April 14, 2014
First Principles versus Secular Stagnation
MONDAY, MAY 5, 2014
The U.S. economy has not performed up to its potential in recent years, according to Stanford economist John B Taylor, who argues that the slowness of the recovery, as well as the deepness of the great recession before that, were due to a significant shift in economic policy away from what worked reasonably well in the decades before. Broadly speaking, monetary policy, regulatory policy, and fiscal policy each became more discretionary, more interventionist, and less predictable in the years leading up to the crisis. A popular alternative explanation is the "secular stagnation view" which holds that there has been a fundamental shift in the market economy , but if Taylor's "policy is the problem" view proves to be correct, then restoring strong sustainable growth will require reforms the types of reforms in his book First Principles: Five keys to Restoring America's Prosperity (2012).