As a new decade begins, I see five big questions facing macroeconomists, which I’ve listed in a roughly increasing order of difficulty.
- Why not make full use of our productive resources? Inflation has been stuck below the Federal Reserve’s target of 2% for much of the past decade. It is expected to remain low for at least another year or two. The low rate of price increases is sending a clear message: there’s too little demand for goods and services relative to the supply of resources — especially human resources! — that can be used to produce those goods and services. So, why doesn’t the Fed respond to low inflation by easing monetary policy so as to boost demand, and make use of available supply?
- How can governments take advantage of low interest rates? The 30-year yield on U.S. Treasuries is just over 2% — about half what it was a decade ago and about a third of what it was two decades ago. It would seem like a lot of public investments would be profitable if financed at this remarkably low interest rate. Shouldn’t the U.S. government issue (a lot) more long-term (with maturity of 30 years or possibly even longer) bonds to finance increased subsidies to higher education? Increased subsidies to research by universities and corporations? Spending on infrastructure like roads or hospitals?
- What are the lessons of China for Africa? Per capita GDP for the 1 billion people of sub-Saharan Africa was about $1,500 in 2018. In 1998, China had about same per capita GDP (and population). In the intervening two decades, per capita GDP has quintupled in China. What lessons, if any, can sub-Saharan Africa learn from China’s experience to enable the same kind of rapid growth? In particular, China has contradicted basic neoclassical economics by making many kinds of government interventions in its economy. Which (if any) of those interventions have helped lead to its unusually rapid growth? Could those be replicated by the individual governments in Africa?
- What are the policy consequences of a falling world population? At least since Malthus, we’ve known that it is hard to make accurate long-run predictions about population. But the best current forecast is that, because of falling fertility rates, the world’s population will be essentially flat by 2100 (which means in turn that population is expected to start to fall shortly thereafter). The combination of falling fertility rates and rising life expectancy means that we should expect that the world’s population to be much older in 2100 than today. Can an old and shrinking population be the basis for a dynamic economy? What macroeconomic policies would need to be undertaken to ensure that happens?
- Is growth still good? The world’s climate seems likely to change, and possibly rapidly, over the next hundred years. Should governments of developed countries around the world be working to slow economic growth to help reduce the pace of climate change? How would it be possible to build the needed international popular support for this approach?
Narayana Kocherlakota is a Bloomberg Opinion columnist. He is a professor of economics at the University of Rochester and was president of the Federal Reserve Bank of Minneapolis from 2009 to 2015.
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