February 1, 2011
The cost of going to the World Economic Forum in Davos, including admission to the special sessions, a hotel suite, car and driver, travel via private jet, and hosting a cocktail reception for your friends, is several hundred thousand dollars. If that sounds a bit expensive, you could have done what I did. For a mere $80, I attended an economics conference at MIT, honoring the 150th anniversary of the school.
At Davos, Treasury Secretary Tim Geithner told those assembled he was “much more confident” in a sustainable, global recovery, but among the prominent economists and policy makers who gathered in Cambridge, including many with Nobel Prizes, such confidence was scarcely evident.
One panel discussion at the MIT conference stood apart for its discussion of big-picture economic issues, such as whether further short-term stimulus is needed and if the time has arrived to shift the focus to longer-term sustainability issues. Those panelists included Princeton’s Paul Krugman, Harvard’s Greg Mankiw, Christina Romer, formerly the chairperson of the Council of Economic Advisors and now a professor at Berkeley, Oliver Blanchard, the chief economist at the International Monetary Fund, and Northwestern’s Robert Gordon (who was a last-minute replacement for Princeton’s Alan Blinder). All have doctorates in economics from MIT.
Those thought leaders, who come from across the political spectrum, cited a lack of sufficiently powerful and politically feasible policy options, calling into question whether economists will be able to produce the clear path to the stronger recovery that Geithner and the Obama administration seek.
Setting the stage, Blanchard said the IMF had just released its official forecast, which anticipates 4.5% global growth in 2011. It will be a two-speed recovery, he said, consisting of 6.5% growth for a group of emerging and developed economies and 2.5% for many of the advanced economies, including the US at 3% and the euro zone at 1.5%.
“These are very low numbers,” Blanchard said.
Not only are they low, but Blanchard expects the advanced economies to have substantial output gaps, notably evident in their high unemployment rates. Given the IMF’s forecast, Blanchard said unemployment will remain “very high for many, many years to come.”
Monetary and fiscal policies are the tools that could counteract that outcome, so let’s look at what the panelists said about those options.
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