Must-read: Andy Harless: “Answering @rortybomb on why potential output has fallen”

Must-Read: Andy Harless: “Answering @rortybomb on why potential output has fallen…

…https://t.co/rZHIRGaHt5: 1. Hysteresis. Theoretically reversible, but Fed won’t let US run well above capacity for a long time (unless Bernie appoints @mattyglesias). 2. Beveridge curve shift. Don’t know why it happened, but no reason to think Bernie’s policies would reverse it. 3. Guessed wrong on underlying productivity growth. 1995-2005 was a fluke. No way Bernie’s policies get us retroactively back to old guess. 4. Guessed wrong on demographics by ignoring interaction w business cycle & not realizing at the time that 2007 was a major peak. FWIW the hysteresis thing shows one reason to favor (in this case, retroactive) NGDPLT: allows maximum reversal w/o losing LR credibility…