Likewise it would be imprudent not to allow for a fairly significant fall in prices, even if only to still pretty attractive levels, over several years. 5 But the truth is that we will learn only gradually what the detailed shape of the new environment is. How should we handle this uncertainty? A few simple messages seem to me to be important.
First, we should not assume that the recent pace of national income growth is a good estimate of the likely sustainable pace. We should allow a good deal of the income growth to flow into saving in the near term.