A few weeks ago I pointed out that new claims for unemployment (4 week average) as a share of total employment had reached the lowest level since April 2000. I predicted it would soon beat that record. Now it has; they are at the lowest level ever. Here’s what we know (or at least I suspect) about the new economy:
1. Low interest rates are the new normal.
2. Low layoffs are the new normal.
3. High stock prices are the new normal.
4. Greater income inequality is the new normal.
5. Fewer people moving between states is the new normal.
6. Slow RGDP growth is the new normal, probably due to both slower employment growth and lower productivity growth.
7. The Great Moderation is back after a one year hiatus (mid-2008 to mid-2009). This expansion may last a record 10 plus years, but will still be a lousy expansion. Don’t call it the Great Moderation, call it the Mediocre Moderation. Mediocre labor markets are the new normal.
8. Just as overall economic growth reflects deep institutional realities, the quality of macro policy reflects the quality of institutions doing macro teaching and research. A small country like Canada can easily outperform a big region like the eurozone, if its macroeconomists (Laidler, Rowe, Carney, etc.) are better informed about the realities of monetary economics and AD than those macroeconomists of the eurozone, who don’t even seem too sure of what AD is. But these differences are not carved in stone—Germany was ahead of the English-speaking world in their understanding of monetary economics during the 1970s. As the issues change, the relative strength of each country changes.
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