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Understanding the Stagnation of Modern Economies
Hashtag for Twitter users: #LSEPhillips
Department of Economics and Economica public lecture
Professor Robert Hall Robert and Carole McNeill Senior Fellow, Hoover Institution Professor of Economics, Stanford University Professor Francesco Caselli
Norman Sosnow Professor of Economics, LSE Chair, LSE
Understanding the Stagnation ofModern Economies
Robert E. HallHoover Institution and Department of Economics
Stanford University
The Phillips LectureLondon School of Economics
28 April 2016
·
1
Allocation of 10.0 percentage points ofshortfall in real GDP, 2010
2.3
3.1
1.3
3.3
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
1
2
3
4 Excess unemployment
Reduced productivity growth
Shrunken labor forceShrunken labor force
Depleted capital stock
2
Allocation of 15.4 percentage points ofshortfall in real GDP, 2015
5.1
6.6
3.3
0.5
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0
1
2
3
4
Reduced productivity growth
Shrunken labor forceShrunken labor force
Depleted capital stock
Excess unemployment
3
Topic 1: Output
15
16
17
18
19
20
21
1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008 2014
Trillions of 2
009 do
llars
Detrended real GDP
4
Topic 2: Unemployment
0
2
4
6
8
10
12
1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008 2014
Percen
t of lab
or fo
rce
5
Unemployment and productivity
0.8
0.8
0.9
0.9
1.0
1.0
1.1
0
2
4
6
8
10
12
1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008 2014
Reciptorcal o
f ind
ex of rea
l outpu
t per worker
Percen
t of p
opulation working
or loo
king
for w
ork
Unemployment rate (left scale)
Output per worker (inverse, right scale)
6
Unemployment and the stock market
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
0
2
4
6
8
10
12
1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008 2014
Reciptorcal o
f ind
ex of rea
l value
of the
stock
market
Percen
t of p
opulation working
or loo
king
for w
ork
Unemployment rate (left scale)
Stock market (inverse, right scale)
7
Direct Effect of Unemployment
15
16
17
18
19
20
21
1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008 2014
Detrend
ed Rea
l GDP, trillions of 2
009 do
llars
Real GDP Adjusted for direct effect of unemployment
8
Topic 3: Shrinkage of the labor force
30
40
50
60
70
80
90
1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008 2014
Percen
tMen
Women
Percent of population working or looking for work
9
Role of family incomefrom Hall and Petrosky-Nadeau (2016)
-3.5%
-2.5%
-1.5%
-0.5%
0.5%
1.5%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
1st 2nd 3rd 4th Total
0.7
0.3
-1.5
-2.0
-2.6
1st (poorest)
2nd
4th (richest)
3rd
Total10
Changes in weekly hours of time use,2003 to 2013, people 15 and older
Personal care
Household work
Market work
Education Leisure Other
Men 1.3 0.1 -2.5 0.2 1.3 -0.4
Women 1.6 -0.7 -0.8 -0.1 0.8 -0.8
11
Topic 4: Total Factor Productivity
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30
1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008 2014
Inde
x
Detrended index of output per unit of Input
12
Declining IP investment
0.6
1.1
1.6
2.1
2.6
3.1
1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008 2014
Inde
x
Detrended Index of investment in intellectual property including R&D
13
Technology diffusion is sensitive tomacro conditions
from Anzoategui et al.
Figure 4: Diffusion Speed for 3 Internet Technologies in the UK, 2004-2013
2004 2005 2006 2008 2009 2010 2012-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
Diffusion Speed for 3 Internet Technologies in UK
Source: Eurostat; see footnote 6 for details of calculations. Shaded areas are UK recession dates as dated by
UK ONS.
10
14
Topic 5: Capital Depletion
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008 2014
Inde
x
Detrended index of busines capital
15
Business Earnings as a Ratio to theValue of Capital
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008 2014
Ratio
of cap
ital earning
s to value
of cap
ital
16
Allocation of 15.4 percentage points ofshortfall in real GDP, 2015
5.1
6.6
3.3
0.5
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0
1
2
3
4
Reduced productivity growth
Shrunken labor forceShrunken labor force
Depleted capital stock
Excess unemployment
17
Topic 6: The Lower Bound on theNominal Interest Rate
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2016 2020 2024 2028 2032 2036 2040 2044
Percen
t per yea
r
Short‐term future interest rate implied by yields on longer‐term treasury bonds
18
Monetary policy has much less scope forstimulus
0
2
4
6
8
10
12
14
16
18
1955 1961 1967 1973 1979 1985 1991 1997 2003 2009 2015
Percen
t per yea
r
Federal Reserve Policy Interest Rate
19
Sources
I Diego Anzoategui, Diego Comin, Mark Gertler, and JosebaMartinez, “Endogenous Technology Adoption and R&D asSources of Business Cycle Persistence”, February 2016
I Robert Hall, “High Discounts and High Unemployment”,“Understanding the Decline in the Safe Real InterestRate”, “Macroeconomics of Persistent Slumps” (chapter fornew Handbook of Macroeconomics)
I Robert Hall and Nicolas Petrosky-Nadeau, “Changes inLabor Participation and Household Income”, FRBSFEconomic Letter 2016-02, February 2016
·
20
Understanding the Stagnation of Modern Economies
Hashtag for Twitter users: #LSEPhillips
Department of Economics and Economica public lecture
Professor Robert Hall Robert and Carole McNeill Senior Fellow, Hoover Institution Professor of Economics, Stanford University Professor Francesco Caselli
Norman Sosnow Professor of Economics, LSE Chair, LSE