In a speech to the Senate Banking Committee yesterday, Federal Reserve Chairman Alan Greenspan gave his most upbeat assessment of the economy in over a year, stating he believed a recovery from recession is currently underway. Meanwhile, on campus, government policy experts from the Federal Reserve discussed the success and failure of recession-related government policies and mused on the current state of the economy.
“The downturn wasn’t so bad and we seem to be going up again,” Edward Gramlich, member of the Federal Reserve Board of Governors and former dean of the School of Public Policy, said. “The recession has put economic policy-making back on the table.”
Gramlich, along with Paul McCracken, distinguished professor at the Business School, and Michael Moskow, president and chief executive officer of the Federal Reserve Bank of Chicago, weighed in on the policies of recessions past and present in the panel “Policies to Escape Recession: What Should We Do?”
Gramlich stressed that policies need to focus on the long-term and said that “the most important variable is growth of productivity,” which in turn influences the federal budget.
“The general budget needs to be balanced over the long run,” he said, although he added that deficits will occur and are allowable in times of recession. Policies need to be simple, according to McCracken.
“If you devise the most artistic policy, Congress will spend the next 10 years arguing over it,” he said. McCracken praised policies of the 1990s, which resulted in economic surpluses. He also pointed out that the economy “generally tends toward reasonable stability unless it’s disturbed … by some major economic policy,” cautioning against policies that may “over-steer.”
Moskow compared the current recession to its predecessor in the early 1970s, noting the economy today is much stronger in general.
“We haven’t had a reduction in output so far and inflation is low,” he said, adding he believed that the “current recession is probably going to be shorter” than the recession of the 1970s. Moskow also said this recession “is clearly better than most economists predicted.”
As for future rate cut decisions and economic growth, the speakers remained tight-lipped. But as Moskow observed, “we can never eliminate recession.”
Becky Blank, dean of the School Public Policy and moderator of the panel discussion, said over the past century, recession is a “topic that is always current” with each decade.
Government economic policies, in dealing with recessions, should always “do what’s right in the long run,” Gramlich said.
The Gerald R. Ford Presidential Library and the School of Public Policy sponsored the panel.