Understanding the Stagnation of Modern Economies

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1 Department of Economics and Economica public lecture Understanding the Stagnation of Modern Economies Professor Robert Hall Robert and Carole McNeill Senior Fellow, Hoover Institution Professor of Economics, Stanford University Professor Francesco Caselli Norman Sosnow Professor of Economics, LSE Chair, LSE Hashtag for Twitter users: #LSEPhillips

2 Understanding the Stagnation of Modern Economies Robert E. Hall Hoover Institution and Department of Economics Stanford University The Phillips Lecture London School of Economics 28 April

3 Allocation of 10.0 percentage points of shortfall in real GDP, Excess unemployment Shrunken labor force 1.3 Shrunken labor force 2 Reduced productivity growth Depleted capital stock

4 Allocation of 15.4 percentage points of shortfall in real GDP, Excess unemployment 3 Shrunken labor force 3.3 Shrunken labor force 2 Reduced productivity growth Depleted capital stock

5 Topic 1: Output 21 Trillions of 2009 dollars Detrended real GDP

6 Topic 2: Unemployment Percent of labor force

7 Unemployment and productivity Percent of population working or looking for work Output per worker (inverse, right scale) Unemployment rate (left scale) Reciptorcal of index of real output per worker

8 Unemployment and the stock market Percent of population working or looking for work Unemployment rate (left scale) Stock market (inverse, right scale) Reciptorcal of index of real value of the stock market

9 Direct Effect of Unemployment 21 Detrended Real GDP, trillions of 2009 dollars Real GDP Adjusted for direct effect of unemployment

10 Topic 3: Shrinkage of the labor force Men Percent Percent of population working or looking for work 50 Women

11 Role of family income from Hall and Petrosky-Nadeau (2016) 1st 2nd 3rd 4th Total 1.5% 1st (poorest) 0.5% 2nd % 3rd -1.5% % 4th (richest) Total

12 Changes in weekly hours of time use, 2003 to 2013, people 15 and older Personal care Household work Market work Education Leisure Other Men Women

13 Topic 4: Total Factor Productivity Index Detrended index of output per unit of Input

14 Declining IP investment Index Detrended Index of investment in intellectual property including R&D

15 Technology diffusion is sensitive to macro conditions Figure 4: Diffusion Speed for 3 Internet Technologies in the UK, from Anzoategui et al. 1 Diffusion Speed for 3 Internet Technologies in UK

16 Topic 5: Capital Depletion Index Detrended index of busines capital

17 Business Earnings as a Ratio to the Value of Capital 0.35 Ratio of capital earnings to value of capital

18 Allocation of 15.4 percentage points of shortfall in real GDP, Excess unemployment 3 Shrunken labor force 3.3 Shrunken labor force 2 Reduced productivity growth Depleted capital stock

19 Topic 6: The Lower Bound on the Nominal Interest Rate Percent per year Short term future interest rate implied by yields on longer term treasury bonds

20 Monetary policy has much less scope for stimulus 18 Percent per year Federal Reserve Policy Interest Rate

21 Sources Diego Anzoategui, Diego Comin, Mark Gertler, and Joseba Martinez, Endogenous Technology Adoption and R&D as Sources of Business Cycle Persistence, February 2016 Robert Hall, High Discounts and High Unemployment, Understanding the Decline in the Safe Real Interest Rate, Macroeconomics of Persistent Slumps (chapter for new Handbook of Macroeconomics) Robert Hall and Nicolas Petrosky-Nadeau, Changes in Labor Participation and Household Income, FRBSF Economic Letter , February

22 Department of Economics and Economica public lecture Understanding the Stagnation of Modern Economies Professor Robert Hall Robert and Carole McNeill Senior Fellow, Hoover Institution Professor of Economics, Stanford University Professor Francesco Caselli Norman Sosnow Professor of Economics, LSE Chair, LSE Hashtag for Twitter users: #LSEPhillips

UNIVERSITY OF CALIFORNIA Economics 134 DEPARTMENT OF ECONOMICS Spring 2018 Professor David Romer

UNIVERSITY OF CALIFORNIA Economics 134 DEPARTMENT OF ECONOMICS Spring 2018 Professor David Romer LECTURE 2 OVERVIEW OF THE GREAT DEPRESSION January 22, 2018 I. THE 1920S A. GDP growth and inflation B.