I missed class on February 4th (my bad) when Martin Feldstein of Harvard University gave the 4th lecture of his course “American Economic Policy,” but fortunately my classmate Matthew Tyler took notes and kindly accepted an invitation to post them as a guest on this blog. He also offers some personal reflections on what it feels like to be a left of center observer in a class taught by a self-avowed “conservative economist.” You can reach Matthew on twitter @Matt_B_Tyler .
Feldstein takes to the podium on a relatively mild Cambridge morning for this term’s fourth American Economic Policy lecture. The crowd has thinned slightly since day one, although the rapid tapping of laptop keys throughout suggests those who remain hang on every word. Like sponges, the economists of the future are absorbing the insights of a distinguished five decade career. Today, these eager young minds cover much ground: reflections on the Obama administration’s response to the great recession; the accuracy of real GDP measures; and skepticism regarding the size of the inequality problem in the United States.
It’s December 2008. The National Bureau of Economic Research has just declared the American economy has been in recession for almost 12 months. Both fiscal and monetary policy responses are falling short. $78 billion of tax rebates introduced by President Bush generated only $20 billion of additional consumer spending which was far less than the multiplier predicted by Feldstein, Summers and others. Similarly, traditional monetary policy is not working as the crisis was not caused by rising interest rates.
[In this third lecture of his American Economic Policy class at Harvard given on January 29th, Martin Feldstein explains how he and the profession turned away from Keynesian economics, and how he made his way back.]
This morning the Department of Commerce published preliminary estimates of what happened to GDP in the fourth quarter of last year. These estimates will be repeatedly revised, “but you’re a policy maker and you know only what you know, and this is what you know.”
The estimates are seasonally adjusted and expressed as annual rate after controlling for price changes. Growth was pretty crummy at an annual rate of 0.7%, down from an annual rate of 2.0% during the previous quarter. Should we be worried? Are we slipping into a new recession?
Consumer spending was growing at 2.2%, contributing 1.5% to GDP growth, and residential construction was good. But fixed investment in structures and equipment was negative and pulled growth down, as did exports and changes in inventories. These negatives added up to 1.2, the pluses to 1.8, so we are left with about 0.7% for overall growth.
This gives you a picture of what was going on. The folks at the Fed have to ask if they will keep raising interest rates.
This is the great thing about being in economics: there is always new stuff happening and new information being released to help you figure it out.
What caused the Great Recession, and could it happen again? These are the questions that motivate Martin Feldstein in the second lecture of his course “American Economic Policy” given to undergraduates at Harvard.
The good professor suggests that the housing sector is where we should look for an answer, and that we should appreciate that public policy played a role in both causing the recession, and in helping the American economy recover from it. But also important policy changes putting this sector on a more stable footing were reversed for political reasons, and this raises the risk that it could all go terribly wrong again.
Where are we? How did we get here? What next?
“This is a remarkable year for studying economic policy in the United States.”
That is how Martin Feldstein began his course “American Economic Policy” for undergraduates at Harvard University. I’ve gone in cognito and hope all the 20 year olds will not notice me—well not really.
It is just one of several courses I’ll audit this spring semester, and besides it was not too hard to hide in the overflowing room, standing room only at least for this first day of class.
Feldstein is a player in US economic policy. The biography on his website says:
From 1982 through 1984, Martin Feldstein was Chairman of the Council of Economic Advisers and President Reagan’s chief economic adviser. He served as President of the American Economic Association in 2004. In 2006, President Bush appointed him to be a member of the President’s Foreign Intelligence Advisory Board. In 2009, President Obama appointed him to be a member of the President’s Economic Recovery Advisory Board.
Since I am slated to teach a similar course at the University of Ottawa next year after my academic leave is over, it makes sense to see how the Harvard professor handles the big macro-economic issues of our time. So every Monday, Wednesday, and Friday morning it is back to undergraduate economics for me, and I’ll post my edited class notes if you want to follow along, learn some macro-economic theory, and develop an appreciation of the economic challenges facing the United States (and presumably other rich countries).
During the first class Professor Feldstein posed the big questions and issues the course will tackle, as well as laying out some of the administrative ground work.