If GDP is running at 15 per cent below its pre-crisis path, it would be reasonable to expect productivity to be falling short by a similar amount.
Since it began in mid-2009, the American economy has followed the post-crisis path of expansion already taken by countries emerging from similar financial crack-ups.
Perhaps most encouragingly, the Federal Reserve continues its evolution toward a policy of explicit "catch-up" toward the pre-crisis path of the price level and/or nominal output level.
The International Monetary Fund, studying a much broader sample of crises, found that seven years after the onset of a banking crisis, GDP was on average still 10% below where its pre-crisis path would have put it.
Since inflation is in line with the Fed's implicit target yet nominal GDP is more than 11% below its pre-crisis path, Mr Sumner's proposal might require a far more expansive monetary policy than anything the Fed has so far considered.
They have also given voice to once-obscure scholars advancing bold solutions to America's economic funk and Europe's self-inflicted crisis.A good example is Scott Sumner of Bentley University, who believes that America's Federal Reserve should promise to restore "nominal" GDP (as opposed to "real" GDP, which takes account of inflation) to its pre-crisis path.
There is "no obvious reason" why the economy could not rejoin its pre-crisis path, though it might take a decade or two to get there, he said on May 16th.For the moment spare capacity is limited in part because businesses are not confident enough to invest in new machinery and premises.
In America NGDP plunged over 11% below its pre-crisis path and remains there; what people buy at the prices they pay for it is much less than most would want.The market monetarists point out that their 5% target is consistent with inflation of about 2%, provided the economy grows at about 3% a year, its rough average for the pre-crisis years.
But there is no such thing as a good way out of this crisis; every path risks further division.
The two sides met today to discuss the possibility of an electoral way out of the crisis, a path the opposition wants in order to avoid having to wait until the next presidential election, in 2006.
Renowned climate scientist James Hansen recently visited MIT to deliver his public lecture, "Combatting the Climate Crisis: The Path from Science to Action," to a crowd of 400 in Building 10-250.
