economics course ever, you've seen this, that GDP, symbolized here by Y, on the spending side, when you look at the major components of GDP, on the spending side is consumer spending, investment spending, government spending and exports minus imports. So this is what the rest of the world buys from us, net. By the way, for the US, as you probably know, that's a big negative number on net. We're buying from the rest of the world rather than conversely. So if I look at these pieces and you wanna think, I wanna think about two things. First, how are they doing right now? So why is the economy in this mediocre spell? And second, what might we do to speed it up? Speed up the growth component by component. Consumption spending, consumer spending is more or less on cruise control these days and has been for a few years, which means that it's just trundling long following income. So an elementary piece of mathematics that all of you understand, even if you can't do any math at all, is that if this thing is the sum of these and these two are growing at the same rate, consumption is neither speeding up growth nor slowing down growth. It's just doing the average. And that's about what's happening in the US today and it leads some people, not so many anymore to talk about tax cuts to consumers so they'll spend more. During this mediocre recovery that I showed you on a picture a few slides ago, the strongest growing, the fastest growing component of GDP by far has been business investment. So it says business investment has been strong despite a lot of misleading rhetoric that you might have heard about. Uncertainty over regulation, Obamacare, bad television programs, whatever, causing businesses to be uncertain and nervous and not wanting to do anything. It's all false. I mean those things may be happening, especially the bad television programs. But despite that, businesses have been investing quite strongly in this recovery. I remember, I'm not gonna get the numbers right, but the growth of business investment since the economy bottomed out, I think is three to four times the growth rate of GDP, something like that. It's been by far the strongest. Now the other piece of investment, this is for those of you who had to remember only yesterday, your economics 101, what do you call it here at UMass? One, 101? First course? 102? Well it's either 103 or two or four, I'm hearing. Whichever it is reminded you that another piece of investment is housing, residential construction, people. Builders building houses for people to buy. And as I think all of you know, the housing was the weakest sector of the US economy for a long time. And partly because of how deep the slump was, but partly because we as a society did so little to fix it, another shameful mistake. Housing was dragging down the total GDP growth rate for a very long time, changing only recently, like late last year and through this year. Housing is now a nice driver of, it's pulling up the average. And then we come to government. So, government's, contrary to the rhetoric you hear, especially from the political right, you don't have to worry about that in Amherst do you? But if you live other places you hear, that there's too much government spending and it's killing the economy and all that stuff. There may or may not be too much government spending. That's a matter of opinion on a variety of things, but there isn't any doubt about in the data if you look at the growth rate of government spending during this recovery, after a burst because of the Obama stimulus program in 2009, it has gone negative basically. And it has been the strongest factor of all of these in holding back economic growth. In fact, they did a very simple calculation the other day. You can compute, the growth rate of GDP is published all the time. You can easily compute the growth rate of GDP other than G. And the answer is for the last three years, while the GDP growth rate is average only 2%, that's the terrible slow recovery you saw on the chart. The average of GDP minus G, the government spending, the government purchases of goods and services is 3%. Now, 1% may not sound much, but think of it as a 50% increase in the growth rate. It's transformative. The whole society would feel different now if the growth rate of GDP had been 3% a year instead of 2% a year for three years, but it wasn't and an arithmetic explanation is that government spending was falling. And then we have this big negative number, exports minus imports, the only thing I wanna say is that if we're thinking about how to grow faster in the United States, don't expect the rest of the world to bail us out by buying lots of goods and services from America because relative to a lot of the rest of the world, we look good here compared to how Europe is behaving, compared to Japan until recently and so on. So if we're gonna get out of this, get some more umph into growth through policy, what are the policy levers that can be pulled? So there's the two people that you probably recognize. The gentleman on the left is the guy who controls monetary policy. The gentleman on the right is the guy who doesn't control fiscal policy. So I wanna talk about them in turn. So the Federal Reserve has done an amazing amount of monetary stimulus in a variety of ways. It needed to do a variety of ways because it's conventional way, which is to pull down the short-term interest rate, hit its limit in December 2008 when the Fed pulled the short-term interest rate essentially to zero. There's a little bit of daylight showing between where they are and zero. But it's puny. So they basically shot their wad, the first wad on lowering the short-term interest rate in December 2008. Now that, of course, is the way when my students in the class of 1988, or the class of 1990, whichever class that was, heard from me about monetary policy. The only thing I ever mentioned is moving the short-term interest rate down because that's all the Fed ever had to do and it's all it did do until recently. In response to this, it has gone, as it says here, from stronger instruments, the short-term interest rates, to weaker instruments, many of them called QE, which doesn't stand for Queen Elizabeth, but quantitative easing. It means basically going out into the market and buying stuff, assets, financial assets, that the Fed hardly ever had bought before and in very large volume. But while it's doing that, the short-term interest rate just anchored at zero and they can't pull it down anymore and that's been a big handicap for the Fed. And by now, the Fed has nearly tapped out. I don't want to say entirely tapped out if anybody wants to come back to that, we can. But there's not a lot more that the Fed can do to boost growth and in fact, again, if you've been paying attention, all the discussion at the Fed these days is about quote, tapering. What does that mean? That means slowing down the rate at which it's acquiring assets. So that's not pushing the economy faster, that's trying to push it less. No, it's not doing that yet. Fiscal policy, as I mentioned more than once, there was a quite big fiscal package passed in 2009, February 2009, one month into the Obama administration. It was about 5% of GDP, so that's a lot. It worked, but it got a very bad name in some quarters and I think a major reason for that very bad name was that this is a very expensive way to create jobs. And let me just give you a very quick mental calculation and you'll see why. The United States is a wealthy, very productive economy. There is approximately now, it was a little bit less, in 2010, in 2009, 2010, but there's approximately 120 or something, $20,000 of GDP per job. What does that mean? If you wanna think about creating jobs by creating more GDP, and they're sort of average jobs over the whole economy, it's about $120,000 per job. And if you then tell that to John Boehner or Ted Cruz, they'll say, are you crazy, you can do that? You're gonna create jobs that cost $120,000 per job? That sounds nutty, but that's the way the arithmetic roughly works out in an economy that's as wealthy and productive as ours, unless you target it much more sharply on job creation. If it's just what I like to call the build it and they will come strategy, build more GDP and jobs will come. They will come and on average, they'll cost about $120,000 of GDP per job. That was step one, but as I indicated before, since 2009 or since 2010 really, the focus of fiscal policy in America changed to how can we reduce the budget deficit? And it's still there. That's what they've shut the government down over these last few days. So we've been on that side of the fiscal policy divide, the contractionary side since something in 2010 and it shows no signs of stopping. And of course right now, Congress is completely paralyzed. I want you to know that I wrote this slide, I don't really remember, 10 days ago, two weeks ago, maybe more. I didn't mean the government shutdown, it was paralyzed before it shut down. Now the Congress is totally paralyzed and it looks like all they're doing is sticking their tongues out at one another. Now before going to the long run, I want to make one other important point, but not just to make it and go on because it's irrelevant these days and that is this. As I've talked through those components of GDP and the relevant policy levers, everything was about getting more spending in society, getting faster growth. There are times when you actually want less spending. So when you see the inflation monster walking in the door, that's Ben Bernanke there at the door. What does it say on that? Welcome wagon, so the inflation monster is not welcome. When you're worried about the inflation monster, you want to do the kinds of things I was talking about in reverse, pull back on demand, but it's irrelevant now and it hasn't been relevant for years. It will again be relevant sometime in our future, so I just want to say that for the record, so to speak, and move on. So now let's go to the supply side and this means go to the long run. And with only a small apology because this is lower math, not higher math, I want to put up an equation, so to speak. This extremely non, this extremely simple equation simply says in symbols that the GDP, how much output we produce as a society is how many people you have, the population, times how many hours of work do you get per person? So people are lazy, you get less GDP if they work harder, you get more. And output per person, how much output does each hour of work give you? So that's it. So that's pretty simple. The point I want to make with this quote, equation, if you glorify it by that title, is that the population is what it is. We really don't want to get faster growth by working people harder. That's not a good way. You can do that for a while. But in particular, it's not what happens in rich societies. Over time in rich societies, people want to work less hours, not more. So really the whole ball game is on that last thing, in the long run. Remember I've switched now on the other side of the dichotomy, I'm on longer and grow. Output per hour, or what economists like to call productivity, particularly this is labor productivity, how much output you get out of an hour of work is the essential thing. So when policy makers start thinking about ways to get the long run growth rate faster in the US, they need to be thinking about this. Output per hour. Now, one way you can get output per hour to go up is to have better labor, not more labor, so more, this is what I said before. That's not such a great way to get faster growth. Although there are some exceptions like this last. If you've got a share of your population because they're uneducated or whatever or discriminated against or both, you can bring them into the productive labor force, that's a nice way to get more growth, but just telling people we're ending the 40 hour week and everybody's gonna work 45 hours a week, that's not really the way we wanna get growth. Better labor is a better outcome if you can do it. The scope for this in the United States, which is a highly educated society, is limited. Unfortunately, not as limited as it used to be. We used to have, we used to lead the world basically in the fraction of our people that we sent to college and who graduated from college. We're not leading the world anymore. So, we could still now in the US aspire to be like Finland or Singapore or some society like that that's well ahead of us now. Didn't used to be ahead of us. So, there's some mileage to be gotten out of that as a growth, as a route to faster growth. And by the way, it would also help on inequality because it would be bringing, some of this would be bringing people from the bottom rungs up to the middle rungs. There's much more scope for this in poorer society, so this is a very important way for a poorer society to grow. More and better capital. Yes, that's a route to growth and if you invest more, you can go down that path and it works. So, that may be the reason why this is generally the emphasis of long run growth policy. So, here people talk about tax incentives for business investment and things like that. You hear much less in the United States when you don't need tax incentives but about increasing public investment. I don't know how you feel about this, but every time I go to Europe, I feel slightly embarrassed about the public infrastructure we have in the United States. Or, I don't have to go to Europe, I just have to get on Amtrak, which I did yesterday to get here. And you feel slightly embarrassed about the infrastructure. You probably, a lot of people have probably done this. We had to change engines twice between New York and here. I'm trying to, would this ever happen in France? No. So, you can have, so the emphasis of growth policy is usually on private business investment but the same arguments that lead you to want more private business investment also hold for public investment as long as they're good investments. So, why is this not the end of the story because of arithmetic? So, the share of capital in total production is about 30%. And that means, just as an example, if you can boost the nation's capital stock by 5%, so what does that mean? 5% more factories, 5% more office space, 5% more stores, 5% more machinery, and so on, which is an enormous achievement. So, that should be, that's that tortoise there, a very effective tortoise. That should, that will add about 1.5% to GDP and it'll take years to do that. You're not gonna get that done in one year. So, that's almost, you can think of that as kind of the outer limit of what we could, what do I do with the glass? What we could expect to get from invest, more investment. So, that's worth happening but it's not a revolution. So, that leaves the last thing in that string of variables that I had up there. Technological, technological progress as the key driver of productivity. Inventing things, innovating things. America's pretty good at that. The returns to this activity are risky. There are a lot of dry holes in innovation, but large and indeed, not just large but potentially unlimited because, and this is an important point, there aren't necessarily diminishing returns to new ideas. More capital encounters diminishing returns. Economists have been talking about that since David Ricardo were before. But they're not necessarily diminishing returns to ideas, especially big ideas. There's some little tinkering around the edges of some technology, they're probably diminishing returns to that, but with technological breakthroughs, there are no diminishing returns. So, this makes this a very promising, though difficult route to faster, long run economic growth. And as it says here, it's not easy to do for us. Now, in non-leading countries, countries that are not at the technological frontier but which have smart leadership, this actually is easy because as the old adage says, it's a lot easier to look it up than think it up. So, if you can get somebody else's blueprint that shows you how to do something vastly better than you're doing it yourself, that kind of technological change is easy as long as you have the institutional structure to actually get it right, which some countries have in some countries don't. But for the technological leaders, and except for a few industries, we are the technological leaders, not in everything, but in a lot of things, you can't look it up, you have to think it up, and that's a lot harder. So, some examples of the smart non-leading countries are China right now. China has been copying things very effectively for decades now. They're still miles below the technological frontier. Eventually, they'll run out of this ability, but not yet, so they can still grow very, very rapidly. The Koreans, the South Koreans did this decades ago, starting about surely after the Korean War and the Japanese before them. So, there's kind of a roadmap which in a way China is following now. That wasn't the whole story of South Korea and Japan, but it was a significant part. Now, there's one other source of long-run growth that is at least worth mentioning because it'll lead us someplace I want to go next, and I'm getting close to the end, making your economy more efficient. So, here there are lots of good ideas, and I'm gonna give you some example, let me actually put the next piece up. But implementing these good ideas is often difficult, not so much for technological reasons, but for institutional political reasons. So, here's where we come back to in the U.S. tax reform. If you locked up in a room, this is gonna sound a little bit like Noah's Ark, but it's a small Ark, two economists, one Republican, one Democrat, two lawyers, one Republican, one Democrat, and two accountants. Now, if accountants come and Democrat and Republican, divide that too. But not very political people, technocrats, and gave them some sandwiches and say, knock on the door when you've got a full tax reform done, and then we're gonna let you out and Congress will enact it. In that dream world, I think we could accomplish tax reform in the United States in about a day and a half. It is not that complicated. Now, notice I said a day and a half, not a half hour. There'd be a number of issues where these people would disagree, a little better this way, a little worse that way, but it's not that hard. It's not rocket science. We get a simpler tax code among many other things, and a tax code that fostered rather than inhibited efficiency, but politics stops that from happening. That little scenario I just described could not be more different from the way the tax code actually gets changed. And in fact, economists, I can assure you, have basically nothing to do with how the tax code gets changed. Lawyers and accountants do, but they're the lawyers and accountants in the employ of vested interests, not the hypothetical lawyers and accountants that I put into this locked up room. And of course, politicians are deciding, as they should, in a democracy. But it's politics that blocks tax reform. It is some combination of politics and labor management strife in Europe that blocks labor market reforms, and it will be, as Prime Minister Abe pulls third arrows out of his quivers and starts shooting them, politics, vested interests, and lobbying, and so on, that inhibits reform in Japan. So this is not unique to the United States. It only sometimes seems particularly bad in the United States, because we overlay the lobbying battles and the intractable political battles on a constitution written by James Madison, Princeton Class of 19, eight, 19. Princeton Class of 1771. That was designed to make it hard to do anything. Okay, parliamentary systems are not designed that way. Sometimes that's what they produce, but they're not designed that way. We're in a constitutional system that was designed to make it hard to get anything done. So it's damn hard to get anything done in the United States. Now, these kinds of things might in advanced countries get you in a couple of tents on the growth rate for a few years, but again, I don't wanna denigrate that. Remember the tortoise and the hare. If we could achieve what the tortoise was showing, that would be fantastic, and we should do it. Economies with more grotesque inefficiencies like China right after Mao can get enormous gains from this kind of, growth gains from this kind of reform, these kinds of reforms, and China has, and it's not finished. Okay, so let me come back now to something I raised before, the budget deficit, where you see the long run, short run conflict, very sharply, and I alluded to this before. Oh, here's the water. You hid it from me, Michael. I've got it. Little more water, and I wanna talk about the budget deficit debate for a minute or two. Just starting where I was a while ago with the short run, long run dichotomy. So how do you reduce the budget deficit? There are only two ways. You spend less or you tax more. Either one of those are gonna be a negative for growth. Either, on the demand side, remember it's all spending that matters. Either you're doing less spending yourself as the government, or you're raising somebody's taxes and they're spending less, that's gonna slow down growth. On the supply side, however, in the long run, if you reduce government indebtedness, that will presumably lead to lower interest rates in the long run. Lower interest rates means businesses invest more, you get more capital, and on the supply side, you end up with faster growth. Both of these are true, and that's why you hear these two sides of the debate, that to grow faster, we need a bigger budget deficit, or to grow faster, we need a smaller budget deficit. Now you need to be dot, dot, dots, and finish that paragraph out, but if you finish the paragraphs out correctly, both are actually true. So where does that leave us? Well, that does not leave us up a blind alley not knowing what to do. There's an obvious reconciliation to this, which is that you'd like to promulgate policies that raise the budget deficit today, so that could be more government spending, a tax cut, or something like that, coupled with long run policies that shrink the budget deficit in the future. Because that's, so you do the right thing in the long run, you do the right thing in the short run. Sad to say, Congress has been for the last several years and continuing doing exactly the wrong. Not doing anything very much about the long run budget deficit problem, but hammering on the short run budget deficit problem by raising taxes and cutting spending. And that's what's happening today. Presumably is happening today in Washington. So there is a way out of that dilemma and Congress is doing the exact opposite. Let me apply this to one other thing, which is where the long run and the short run come together, and that's about investment. Again, in America, that generally means business, private business investment in other countries, there's more emphasis on public investment. So why do you square the circle at investment? Because if you spend more on investment, so that's the short term that the man side of the economy, stimulating demand by more spending, you will have a greater supply, a capacity to produce goods and services later on. So that's probably not what motivated the Chinese to build the Great Wall of China, but it worked. Okay, that was a massive spending project when it was coming up, but then left a legacy, which is still there in China. I guess they did it to protect themselves and now it's a tourist attraction. So that leads to things like tax incentives for business investment, more spending today, and then we'll have more capital tomorrow. It's the same rationale for public investment, as I said before, it's the same rationale for spending on research and education, which is what we prize here in universities, tax credits for research and development, dot, dot, dot, there are a whole variety of growth policies that lead to more spending today and more capital tomorrow, and that's the direction you like to go. Now, let's see where, let me, I'm just thinking about skipping. No, I think I can cover this. So let me then just, I'm almost finished, but I wanted to put in this big what if, I started by introducing this big dichotomy, saying it's a pretty sharp dichotomy. What if it's not quite right? And really it isn't quite right, that it's not 100% black, white dichotomy. So what if, for example, tighter labor and product markets today, so let's say through a stimulation of demand, lead at businesses to invest more, lead innovators to innovate more because you can actually sell the product that you innovated, which you can't do in a slump, leads people to take more training or businesses to give their workforces more training because there's more opportunity. In that case, we get both more demand today and more supply tomorrow, exactly as I was saying about business investment. So this is like, I don't know if you can see this picture, this is a nice picture of a hare pushing a tortoise. Move a little faster, will you? Remember the hare is the demand and the tortoise is the supply. So there are routes by which the big dichotomy is wrong around the edges and we should exploit those routes because they're very good, they do good things on both sides. Finally, what would that mean for right now, October 2013? Congress, instead of whatever they're doing in Washington now, should be thinking about sensible ways, we don't wanna waste it, to spend more or tax less today while simultaneously in the same legislative package, taking actions to curb spending or raise taxes in the future. Some examples are the big entitlement programs, which let me just say 30 seconds on social security. Social security is now the low-hanging fruit and if we had any rational, many rational people in Congress, they'd be working on this. Why is it the low-hanging fruit? If you wanna do a social security reform, the essence of it is you don't touch anybody who's close to retirement. That's unfair to those people. You legislate something today that's either gonna raise social security taxes or reduce social security benefits 20 years from now, whatever, pick your own number. That's by the way what the Greenspan Commission did in 1983 and it sailed through Congress. The technocrats came up with this reform and the Congress just adopted it. What that means, of course, in terms of this dichotomy is that you're not sucking any demand out of the economy today, none. You're just taking it out of future economies. But of course, this has nothing whatsoever. So these kinds of things are sometimes called the grand bargain or they were, you know what the grand bomb reading in this paper, the grand bargain now is putting together crashing into the national debt ceiling with shutting down the government. That's what now is being talked about, the grand bargain. It wasn't so long ago that deals like I'm suggesting up here what was called the grand bargain. Tax reform, as I said. We need tax reform in America both for efficiency and fairness reasons. But I think it's a capital mistake to use this as a revenue raiser in the short run for these two reasons. One is the one that I've been dwelling on that this is gonna damage demand. We're in a 2% growth economy and we don't wanna suck more demand out of the economy so we should do tax reform in a revenue neutral way. Second reason is a political reason. Tax reform is all about moving money from one pot into another pot. The people that gain it love it, the people that lose it hate it. If you've got a revenue neutral tax reform you've got roughly as many haters as losers, as lovers on a tax reform bill. If you then burden the tax reform bill by say, and I've heard this mentioned by congressmen, well we should raise a trillion dollars over 10 years by this. You completely skew the political balance in favor of the people that hate the reform because there are so many more losers against the people that love the reform and you probably won't get the reform. Last, infrastructure. Think about where the United States has been for the last several years and still is. Needing demand with a public infrastructure that's disgraceful with lots of unemployed labor including by the way especially people that lost construction jobs because that was the worst hit sector of the economy in the recession. And still today, although it was more true six months ago than today, a government, a federal government that can borrow until it ruins its own credit in two weeks can borrow at the lowest rates we've seen in this economy, this country since the Great Depression. I mean it wasn't so long ago that the US Treasury could borrow 10 year money at one and a half percentage points per annum, now they have to pay 2.6 or something. What that all adds up to the perfect circumstances to build more infrastructure and of course we haven't done anything like that. Instead, we have the US Congress behaving like they once did before. Thank you very much. Thank you, so we have how much time for Q&A? As long as I like or 15 minutes, whatever comes first. Exactly. Okay, floor is open. Yes, right here. The argument that it's been an ideal time for a lot of government spending on infrastructure is hardly new and as far as I know it's been around since interest rates have been practically zero and short and long. Right. So to the extent that you and a bunch of other economists have been saying this since the recession happened and haven't been listened to as far as I can tell yet, what's the point of public discourse and economics? All right, let me, so I'll paraphrase your question slightly because I don't think everybody heard it. The argument I just gave for spending more on public infrastructure has been made for years now and it was valid three years ago, two years ago, one year ago. Today, we haven't gone that way and then the question part was what's the point of a public discourse in economics? Well, some of it is just downright stubbornness. We're gonna keep repeating this until it sinks in. You sometimes have to do that with your students. But the main thing, the main reason I think is that the arguments against it are so heavily ideological that they're not arguments that say, you're wrong about the interest rates, they're actually high if you look at them in a different way or you're wrong about the infrastructure. We got the greatest infrastructure on the planet. You don't even hear anybody saying that. They're based on an ideological position that says I'll characterize it only slightly. If it's done by the private sector, it's good. If it's done by the public sector, it's bad. And I think some people just have to get up and scream that that's not so. Neither is the opposite. It is not the case that everything the government does is good and everything the business sector does is bad, by no means. But in America, that's not a problem. There are only six people in the country that believe that last thing. But there are a whole bunch of people, not the majority, but a whole bunch of people that seem to believe the first, that if the government does it, it's a bad thing. If the private sector does it, it's a good thing. And I think those of us who just don't believe that that's true have just got to keep shouting that it's not true. Now, to some extent, you only get action on things when you change the government. Elections matter. Yes, right here. You talked a lot about how a good way to boost economic growth in the future is to have a good generation of state colleges where we can have a high percentage of enrollment of American young people, basically. And the VA just announced about three days ago that if the shutdown lasts until the end of October, that the GI bill benefits for students are going to run out and that they're not going to have payments for November. So I'm just wondering what your opinion is about that and if the shutdown continues, what forecast is for that next generation of college students? So the question is about the government shutdown in particular cutting GI bill benefits for people going to college. First, a trivial point to the beginning of your question. In the US, there's only limited mileage we can get out of that because we do spend a lot, send a lot of people to college, but there is some. Now, to the more general point, you know, what can be said about the shutdown of the US government other than it's absurd? It's totally absurd. But if I go back to the big dichotomy, I don't think there's anybody in the country that thinks this is gonna last months, not to say years. It's a short run issue. Some of us thought in our naivete, I'm one of them, that if they did this, it would last two, three days and there would be such a you and cry, it would be gone. Maybe I'll be right after four, five, six days, I don't know. But right now, I think if you were to make a guess based on the machinations in Washington, this is gonna last a few weeks. But a few weeks, not a few months. But the VA was the one who said that it would last three weeks more than those benefits for November. Yeah, for November, but then they come back when it comes back online. So it's a dumb thing to do. I don't believe it's gonna do anything to long run growth. It's gonna take a bite out of short run growth. There have been a few estimates of this by economists, not by me independently, that suggests the order of magnitude is three tenths of a point off the growth rate for every two weeks of government shutdown. So you can do the math on that. So if we just play with the idea of two weeks, it'll knock three tenths of a percent off the short run growth rate. That's a dumb thing to do. We need to get the growth rate up, not down, but it's transitory and you basically make it back up for the most part. There'll be a few little exceptions to that. The biggest potential exception to that is if, as now seems likely, this runs into the collision with the national debt limit on or about the 17th of October. Now maybe it'll be over before then, but it might last then. And if, and this one seems very unlikely, we let that actually go to a default on US government debt. I don't think that's at all likely, but if that happens, that will have very long run implications. Not only for the United States, which will have to pay essentially forever more to borrow, but for the entire world because the, because US treasury bills are basically the world's financial currency. People trade assets against treasury bills all over the world and where are they gonna go? And this is gonna cause chaos in world financial markets if it happens. Hopefully it won't. Sir. You suggested that it would be a good policy for long run growth to reduce social security and some other social programs. And you also referred to flexible labor markets as possibly a long run growth strategy, although I don't know if we took a position on them. How can you explain why today after the economy GDP is much higher per capita than it was decades ago? Social security does not really support people at a very comfortable lifestyle. Why would it be a good policy to reduce it? And given that flexible labor markets mean workers are less secure. A couple decades ago, we had very fast GDP growth in countries with very secure jobs. Why today do these suddenly end up on the chopping block presented as a good thing? Okay, so the questions were about in terms of long run growth, flexible labor markets and social security reform. Let me take the flexible labor markets first. I wanna say very sharply and clearly that was about Europe not the United States. We have very flexible labor markets in the United States. Now you can imagine making it more flexible but we're way off at one end. Like the most flexible in the whole world. So when I talked about that, it was not at all about the United States. Second side point, you said that if you have more flexible labor markets, that means less job security and there's truth to that depending on what it means to have more flexible. It is also the case in many of these European societies that that's just not so. That it is such an impediment to hiring that people can't find jobs and they wind up unemployed for years. Something that's now happening in the United States but has never happened before. We've never seen long-term, well, since the 30s. We've never seen long-term unemployment like we've seen. Recently, Europe's been having it for generation already. So that's the flexible labor market. The social security, I agree completely. You said that American retirees don't exactly live high on the hog on social security. I agree entirely. The whole question to me is how much are Americans willing to pay in taxes? Americans are not Swedes. Americans are not Germans, Americans are not French. I do not believe that Americans will ever pay in taxes the share of GDP that is common in Western Europe. If that is true, and I firmly believe that it's true, if that is true and you look at the long-run projections of where the budget is going, it cannot, the majority of the fix cannot come on the tax side. I think some of it will come on the tax side. I think we'll probably, when we figure this out in the second Chelsea Clinton administration, taxes as a share of GDP will probably be two or three percentage points higher. But as you look at the long-run projections of the budget, and it's driven not so much by social security. I pick social security because it's a low-hanging fruit. It's so easy to fix it. It's much more of a health care. You've got to knock, depending on your time horizon, because it's an explosive system, 10, 15% of GDP off the spending side, or off the deficit side, and I say you're not gonna get more than two or three on the tax side. So most of that cure has to come through health care. Some way has to come through health care. But the long-run social security deficit is only in the range of 1% of GDP. We're not talking about severe cuts in social security, and one way to get them is raise the payroll tax enough. So, or the cap, yeah, there were a variety. Yeah, I've been include that in the list. Absolutely. There were a variety of not very nasty things you can do to correct the social security actuarial deficit. It's not that hard. Yes? Like you said, like I said, we've had a massive printing of dollars in stimulus, and it's 85 million on buying per month, which is all essentially printing money. Yes. Do you believe, at least, maybe not in your lifetime, but in our lifetime that the dollar can lose its status growth to the world's reservoirs? Certainly not, and did you all hear the question? This about the printing all this money and could the dollar lose its role as the central world currency? Certainly not in my lifetime. Yours is a lot longer, looking forward. I think it's possible that it could. You've got two candidates in a kind of a 20 to 30 year time frame, you have the euro. It sounds ridiculous now, because there's so much trouble in the euro zone. But if and when they get that sorted out, the euro zone is, among other things, a bigger economy than we are. And much more cosmopolitan, so much more engaged in foreign trade than we are. So one could imagine the dollar losing some of its market share, so to speak, to the euro. And maybe a lot, and to your question, the more inflation we have, the more of the share we will lose. I'm gonna come back in a second to the current and whether we should worry about inflation. Over a 50 year, 60 year time frame, so that's in your lifetime. It is possible, but by no means definite, that the RMB will be a candidate for the world currency or a world currency. But I'm talking 50, 60 years. China is nowhere close to that now, and won't be close to it 20 years from now. So the answer is yes, it is a possibility. Now, is this a terrible thing? Not necessarily, there are benefits to being the world currency. For example, you can run bigger deficits at lower interest rates than anybody else, because people want the money, but there are also costs. There are burdens of this that have to do with every time the 800 pound gorilla sneezes, that's us, the whole world shakes. And Finland's not worried about that. So there are pluses and minuses. Last point, it is not a foregone conclusion, and therefore you shouldn't assume, although it might be if we screw up, that the Fed's current and recent monetary policy is gonna lead to a lot of inflation. It hasn't so far. It's been quote, printing money only in the limited extent of printing bank reserves, really, which are mostly just sitting in the banks and don't become money, actually, don't have not turned, for the most part, into money and credit. That's where you start worrying about the reserve creation leading to inflation. So far, that's not happened. Some people are very worried about it. I'm not, because I'm confident that, while the Fed won't get 100% right, they're not a bunch of dodo's on the Federal Open Market Committee, and they'll see as and when. It hasn't started yet. The banks start taking these excess reserves and turning them into money and credit, because as the banks that do that, they will throttle back on the amount of reserves in the system. That's what the so-called exit strategy at its essence is about. So if the Fed executes its exit strategy well, that mountain of reserves will go back into a hillock eventually, and we never will get any recession. If they screw up and fail to do that, then we will get inflation out of it. Right here, Nashville. Basically, what do you think of the idea of that? Okay, so the question, the premise of the question in Nashville was used as an example, but the premise of the question is that a variety of local governments are doing more sensible things than the national government, including building infrastructure, and what do I think about that as the engine to get us out of this mess? So first of all, I think there's truth to what you say, there's tremendous truth to what you say, and I think a major reason for that, it's not the only reason, a major reason for that is that the ideological component of city governments and then state governments is substantially lower than at the national level, the way we're running the, I don't think that's inherent in the idea of multi-tiered government, but it's certainly the way it is in the United States. And so you have a better shot at getting rational decisions at local and in some states, the states vary in some states. Here's the problem, and why my answer to your question is no. The local governments and even the state governments have very limited borrowing capacity compared to the national government. So for the most part, every city has to balance its budget every year, and for the most part, every state has to balance its budget every year. Now there are ways to wriggle out of that, like that didn't count because it's capital and so on. So in fact, cities do pile up debts and states do pile up debts, but if they pile up too much, they get punished viciously in the credit markets. As is quite apparent, the US federal government does not get punished viciously in the capital markets, giving the US federal government vastly more power to engage in, say, fiscal stimulus or build infrastructure if it's called for. So that's why I don't think the solution is going to be at the local level. Let me see if I can grab somebody way in the back. The back always gets ignored, so you may have to yell out your question. You're welcome. Okay, so you packed a lot of questions into that. Let me take the one at the end is really short. What can the Fed do about increasing productivity? Nothing. Okay, so that's not their job and they don't have any weapons to do it. Do I think that the potential is much greater at the fiscal than at the monetary policy level now? Absolutely yes, but that's because the Fed has basically shot most of its wads. There's not a lot left. There's plenty the Congress could do starting with taking the Hippocratic oath and stop doing harm. The biggest hazard to the U.S. growth for the last several years has been the U.S. Congress. That should not be the case. So at least they could stop that and maybe they could even do something rational, which would have an impact. What's left for the Fed? I don't think they should be tapering yet. It's premature, but neither do I think the $85 billion a month of asset purchases that was mentioned before is doing a huge amount to stimulate growth. It's helping a little. You're talking about very marginal impacts because of what I said before. They used the heavy artillery first and used it up and then they went to the secondary and so forth. Now I think that's the right thing to do. I mean, I've said to many people, including many journalists, that when the central bank runs out of cannons, it should start shooting rifles. And when it runs out of rifles, it should start shooting pistols as long as the economy still needs stimulus. And then when it runs out of pistols, it should start using pea shooters and rocks and kicking or whatever it's got left. So that's basically where the Fed is now. What has it got left? It could increase rather than taper the purchases. There's not too much mileage in that, but it's possible. The policy change that I've been urging on the Fed for three years now, in every possible way, from the Wall Street Journal page to face-to-face with Ben Bernanke and everything in between, with zero success, is to reduce the interest that it pays bank on reserve. So now I'll apologize, I'm just gonna get slightly technical. Bank reserves are checking accounts that banks hold at the Fed. I don't know what your checking account is paying now. Mine's paying me one basis point, one one hundredth of a percentage point, zero, essentially. The Fed is paying the bank's 25 basis points. Now that's not a fortune, but relative to current short-term money market instruments, 25 basis points pretty good. And so the banks are reacting by keeping trillions of dollars, literally, idle in their checking accounts at the Fed. These are their reserve accounts. I'd like them in two steps. First to go to zero, stop paying the banks anything. That'll shake some of this out. And then I'd like to see them go to minus 25. Tell the banks, you know, this is a storage facility and we're gonna charge you for the storage. And I'm pretty sure that that would shake a lot of the money out of the reserve accounts into something, but anything is better than just letting it sit there idle. So I think that's the one potentially important, though I don't want to exaggerate it, instrument that's left to the Fed and I'd like to see them use it and I keep urging them to use it. Be right here. So you mentioned a bit on one slide about the housing market, as you can understand, and you were saying that we didn't do enough to act to help that situation. I guess two questions I'd have. The first is what would you personally have done if you were in charge of that whole situation? And second, in the gains that we've seen in housing, are you at all concerned about how much of it is coming back in places like Phoenix and Vegas that were the subject of huge bubbles the last time that housing was on the rise? Okay, could you hear the question? Okay, so let me take the second one first because I don't have too much to say about it. I'm only a little concerned, not very concerned. These are more markets where house prices fell 50, 60% than if they now go up 20%, they're still way below where they were, although there is a hazard there for sure. But I'm not worried about a new housing bubble given what, very much worried given what happened. Now, what could have been done? If you take yourself back to the year, the year's 2006, 2007, the housing market started going to hell, depending on whether you're looking at building or sales or prices, it started and then it kept on going to hell for some years after that. It was completely predictable and predicted. So some things are predictable but weren't predicted. This was predictable and predicted that we would be seeing a huge increase in foreclosures on residential properties in America. Everybody knew that. Maybe somebody was hiding in a cave, but basically everybody knew that and we let it happen. That was terrible. That was dumb. It was also, I think it was actually immoral but that's a whole different question but it was at minimum dumb. Why was it dumb? Because the evidence shows that when you let a house a property go into foreclosure, it loses approximately 50% of its value. That means you have this huge wedge that the debtor and the creditor could kind of bargain over, you take a little loss, I'll take a little loss, not a little, that add up to the 50% and maybe the government comes in and takes a little of the loss and the house doesn't go into foreclosure. A lot of those foreclosures would have been preventable, were preventable with more will and more government assistance. Concretely, I wrote a piece in the New York Times in I'm gonna say March 2008, I'm not sure I'm remembering correctly, but early on. Way before President Obama was president. Advocating, bringing back the Homeowners Loan Corporation, HULC, H-O-L-C, which was a great innovation of Roosevelt, it was one of the New Deal programs. The reason you never heard of it, a lot of you who never heard of it, is unlike most government programs that actually went out of existence after it did its job. And what was its job to prevent foreclosures and it prevented a lot of foreclosures at a net cost to the taxpayer that was puny. Some people call it actually a negative cost, some people say, well, it was a little positive because you count this, but everyone has looked at it that the net cost was puny. Now you have to lay out a lot of money. What would the government have done? What did it do with the HULC? It went into the bank and the homeowner and says, there's a big problem here. You banks sell the mortgage to me, the government. So you're now out. I think they were probably too generous on the banks, but that's another question. And now we're gonna refinance the homeowner into a mortgage that he and she could afford and keep people in their houses. We could have done that again. But we didn't have the political will to do it. And that was not the only, other people had different plans. I think maybe we should take one more. What do you think? Over there. In Germany, after the recession, we see a growth in the United States suffering from high unemployment and anemic growth. For Germany, it was generally the exception that they quickly rebounded and their unemployment is less than 60% now. So my question is, is there something that's relevant to their structural economy or is there something in terms of their policy that they think is better than we can start from? Okay, so the question is basically about how come Germany did so well, right? Two-port answer. First part is Germany didn't actually do that well. So if you look at GDP, they look a lot better than if you look at jobs. Secondly, the unemployment rate didn't do, didn't fall, sorry, didn't rise as much in many other European countries. And this is something I think the Germans probably did smart and maybe others could learn from because they did a lot more work sharing. People went on shorter hours rather than losing their jobs. And I think there's something to be said for that as social policy. We don't do that in the United States, as you know. But the third and very important aspect and why the German case is not replicable on a large scale, it can be replicated on a small scale, which is they did a lot of it by exporting. The Germans are, for reasons I don't fully understand or even come close to understand, really fantastic exporters. They're almost the, it's an exaggeration but it makes the point, they're almost the only rich countries that can still export manufactured goods. That's not really true, other countries do it, but they do it fantastically better than anybody else. I don't quite know how they do it. But what I do know is that it is not possible for every country on the planet to export its way out of recession because the Martians just don't buy enough. So for every export, there's an import. And so one country can export its way out of recession but not all countries can. It's just not possible. Before we thank Professor Blinder, I would like to present him with a couple of gifts. The first is a framed photo of your lecture. We will take this back and mail it to you so you don't have to schlep it all over. But that is a... Two locomotive changes. Two locomotives. The second is a copy of a book by my colleague Donald Castner, which is a history of the department. It is called, At the Edge of Camelot, Debating Economics and Turbulent Times. This copy is inscribed to you. Thank you. And I hope that you'll enjoy it. We have an interesting department for history. Thank you. So please join me in thanking Dr. Castner. Thank you. Thank you.