Structural reforms of this sort have been decided upon by national governments within the framework of the agreements made in Lisbon and we should not forget that the ultimate objective is to increase the pace of economic growth in order to ensure more prosperity and provide more jobs for everyone, which is fundamental for the weakest and the poorest. Rather than finding a compromise between the various members of our society, between those that have costs and those that reap the benefits, I see it more as a compromise between the present and future. It is a forwardlooking investment and a better future for the weakest part of the population which entails costs at the beginning. And in any case let us not forget that we cannot ask our children and grandchildren to pay our bills! In Europe, the population is shrinking to the point that by 2020, according to different studies, there will be 20 million people available for work. In the United States, it is on the rise. How is this? Perhaps this is because the United States is a population with entire generations of immigrants in which the birth rate is higher. And then there is the cultural aspect, they are more optimistic than us. Why? This involves philosophical and cultural aspects and I am not convinced that they are structural.
It’s 2001: Destiny’s Child is topping the charts, you were marveling over your Motorola flip phone, and I was a young economist at the Board of Governors in Washington, D.C. At the time, I was burning the midnight oil, along with a fellow economist, Thomas Laubach, trying to understand what the burst of productivity growth generated by the tech boom meant for interest rates, both in the short term and in the long run. This led us to develop a model for measuring r-star. I know what’s going through your mind: “What is this r-star that you speak of?” R-star is how economists describe the neutral or natural rate of interest. It’s the rate that we expect to prevail in the long run when interest rates are neither providing a boost to the economy nor trying to cool things down. It’s neither accommodative, nor contractionary. In other words, it’s the “normal” interest rate we expect in “normal” economic times. G-star One of the major factors determining r-star is… you guessed it, g-star! G-star is what economists mean when they describe trend growth, sustainable growth, or potential growth of the economy. The two main drivers of g-star are labor force growth and productivity growth. We started trying to understand where r-star was when productivity growth was very high. During the boom GDP growth averaged over 4 percent per year. Our estimate of r-star for that time was above 3 percent, a full percentage point higher than before the tech boom started.