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Sakurai: Would a right combination of fiscal and monetary policy be able to solve the problem of secular stagnation?
Sims: I don’t know what I think about secular stagnation. There is a regularity that whenever the economy slows down for any length of the time, some economists start talking about secular stagnation. So this period in history is no different in that respect from many others. That doesn’t mean it’s impossible that we really do have secular stagnation, as I’m sure you know Robert Gordon has argued that there’s something qualitatively different about the recent technical innovations that makes them less productive than what we were seeing in the 30s, 40s and 50s of the twentieth century. I’m not sure I believe that. I think it’s true that a lot of the productive uses of new digital and electronic technology are still being discovered, and it could well be that we could again get growth rates much faster than we have now. I think monetary and fiscal policy has been bad, in most of the rich countries. And that there’s plenty of room for finding out if we’re actually in a technological secular stagnation or not. And the way to find out is get inflation back up to target, and see, does that produce a big growth bonus, or not? I’m not sure that we really do have a permanent secular stagnation problem beyond what’s resulted from inadequate monetary and fiscal policy.
Sakurai: May I ask you about your assessment on Donald Trump’s economic policies?
Sims: I find it very difficult to do that because it’s not at all clear what those policies are yet. Some of the executive orders he’s been signing are temporary or not clearly something that will stand up in court. In his campaign he talked about infrastructure spending, making sure social security and Medicare don’t get changed or reduced. Reducing taxes. This all sounds very expansionary. But he never actually said that it was his policy to run large deficits. And the republicans, who now have the majority in the Congress, have for the last 8 years been extremely reluctant to allow any deficit spending. It’s not clear whether they're really ready to simply turn around and start being happy to make deficit spending because the president has changed. It may well happen, that’s true, but it’s not clear yet. There are people in Congress who have been talking about making deep slashes in other parts of the budget, in order to finance infrastructure spending. And if that turns out to be the dominant policy position, from the point of view of fiscal and monetary contraction, it could be that the Trump initiatives are contractionary rather than expansionary. Wall Street now seems to have the view that Trump’s policies will be expansionary, or are likely to be expansionary. But I think there’s a significant chance that they will turn out to be the opposite.
Sakurai: Well, thank you so much for your time today.
