Now, however, she was able to bring me and little teddy to new york where we all entered her childhood brooklyn home. Little teddys visit was shortlived, however. Louis cruel divorce agreement stipulated that i would live with my mother while teddy lived with our father. But my mother and i were soon to move even farther away. Because of her cafe society success, lena had received an offer from hollywood not for the movies, but from a new nightclub called the little trock. Once again, she was an overnight sensation. One man who came night after night was mgms roger eden, the man who discovered judy garland. Talent and beauty won lena a longterm hollywood contract, the first in hollywood for a black performer. But it might not have happened without world war ii. Lena arrived in hollywood the same time that walter white and the naacp and 1940 republican president ial candidate Wendell Willkie began their campaign with hollywood producers to eliminate degrading, racist stereotypes of people of color including negroes, asians and latins for the sake of wartime allies. Thus, lena whose contract partly brokered by her father stipulated no servant or jungle roles was almost singlehandedly expected to prove to the allies that america, unlike germany and japan, was not a racist country. So lena became known as the first black movie star. She became the first black member of the board of the Screen Actors Guild and the first black person to appear on the cover of a movie magazine. Despite allies of color, however, her scenes were always isolated from the main portion of the movie so that they could easily be cut out of the picture whenshown in the south. In fact when it was shown in the south. In fact, she was cut out of every picture she ever made in hollywood except for two when they were shown in the south. Unless the cast was all black, the southern rules stipulated that blacks in movies could only be shown as servant types. Nightclubs continued to be hugely theatrical venues for lena, from harlems cotton club to bostons ritz carlton to greenwich villages cafe society to hollywoods little trock. And now in 1942, while she was waiting for her first movie to be released, she became the first black entertainer to appear at manhattans very elegant savoy plaza hotel. Once again, she was an overnight sensation, so well noticed that she was features in time, life and newsweek all in the same february 1943 week. Nightclubs gave lena recognition, but world war ii made her a star. Black g. I. S needed a pinup, and lena was always embarrassed that she was the only one. While two atlanta cowz to sips married tuskegee airmen, lena was chosen as queen of the 99th pursuit squadron, their combat arm. She toured black army camps but was kicked out of the uso for refusing to sing at a camp in arkansas where black g. I. S were forced to sit behind german prisoners of war for her show. Her grandmother would have been proud. The postwar years saw many changes in lenas life. One door was shut and others were opened. By 1947 her movie career was essentially over, but her nightclub and live performing career went from strength to strength. In 1947 she went to europe for the first time. She had Great Success touring the still wartorn british isles. Shed built in fans though cabin in the sky and Stormy Weather were unfit for g. I. S, theyd been deemed approved for the british fleet. She married her second husband, lenny hayden, a white mgm conductor composer arranger who became a wonderful stepfather to me. They came home to find the blacklist which began in 1947 with the hollywood ten. All screen writers and former communist Party Members who went to prison for refusing to testify before a congressional committee. The blacklist ultimately touched all professions and walks of life. Lena was finally named in 1950 when she was listed and red channeled. Lenas crimes included her appearance at cafe society and especially her friendship with two men, w. E. B. Dubois and paul robison. Because they were actually her grandparents friends, the relationships were more dutiful than political. Hollywood communists had, indeed, wooed lena, but paul robison, in fact, warned her against them m. In reality, lena was one of the luckier blacklisted artists. Although banned from network tv for ten years, her nightclub career and International Touring career never suffered. In the days before tv kept people home at night, she remained one of the highest paid performers, nightclub performers in the world. By 1957 she was cleared by the blacklisters and starring in jamaica, a hit broadway musical. Broadway, by the way, basically ignored the blacklist. Lena wasnt the only black calhoun to be suspect. Frank horne came under his own blacklisting cloud in washington where he was investigated by the Civil Service Loyalty Board as a founder of the National Committee against discrimination in housing. Supposedly ferreting out unamericanism, blacklisting was also an excuse for racism and antisemitism. Appropriately enough, the modern Civil Rights Era began in 1960 at cora hornes alma mater. In april 1960 a fullpage ad appeared in the atlanta constitution. We, the students of the six affiliated institutions forming the Atlanta University center, have joined our hearts, minds and bodies in the cause of gaining those rights which are inherently ours as members of the human race and as citizens of these united states. We must say in all candor that we plan to use every legal and nonviolent means at our disposal to secure full Citizenship Rights as members of this great democracy of ours. That same year a Young Atlanta cousin, moses calhouns great, great grand niece, was chosen to be one of the desegregaters of an Atlanta High School until her mother, fearing the traumatic upheaval surrounding the integration of little roxanne [inaudible] high school had second thoughts and sent her daughter to a massachusetts boarding school. Meanwhile, in the north lena threw herself into the Civil Rights Movement. She and Frank Sinatra produced a famous twonight Carnegie Hall benefit, one night of which benefited the student nonviolent coordinating committee, the youth branch of the southern christian leadership conference. Lena went to jackson, mississippi, on behalf of the naacp, the organization which she had been enrolled at the age of 2, to join medgar evers at a Voting Rights rally two days before he was assassinated. She went to the march on washington wearing her naacp cap, and she recorded a civil rights song called now that was banned from the radio in several states. The enemies of civil rights had very powerful weapons at their disposal, but the Civil Rights Movement won the high moral ground early, and the long arc of justice ultimately turned towards the american blacks. The larger and more systemic aspects of official racism were defeated in what could be called a second civil war. It was a strange war waged on one side by churches, children and young people and waged on the other by murderers, there arists, snarling dogs and fire hoses. Despite assassinations and too many martyrs, Voting Rights were achieved, and jim crow was officially dismantled. By 1973 the thety of atlanta the city of atlanta, the city that famously became too busy to hate, had a black mayor, and former students of the Atlanta University manifesto were now in charge of the municipality. Although the 1970s were personally mournful years for lena who lost her father and husband and son between 1971 and 1972, the 1980s saw another extraordinary change in the career of moses calhouns great granddaughter. She opened in a onewoman broadway show that brought her every honor and accolade known in the theater. The 1980s were a decade of horns for black calhouns north and south. In march 1981, the same month that saw lenas triumphant broadway return, dr. Homer nash, the great grandson of moses sister, died at the age of 94. In the words of the atlanta constitution, dr. Ohio her nashs ho her gnashs death ends in error. He was the longest practicing black doctor in georgia and the longest practicing doctor of any race in atlanta. You could call the black calhouns lucky, but they were never selfish achievers. They shared their Bountiful Gifts and achievements with their community and their country. It is fair to say the black call kinds is as much the story of america as it is of a family. Thank you. [applause] oh, i move down for questions . [inaudible] anybody have questions . You come to the center . The microphone is here. [inaudible] i can hear you, yes. [laughter] i grew up in flatbush. Where did you live . Well, i was born in pittsburgh, and i grew up in california, but my mother grew up on chauncey street in bedford stuyvesant. It was then called stuyvesant heights. Right. And it, she grew up on chauncey street. She went to brooklyn girls high school, and she went to Catholic Church in brooklyn. She was a total she adored brooklyn. She was a total brooklyn girl. I grew up in the 30s and 40s in brooklyn which were great years yes. To grow up in brooklyn. Thank you very much. Thank you. Any other nonbrooklyn questions or [laughter] id like to know what favorite story you have with your mother. Oh, of my mother . Oh, my goodness. Thats a difficult question. Well, the james bond story is one of them, because she didnt even, like, say hi. She just said youve got to read this book when i walked in the door. So thats one of my favorites. She was a good, a fun mother. We had fun. I mean, i didnt see her all the time, but when i saw her which was always on summer vacation, christmas, big holidays it was total fun. So that was a good part. Yes. You come to the microphone . The microphone is off, we couldnt hear you. Its on now. [inaudible conversations] [inaudible] [laughter] aside from james bond, what was your mothers favorite reading she loved reading histories, especially french history. She knew about all the queens of france. Yes, loved that. And she was a voracious reader because she always felt she was uneducated because her mother took her out of school at the age of 16, put her in the cotton club. And she always everybody around her was so bright, she felt, and she was really uneducated, and so she read and read. She was selftaught, basically. I mean, though shed had in a funny way, in the south she was the teachers pet even though the children hated her. They hated her accent, everything about her. But she was always the teachers pet, so she didnt really receive a bad education. Thank you for your question. Would you please repeat the questions . We cant hear them. Would you share the way your mother did Stormy Weather during her onewoman show . I saw the lady in the music . Stormy weather two times [inaudible] yes, yes. The question is why or how did my mother sing Stormy Weather twice in her onewoman broadway show . She did it twice because she sang it the first time the way she was told to sing it in the hollywood which always said, lena, pretty lips, lena. She was you always sang, you spoke to the sound recording, and you had to make your face very perfect. And she was always told to think of irene dunn. [laughter] so the second time she sang it in the show was how she would sing it herself at her age then. So it was a much richer, fuller version. And the critics all noticed that. [inaudible] [laughter] brought down the house. And about 5 minutes later she 45 minutes later she said now heres the real [laughter] thank you. [applause] any other questions . Well, i hope youre going to buy books [inaudible] very little. [laughter] i sing christmas carols, thats about it. Finish. And so in addition to the other factors Slower Growth and neutral and the like there is this desire for these assets. And, of course, given that many other Central Banks in the world have gone to negative rates, theres yet another reason, and this gets to the fiscal constitution for u. S. Rates. Ive given various examples of guard guidance. Forward guidance. Its important to remember that in a lot of our textbook models Forward Guidance shouldnt have any impact, but in the real world it tends to for a couple of reasons. It give us some insights into the Central Banks reaction function, and number two, depending upon how you formulate the guidance, in particular the calendar datebased guidance, can have a very powerful effect on market expectations. So Forward Guidance is one of those things that in theory shouldnt work, but in practice if its appropriately communicated i think can work. Just a couple more slides to finish up. Obviously, we know that weve gone through a big, severe crisis and a very sluggish recovery, but its also true, and these are cbo estimates of potential output. So another factor that makes the feds life either interesting or complicated depending upon your choice of adjectives is the fact that even though oil recovery and inflation have been below the feds target, we are getting to the point where the traditional output measures are closing which creates an interesting problem for the fed if theres, perhaps, more inflation down the road than currently expected. And finally, a little bit of on options for the fed. The time for price level target, and just a quick distinction. For Central Banks its pursuing a price level targeting strategy as opposed to inflation targeting. When they fall below 2 , they actually seek to overshoot in order to average inflation at 2 . Chair yellen recently, including last week, has indicated that she hes is not em herself is not embracing a formal target, but shes also indicated that shed like the 2 inflation target to be symmetric, and we have been undershooting. Let me conclude with a couple of observations about what i think would be in the fed toolkit. And luckily, its a lot easier to do with confidence because chair yellen was asked this question last week by a bloomberg reporter and, in particular in the context of whether we would see negative policy rates out of the fed in the next downturn. And essentially as i read her answer, she indicated that the fed options would include various forms of Forward Guidance, maturity extension which is essentially a version of quantitative easing but without ballooning the Balance Sheet and then quantitative easing. And she certainly seemed to indicate that negative rates, perhaps because of the experience of other countries, are not at the top of their list. I would also point out another factor that Central Banks have at their disposal which the fed did noted use in did not use in the last downturn is on explicit program that would essentially try to cap the yield on government bonds, essentially through substantial intervention. And you might think the fed did everything in the kitchen seek, but it didnt explicitly peg the government yield on the bonds. So i think i will stop there and look forward to johns comments. Thank you very much. [applause] thanks. Its a pleasure to be here to talk about this somewhat ominous question. Rich is much more prepared and more quickly prepared than i am and sent his slides a long time ago, so i had an opportunity to make my talk dovetail with his a little bit, so the issues have been set up nicely. I think a few ways we could think about this question; is the fed ready for a recession . Now we direct it at the fed, not we. Is the fed prepared to do what it can . Would the feds response be powerful and effective . So we thought, yes, yes and at best modally so modestly so, is the answers, and i think thats kind of what the answer was about fiscal policy as well. I want to embellish that. First, let me say one of the reasons why i think it would be modestly so is that when i was i spent a few years as a special adviser to the Federal Reserve board and was there when the aforementioned fiscal cliff happened. There was a lot of discussion about whether recession might come, and bernanke was regularly asked, what could you do . Would you be able to respond if theres a recession . And he said, you know, no. That the tools in place at that time didnt, probable werent enough to completely offset such an event. So the question is why, what do we think . Things could be better now or worse now . Be a few years have gone past, and i think the answer is probably the economys healthier, so it would certainly be less scary, but as far as the tools are concerned, its about the same or perhaps even theyre weaker. So let me go through that. We can go through various kinds of tools, the ones that chair yellen was asked about in the press conference. Im going to divide them into things the fed tried, things the fed didnt try and things folk talk about that probably arent legal. [laughter] and the last is various forms of helicopter drops which get talked about a lot. So let me, so let me talk about things that were tried. Forward guidance. Now, Forward Guidance, you tell folks whats going p to happen. Theres a misconception, often times a distinction isnt drawn between two forms of Forward Guidance. Im going to call one prescriptive, and the idea here is that somehow the current fomc dictates policy to future fomcs that heir not going to want to that theyre not going to want to follow. This goes in the not tried discussion. No central bank in the world has tried this. So when we get to not tried, ill discuss it. Things they have tried, well, they did Forward Guidance, but its what i might call informationonly Forward Guidance. An example would be the famous thresholds the fed announced, keeping Interest Rates at zero. Thats a paraphrase of a longer statement. Underappreciated fact here, informationonly Forward Guidance, thats going to add accommodation only at times when the public munderstands what the feds intentions are. When the fed when the public understands how accommodative the fed intends to be, telling folks what youre going to do doesnt do anything. Now, as we saw in richs picture, Interest Rates declined fairly steadily from and still remained high relative to today even in 2012 and 2013. There was still room for the fed to say, no, no, no, you dont get it yet, we intend to be really accommodative. Its not clear that that, that that room is still there. In fact, anybody whos checked recently will realize that Market Measures of expected policy suggest that the market or that the markets derive expectations are actually, the fed will be more accommodative than it claims its going to be. So if you did Forward Guidance right now where you followed what the fed is saying, it would actually represent a tightening. So Forward Guidance still works, its just clarity about what youre going to do with the informationonly Forward Guidance. Claritys a great thing, the fed should do that, but its the not going to have the oomph when we were brand new at all this and folks just didnt get it, so the fed would announce something, and people would go, oh, i see, theyre really serious about this. That had an oomph. Next time around there wont be as much of that unless the market has really changed its opinion. So next theres large scale asset purchases, what people call qe. The fed calls it large scale asset purchases for the reason that rich pointed out, that qe is kind of a misforeman or misleading. The idea is you go out and buy a bun 7 of longterm bonds. That pushes up their price which is the same thing as driving down their yield. You drive down the yields on longterm securities and, hopefully, that stimulates the economy. So you can ask, is there still capacity to do that . And theres various ways you could look at the capacity question. You can say is there still a quantity of stuff to buy, and theres only so many mortgagebacked securities out there, theres only so many government securities out there. And so there are limits there, but theres still plenty of capacity in that sense. But in another sense, its not clear that the capacity is quite as large, and its the same point about Interest Rates that weve been talking about. Qe, so qe2, the famous q, 2 program was adopted at the end of 2010. Rates were around 3. 5. Then a sequence of programs, including the, you know, Maturity Extension Program and qe3 or some people call it qe infinity, those were adopted in rapid succession and pushed rates down to about 1. 5 where they stayed until the fed said it was time to start normalizing things. So there was about, so there was nearly 200 basis points, two full Percentage Points of easing in longterm rates. But were starting out now at a different [inaudible] yeah, i will. Im going back. [laughter] were starting at different points. Theres not so much room to lower longterm rates as there was back in 2012 or 2010 when qe2 was adopted. Now, it still may be useful to push those rates negative, but thats a much more ambitious question. Going from 50 basis points to 50, that gets a little more am piggous. Not ambiguous. Not as much room. Arguably, a bit less potential than before, so you could still provide some support for the economy. Things not tried, well, theres that prescriptive forward guy dance, and thats where you promise to deliver an inflationary boom in the future when Interest Rates are no longer zero. So a few years down the road you say once i get the power to do so, im going to produce an inflationary boom. And the idea is that households and businesses, anticipating future good times, spend more today because thats what economists say you do. If there are going to be good times in the future, you start doing more today. So why didnt anybody use it . No central every academic paper says thats the right thing, no central bank tried it anywhere in the world. Well, it requires the private sector to overextend itself today, having faith that that party is going to happen in the future. And Central Banks announced that in their explanation more why they didnt do that, the ecb, the fed, the bank of england have all said they had lots of reasons to be dubious about this. For the fed one key reason to be dubious about it is that the current fomc cant dictate future policy. Were going to have we could have a chair turnover soon, we could have a chair turnover with ad managers turnover, you know administration turnover, you know . Promising to deliver a party two years from now, but rand paul is chair at that moment. [laughter] you know, the point is that theres no legal way, and theres perhaps no credible way to promise that several years in the future this boom will happen. Still worth a try if things get bad enough . Sure, maybe. So close cousins to this are price level targeting, nominal gdp targeting, raising the inflation targeting. The immediate effect is to cause this inflationary boom at the current moment. If its not credible, its not credible. So these might be fine on average in the long term, in fullness of time maybe itd be the right thing, but would it have the immediate benefit today that were looking more . Perhaps. But its no more likely than the prescriptive Forward Guidance to do so. Not tried here, negative rates. On the table but not favored. I dont want to say more about that. Its a long discussion, and ill say about what rich did. On the table, chair yellen said not going to be done. Finally, theres helicopter drops, all Central Banks can do it. You can issue currency, distribute it to people. The question is, you know, when is it opportune to do that . It turns out central bankings have bandaids. Couldnt legally give away cash, as it turns out, so maybe theyre stealth helicopter drops. Theres various ways that could hanger i suppose. Happen, i suppose. But my main point about helicopter drops is that for the fed, the feds mandate is really narrow and much more precise than many Central Banks. Youre going to have to check with the lawyers first before you think some type of hell continue orer drop is going to work. Helicopter drop is going to work. Lots of legislation have the clear intent of having the fed operate add market prices and avoid subsidies to the banking system. So all of these ways that are, that start to look like helicopter drops are dubious under the feds mandate. You know, maybe folks can figure it out, maybe they cant. Bottom line, not out of ammunition . Can till provide meaningful still provide meaningful support, but thats modest support. You might try some of the stuff thats not been tried yet, but theres a reason that its not be been tried yet, because folk didnt think it was going to be as good as what they were doing. Okay. [applause] so were going to, i think we should go right to the panel, because were a little behind. I just want to mention that Jared Bernstein is going to take his place so you get the benefit of two tall people from the center on budget and policy priorities. I want to mention also on june 6th here at the hutch especially center, were hutch chens sense, were going to have a discussion particularly focused on what weve learned from the european experience. We have a number of people from european Central Banks that have been doing this, and now its no longer theoretical. And i also want to call your attention to ben bernanke who has wrote a blog that posted last week where he took a view slightly different than the one that janet yellen took. He suggested that negative Interest Rates might be worth trying before the fed tries another round are of qe. And he has at length in a blog post that he wrote with our research assistant, peter olson, explaining that. So heres the deal, louise. You have the conversation, and if i feel you dont have the right question, when we get to the q a, ill ask it. [laughter] great. Great, thanks. So we have both fiscal people and Monetary Policy people, so let me ask a question. Before the great recession, the conventional wisdom was we shouldnt use fiscal policy to help with cyclical problems, we should use Monetary Policy. Now it seems like the conventional wisdom has moved around, that fiscal policy is more important. Is that because we learned something about howfective fiscal policy is, or is that because were at zero lower bound . And anybody answer. [laughter] jared, why dont you start. Okay. See if my voice still works. Thank you, everybody. Its great to have a great crowd here x everybodys hung around. Its a compelling topic. I dont think its that complicated. I think when the Federal Reserve has more ammunition, certainly a combination is relevant. I always thought ben bernanke made a lot of sense when he went to congress regularly during the initial part of the quite weak recovery back in 2010, 2011, and he was constantly saying were doing all we we can, we need a fiscal help from congress. And, in fact, when youre at the zero lower bound, the fiscal multiplier is larger and more potent, so i think that makes, why were in the world were in. And ben reiterated that in his blog post that david just advertised, that what we need now is a mix because the monetary tools are so weak. Yeah, go ahead. I agree. I think weve also learned it can be effective, right . We had the 2008 david calls it the bush pelosi stimulus, they agreed to it very quickly, and the irs did amazing work getting it out the door. So we think its not as, doesnt have such a lag as we used to think yeah. And also that we might need it more. So if we think that Interest Rates are going to be low and were going to be more likely to be hit by the zero lower bound, john, you said there was no Immediate Impact of trying to raise the inflation target. But what if were in an era where we think the probability a lot higher than before . What kind of arguments would push you to say its time to raise inflation target or its not . Be is it something on the table hooking forward . Yes, i think it definitely should be. The 2 was chosen explicitly to balance the risks of high inflation is costly, but low inflation has you hit the zero bound too often. Weve learned more we were more likely to hit it than we thought, and weve learned that its trickier to get out of than we thought. Both of those say you should at least redo that computation, the same one you did, update it and see if it still says 2 . I think theres, i think thats undeniable. But just riffing off what i thought was a great presentation, suppose they said three. I thought implied in your presentation was no one would really take them that seriously. They dont they wouldnt i think you could hit that on average over time, that over the next 50 years if thats going to be our policy, could you achieve it . Yes. Right now, would people immediately expect three, and would that then provide the stimulus to get us out of where were at . Thats what were dubious about. Rich, do you agree . Yeah. I think as a practical matter its, i think its unlikely to see formal elevation of inflation targets or elevated charts, but i do think over the next 35 years Central Banks being more reespecially weve to some version receptive to some version of averaging reception, probably not all the way to price level target, but could i see a central banker saying for the last five years inflations been 1. 7 so were not unhappy for the next five years with 2. 3 . I could see that. The argument that were on the verge of outofcontrol inflation, that hasnt panned out. So weve talked about what state fiscal and Monetary Policy were in, are our politics ready for the next recession, and what do you think that the political lessons that have been learned at the state level, by people, by congress, and how likely how does that impair our ability to fight the next recession . Wendy . Wendy. [laughter] thats not fair p exactly. I have to go back to my time at treasury. 2008 seems like an inauspicious time to rapidly do fiscal policy. It wasnt like the administration and congress, you know, democraticcontrolled congress got along super well in 06, 07. But in some ways that made the 2008 stimulus easier because both sides had an incentive to get something done. The congress said, look, were not assisting in our kind of stimulus and, president bush, said, look, im not insisting on permanent tax cut, lets just get it done. It can lead to moments of cooperation. One definition of a keynesian is a republican in a recession. We actually had that discussion in 2002 and 2003. And jareds absolutely right. Yeah, absolutely right. That said, it would be that to the extent that we can do more on the automatic side, we take away from this discretionary lag that is a legitimate concern right now. How about at the states . Was there some concern that there was money left on the table by the states that maybe going through the state trying to stimulate the economy, is it going to becomeless effective because of become less effective because of the politics . There was money left on the table and not taken off. Yeah, i think there was some of that, but if you kind of go down the list of multipliers, which was most effective in terms of getting most lapping for the buck bang for the buck, this comes not jusfrom the modeling work, but also some pretty careful empirical work about how state Fiscal Relief played, and i would suggest that it was, you know, very effective in large part because of the balanced budget requirement that ben noted to the extent that there was some money left on the table, that doesnt strike me as, that doesnt dissuade me there our recommendation. I mean, theres some, this is some argument that states used the money to boost their rainy day funds, but the hard thing to know is what the counterfactual is. Moneys fungible. So if states were looking to boost their rainy day funds, its quite possible they would have done that anyway. Uhhuh. So theres some people who argue that since we were worried about the next recession, we dont have fiscal space or monetary space, that we should take the opportunity now to create some by being more aggressive on loring the debt and even by maybe raising Interest Rates a bit faster than we otherwise might so wed have space ill take the monetary. I never understood that argument. [laughter] i never understood the argument that in order to give myself more room to cut, i want to increase the odds of the next recession. [laughter] now, but in fairness to those who are making that case, if you are in a world where you think you want to end up at 4 or 5 on the funds rate, then why not get there . I think the important point the yellen fed has conveyed, theyre rationalizing their gradual liftoff not by saying we want to be behind the curve for the next three years, theyre actually saying thats what the economy can take. Raising rates rapidly to a high level so you can cut them is not a winning yeah, i couldnt agree more. If i could make a quick comment on fiscal space. I think there are three opinions about fiscal space. The first one says debt to gdb gdb gdp is just to twie high, we shouldnt do anything. And i think theres a lot of bipartisan sentiment that you heard today that sits in the other two camps. The next camp says we dont yes, 75 percent of gdp is a high ray show, but it shouldnt stop us from what we need to do, we should just have a plan to bring down that debt to gdp ratio so as we do stimulus so thats the second. And then the third is more like were not going to get that plan, you know, given todays politics, so we should really just do it and not worry so much about fiscal space. But i think most politicians who are not sort of a tea Party Variety probably fit into the second bin. Go ahead. I just had one more thought on the Interest Rate part, what the argument someone would make on the raise rates factor would be. Actually, im hoping mike prell maybe during the q a will speak on this also from the audience. You know, one, i can imagine someone saying weve pushed forward all the activity, so we raise rates, fed funds rate at 3 , its not like 1 , its not like all these projects are not going to be done. If your argument is, oh, its the wealth effect, if the markets going to get clobbered, is that really the kind of yoest we want to rely on, basically rich people having assets . I think maybe rich and john, am i mischaracterizing what someone might say in opposition . Yeah. Thats exactly what mike would say. No, im just [laughter] that argument is made. Its still not clear that theres some future stabilization benefit out of being at one. Id like to be at one so that i can go back to zero . Its hard to make that work. Thats another point. I had one other shrewd on this, but i slide on this, but i think its important to make the point. Folks in my generation came up at a time as we talked about the fed as setting the Interest Rate and the entire yield curve of Interest Rates. And, you know, those days are long gone. I had a slide that said that, you know, what happens in beijing and riyadh is important for tenyear treasuries as what happens in washington, and i really believe that. There was a time when i would have argued, well, the yield curve, the feds got that under control. Increasingly now in europe, even that is in play. Even though the fed is the most important central bank in the world, it does not set the entire path. And the further out you go which is relevant for housing and capital spending, the less relevant the fed is. Eye ironically, in the 70s there was a huge inflation premium. Now that the fed and other Central Banks are good at what they do and that inflation premiums strong, theres much less leeway to move around than perhaps a lot of people believe. So for those of you who think that rates are low, if that is a Global Development that will persist for 510 years, that gives you a different view an if you think were going to be reverting back to 2006. Let me ask a little bit more on the fiscal space point. We dont think theres a trigger, we know that high her is less fiscal space than lore. Are we learned anything though during the reeducation about the relationship between recession about the relationship between fiscal space and debt . Have we changed our mind about, you know, what those parameters are . I think we have to have learned that theres more fiscal space than we thought, that markets are less worried about not just the high level of debt, but also, well, what the trajectory of debt is under current law. Of course, its impossible to know what markets expect themselves, but its hard to think of plausible scenarios that markets have in mind that lead to declining debt to gdp over the next 10 years, the next 25 years. So i think weve learned markets are a little less sensitive than we would have thought. But we still think that those relationships are going to normalize over the next 510 years. So, which is to say we think that as aggregate demand continues to improve over the next several years, we will see increases in Interest Rates that are consistent with the levels of deficits and debt that we project. So i dont think the relationships broken. Uhhuh. So id like to just inject a note of how much uncertainty i think there is in this relationship. I completely agree with everything thats been said. But, you know, over the period since 1990, japans debt to gdp ratio has raisin and is now at three times the level of ours, and at the same time their borrowing costs have fatherinlaw x theyre now borrowing fallen, so the thought that i agree we dont know where the trigger is, but sometimes when you say that, you might be leaving the implication but surely were in the neighborhood. Yes. Were not even sure were in the neighborhood. And just to clarify, im not even sure we know theres a trigger. Or a neighborhood. [laughter] which comes back to the point that i think its not just important, i said this before, but its not just important to think about the lev of debt to gdp, its important to think about what the trajectory is. If investor credibly thought debt to gdp was going to rise off into infinity over some finite time period, then all bets are off. So clearly what investors and people who are lending to the federal government, clearly their expectations for whats happening to debt to gdp over some long period of time have to matter importantly. They think were going to adjust, they dont know how. As someone says were not going to cut spending, raise taxes, that should make investors a little bit more nervous. Thats right. So before i turn to the audience, i just want to ask a couple questions on automatic stabilizers. One question is [inaudible] have we also learned from the recession that they may have much deeper, longer lasting impacts than we thought . And then i wanted to ask about your worksharing idea and how do those sort of relate to each other or how important could that be as a response . Well, i mean, i think i cant speak so much that, you know, weve learned that automatic stabilizers have made some kind of a longterm difference. With the following very significant exception, theres been a growing and really, i think, rich and important literature on the benefits of the safety net to longterm outcomes in the lives of kids and their families. So if you look go back to the beginning of food stamps where it was kind of unfolding throughout the country, and you looked at kids of families that got it and kids of families that didnt, you track them over their lifetime, medicaid, eitc, even some quality head start programs, you can find really longterm differences and positive outcomes earnings, health care, employment that suggest these programs are much more than consumption, theyre a form of investment. You then couple that with some of the work i associated with the economist walker, but others, showing the damage of a particularly longterm unemployment, and you get a feel for how important the kind of ui interventions that ben were talking about are. Third x this one is huge in my view, and i think ride be interested in wendys id be interested in wendys idea on this. The idea that when the economy is depressed for long periods of time, so longterm unemployment stays highly elevated for a long time, its not just a problem in the present, it actually diminishes the supplyside growth factors of the economy both in terms of Labor Force Participation and in terms of capital deepening. And you can see if you look closely that, in fact, cbos potential came down significantly, and some economists and im one of them believe that this is a very serious consequence of inadequate response to the downturn as longterm macroeconomic negative results. So to say a couple things. So the question of how list sis matters and whether or not its a thing that, where shortterm down turns always affect longterm potential and they always affect it cycle after cycle and theyre doing it in the current cycle just in the way they always have its just that the current cycle is bigger, whether or not thats the right story or we dont typically see this, but we see it in this current downturn because this current downturns special. Or then a third possibility that there really isnt history sis. In fact, the whole point that were cyclically adjusting things like gdp is were trying to take out the cycle which is to say that were actually trying to look at these structural factors that are driving the economy because we dont think that the cycle is affecting the structural factors. So its really complicated, to tease all of those things apart. What weve certainly seen in the last cycle is that capital was hit, that investment was hit hard enough that there are longlived effects of the capital deepening as jared mentioned, there are longlived effects of the declines in investment that we saw after the recession. Another, i think weve actually cdo has actually been surprised recently that its beenless of a fact tar than we factor than we would have expected, and one place to look is the unemployment rate. We had previously estimated that what was happening in the labor market and with longterm employment and other factors would have longterm scarring effects on the rate, and weve since revised that with longterm unemployment coming down. So its complicated. The one [laughter] but just because jared mentioned the reare revisions the revisions that cbos made since before the recession, since 2007 with, and i think you had shown them in your slides, rich, one thing that i will say is we actually dont attribute most of the revisions. So i dont know if you can summon up the picture that rich showed of potential gdp in 2007 looking like this and potential gdp in our current or projections looking like this and a lot of daylight between them. We actually dont attribute much of that revision to the recession. We actually attribute most of that revisioning to implausibly optimistic projections for Labor Force Growth and for hours growth in particular prerecession. And we were just, just in retrospect, they were just implausibly fast. Want to jump in. Yeah. I just have one really quick thought. And i agree with a lot of what jared said. In some ways the longlived nature of this, the events of 06, 07, 50e 8, you know, are living with us today, are with us today and matter socially and politically and very profoundly. So to me, thats why this is so important, getting the policy right, and it goes back to the quality of the fiscal policy. I mean, sort of, you know, every dollar burned on, you know, sort of green pork or whatever is a dollar that didnt go to preschoolteachers. To me, thats why the quality matters. And we didnt have time, and i dont think we necessarily need to do it now, to debate some of the aspects of the recovery act. You know no, no. I should say the crazy train. Right, to me [inaudible conversations] joe biden. [laughter] thats not fair. What is frustrating to me, and you can see the frustration when i was up there is reproposing the burning money on highspeed rail are, the crazy train to nowhere. You want at least some introspection the train thing im less certain about, i think the green with nments, i think that investments, i think that some of them were a lot more effective. And by the way, the work of Michael Greenwald very instructive on this point. Thank you so much. I think were going to open it up to the audience now. Please raise your hand, stand up, the mic will come to you, and tell us who you are and where youre from. Do you want to this gentleman right here. And we might take a few questions, take two or three questions, and then well bring it to the panelists. Thanks very much, phil tuttle, one fiscal and one monetary question. Maybe wendy specifically. It looks to me like we had an incredibly high elasticity of tax revenues to income in this expansion. In fact, if you looked at those charts people were putting up, huge swings in budge deficits relative to whats been quite stable gdp growth. So i wondered if you felt that the automatic stabilizers were actually a little bit bigger thanker you know, the little rectangles you were suggesting, or more to the point, when we get the next down turn, whats the chance we catapult from 3 gdp deficit back to double digits . On the monetary side, very simple very complicated question in some ways is why is there so much folks on the front end of Monetary Policy, the fed funds rate, and virtually no function on the transmission mechanism . Isnt the problem that what the feds been doing in tapping tape accelerator just hasnt moved the wheels . So its that transmission mechanism we should be focused on, not the fed . Since those are two questions, wendy, do you want to hit ill let you handle that. I dont think that we have been particularly surprised by whats happened to automatic stabilizers, whats happened to revenues relative to taxable income. And so the way i square that with the point that youre making about gdp growth is im, i am positing the that taxable income has move more than gdp growth. But because the question came to me really fast, i didnt have time to verify that. [laughter] and one of you want to take [inaudible] you know, i think thats the right question about why is the focus at the short end and not on the transmission mechanism. But the answer is that the focus very much at the longer end and on the transmission mechanism where it should be precisely. Especially with the federal funds rate at zero. Thats why were buying, why Central Banks around the world are buying longer term securities. Theres a lot of study done on the basic channels, the wealth channel, how is that being affected by problems where households that were still mentioned, rebuilding their Balance Sheets, how did that affect the wealth channel, how does has the Exchange Rate channel changed, is intrasensitive spending, much less intrasensitive than it was at one time . The focus has been there, and i think it should be there. I think both of our monetary friends have introduced a really important point in their presentations. Rich focused on this in particular which is the international dimension. I cannot overemphasize how important that is. Ben bernanke has actually since the mid be 2000s been stressing through his savings discussions the critical important therein. To the point where youre even seeing Monetary Policy being challenged by these dynamics up that, you know, countries lower rates countries lower rates expecting their current i to go down, and it goes up. That happened in japan recently, to the tune of 8 , so it wasnt trivial. When the fed turned a bit doveish in their meeting about a week ago, the dollar depreciated sharply. And so those sensitivities, those elasticities are much, in my view, much more important than theyve not been unimportant in the past, but theyre much more important now. [inaudible] im going to call mike next. [laughter] Lloyd Etheridge with the policy science center. I wanted to ask you an Early Warning, prevention and big data question. Cbos been saying for decades that models are not good at turning points. So we are threequarters into a recession before things happen. But couldnt you today think more optimistically with big data about Early Warning systems that detect a downward cascade that could start any, several places and then move much faster with the new repertory of policy tools . Take another question before we answer. Ill get the mic after. Go ahead. Back there. Thank you. This has got me thinking a lot of different directions. Some of the papers ive read imply that theres a lot more than just negative Interest Rates, and the Interest Rate is not just a number, its a correlation. And if you insert money or change a policy, that can give the equivalent of a negative Interest Rate already. Rogoff and reinhart said this time its different, and he kind of meant that it isnt different, but in a way it is different because the definitions of all the variables have changeed and keep changing. What goes on the cpi, stock market goes up, thats good, but the s p 500 has a way different p. E. Than it had in the 90s. And similarly, unemployment is 5 , but the Labor Participation is lower than its ever billion. I liked that diagram of the lines interconnected. Some of the papers have those lines, but they have not just a number on those lines, but a, but each one of those lines is a complicated nonlinear partial difference equation. Were going to, let us cogitate. The real numbers that are going on here. One more right now . [inaudible] peter. All good points. Peter has a question. This ones for dr. Claire. You had an article in the wall street journal, so there seems a little bit of a disagreement between you and dr. Faust, and they might not be actual. You seem to think that helicopter money will happen you said in the next 510 years yeah. Well, certainly, the u. S. Would not be in the top or even the middle, but there are 182 countries in the world, and given the level of specificity of my answer, i am confident [laughter] and i will say for my own blogger piece going into details, but as i said in the article, there are different flavors of helicopter money, and i think more likely is what i called in the quote in gregs piece diswised disguised helicopter money. The governments going to issue a huge amount of debt and place it primarily with the central bank which will extipping wish it and, herbally, promise never to essentially, promise never to raise taxes. We may not see that, but we may see a close cousin of that which is, essentially, you run the big fiscal program, you say youre doing qex after three years you say, you know what . We just john cochrans article, we should have a big Balance Sheet, so were going to roll it over forever. I dont think thats implausible at all, but i dont think thats the u. S. Source, let me be clear. On the big data question, i actually had this idea. For automatic stabilizers as triggers, are this some triggers that will be faster and earlier than maybe the unemployment rate, or that well, i thought it was a really interesting question, and i wont waste your time by trying to answer your good question because i dont know enough about it. Hal, for example, talks about these ideas using all the input that google gets. The one constraint that ben and i had, and we got a lot of input for our trigger discussion, and everybody said it has to be something simple that congress can sort of understand and deal with. And that kind o leaves you with what the bls is going to generate, not big data. [laughter] mike, do you actually want to take on the question of raising Interest Rates preemptively or [laughter] yeah. Go ahead. I think the conventional was. Com is pretty strong on this one wisdom pretty strong on one. Im not going to question it. If i might, just a couple of quick observations about what weve been talking about. And i guess im impressed by my profound ignorance which is even greater than i thought before we went through this financial crisis. One thing that wasnt mentioned, and i suspect its not a practical issue in terms of thinking about what we might do if theres another recession, so weve embarked in varying ways in Different Countries on macroprudential regulation, and i dont i dont see that theres a great enthusiasm for thinking about that as a countercyclical tool as opposed to something that just creates an ongoing, greater resiliency. But one could envision in some countries at least it may be more difficult in the u. S. Where we dont have a lot of different tools doing something on that front. But going tobacco back to this question of Interest Rates and what we might do, the fed itself has already shown a concern about the possible effects of persistently elope Interest Rates, so that sort of raises a question about whether they would want to quickly move to still lower Interest Rates. And the questions of creating financial asset bubbles or other types of bubbles, real america al investment mal investment, to use a term you dont hear from the fed very much, and i dont think theyre very concerned about it. But in some circles, especially republican circles, its a very big deal. The question of creating further problems in financial intermediation, thats certainly one of the concerns with negative Interest Rates that weve heard, but might not even have to go to negative to be concerned about that. I might cite a wall street journal article today about the problems of Insurance Companies with longterm Care Insurance and raising premiums there. And thats almost a variation on another question of how do consumers respond to lower Interest Rates . One could envision that there are some consumers who are not so impressed by how its cheaper to borrow and they can buy another car, but how their Retirement Savings are being affected and feeling a need, a sort of target saving approach here so that you might not get the consumption response youre expecting. Theres also the, well, i guess that sort of covers the main ones you hear, but there are a lot of arguments you hear for why it would not be a good thing to go to lower Interest Rates. Go ahead, back there. Yeah. Thank you. Alec frank from johns hopkins. Quick question both on the fiscal and the monetary side and the impact of regulatory policy in termed of our preparedness. It was briefly mentioned by professor weigel here, but im kind of curious to hear more in depth from both the monetary side of the house in terms of the feds ability and capacity to deal with things with the impact that weve seen from the regulatory policy on the fluidity of market. Ill make a quick fiscal comment just riffing off of phil. I thought phil made a good point about some of the, some of the large changes in health care policy, in financial regulations that collided with a recovery that was still finding its legs. And the only thing i would say is that the political timetable doesnt necessarily track with the you cannily call one the cyclical one the way youd always like it to. I was with the administration, the obama administration, and we thought we had an opening to do an his Historical Health care reform, and i think ultimately history will show that was a very positive policy change. [inaudible] questions . Someone here, why done we take these two and then while youre doing that. To me, the regulatory issue is on growth, right . It seems like i called it a regulatory surge, and that had to have some effect on growth, right . I dont know if its ten basis points or a hundred, but its had some impact. And itd be useful, i think, to do better cost benefit an us or even some cost benefit analysis and figure out how to undo, you know, the right or the wrong regulations in some sense. I think on the monetary side or Financial System side its pretty clear that the regulations have a is certain burden. As far as what theyve done for resilience, its i think the key contribution to resilience has been that Financial Institutions now have a lot more capital x thats not particularly all the complicated 800page regulations and the like. I think unambiguously, well, we know they have a lot more capital, and that unambiguously makes the system more resilient. This is a point at which, you know, requiring too high a level of capital is also a drag, but the system much more resilient, and the thing you can point out is the capital, well spend a long time revising and sorting out the regulations which are beneficial which need further revision. The last two questions, here and there. I just wanted to get back to the fiscal space and creating isnt part of the argument for automatic stabilizers that you can build into their design, that they turn off and maybe compensate . Also i wanted to ask how important do you think our ability to borrow is to the conviction to people that we wont go off that default cliff . And, frankly, 2013 was actually a net horrible. They spent a lot of time between 2011 and 2013 preparing, and you saw haircuts on shortterm treasury bills. Yeah, its a great point. I mean, i remember Goldman Sachs always puts out these great charts of fiscal impulse, and 2013 was a huge negative, 1. 5 points of gdp, you know . You could latch that onto a million jobs pretty quickly, and you saw things really pick up pretty quickly, so i take your question very seriously. On the triggers, i mean, we so, i mean, ill just yes. As ben very clearly articulated, the turning on and turning off whats most important to us, and we think weve come up with ideas that would make them more timely. I would just, i would steer people towards a paper that i think was very important, it was actually a brookings paper, and it sort of goes in a different direction than some of the things wendy said which is not a criticism of cbo at all. I think sometimes the Research Gets out ahead of cpo, and if it becomes true, cbo changes it later. But i think the long summers paper in a brookings paper a little while ago that showed even when theres a small degree of list sis, and we have evidence in one of our papers that the degree was larger than that, that they argued that countercyclical stimulus pays for itself. I probably wouldnt go that far because im uncomfortable talking about free lunch, be i if it but if it comes to a low cost lunch, you could actually see in europe that, in fact, their debt situation worsened, you know, because they hurt their growth so much. I just wanted to say, to me, the states friend ya schizophrenia was illustrated by the administration. Celebrating the fiscal adjustment, and i understand that also. They cant understand which side of the sequester they want to be on, to theyre on both. Last question. Can i just say a little bit yes. About the paper jared mentioned . So if you take like an Infrastructure Program that lets say costs 100 billion, and lets say we think its going to have a rate of return lets even say we think right now, cbo thinks right now that the private sector rate of return is 10 , we hi the Infrastructure Project will have the same effect which is to say its going to increase gdp every year by 10 billion. The revenue that the federal government will get from that increase in gdp of 10 billion is maybe 2. 5 billion. Assuming thats how i they financed, if you think that increased Interest Rates at all, first of all, that means that they have to finance the 100 billion, but keep in mind that even if you increased Interest Rates by a trivial amount, our debt load is so high that that very small increase in federal borrowing rates also has a negative effect on the deficit which its very easy to swamp the increase in revenues that you get from the increase in gdp from infrastructure. Quick last question. Yeah. Bobby, citizen. Given the interconnectedness that youve talked about from country to country, several speakers have mentioned that or agreed to that point, how important in advance is that Central Banks or others think how they will coordinate their response in the case of a new recession, or are there competitive advantages that countries can obtain by waiting to see what others do and, therefore, its not advantageous to coordinate response . Yeah, i can just do that quickly. In theory, there can be. In practice, when people at least among economists try to quantify and calibrate the games to cooperation, theyre typically found to be pretty small. I think a lot of what we observe or in practice which we call correlated policies, countries get hit by common shocks, and its all in their interests to do the same thing. So, for example, in 09 there was a global recession, was that coordination or correlation to a common shock . So its a harder problem when you get into the details than it may first appear to sort that out. So the mission of the fiscal, of the hutch ins center is to improve the quality of fiscal policy which requires thinking about how fiscal policy could be different and improving public understanding of those which requires the cooperation of people like these explaining things to us, answering questions and making powerpoint slides. So, one, i want to thank everybody for participating and coming. Two, the slides ask that all the speakers presented are on our web site if you want to read the small print. And, three, if theres paper or coffee cups at your feet, pick them up and put them in the garbage at the end. Please join me in thanking louise and our panel. [applause] [inaudible conversations] [inaudible conversations] booktv is in prime time on cspan2 starting monday night at 8 30 eastern. 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