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Stanford's John Taylor: US Stuck in Period of Slow Growth, High Unemployment

Tuesday, 28 Jun 2011 08:42 AM

Like today's sluggish economy? Get used to it, says noted Stanford economics professor and monetary policy expert John Taylor. Because unless the government gets its spending issues under control, the U.S. economy will remain stuck in a period of elevated unemployment and sluggish growth, Taylor tells The Wall Street Journal.

"My biggest concern now is not a double dip. It's just this slow growth that we have had and continued high unemployment," he said.

"I'm so concerned that it's going to stay that way, at 2 percent, 2.5 percent even 3 percent when saw 7 percent growth in a similar period in the 1980s, and that will leave unemployment high."

The problem, Taylor says, is that fiscal and monetary stimulus measures haven't worked.

"People have to recognize that all these policy interventions, both on the fiscal side and on the monetary side, lots of different things like cash for clunkers — you can make a whole long list of things — those have not helped, so getting away from those things and back to good, sound fiscal policy and what I would call good, sound monetary policy, that would be the most constructive thing to do right now."

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That, Taylor says, includes running the Federal Reserve and the budget in a manner similar to the way past administrations did in the 1980s, 1990s and into the early 2000s: Don't spend too much and let expansive monetary policy make room for growth without extraordinary stimulus measures that do nothing but create uncertainty.

"What I would have done was left the ease in there, with respect to the interest rate, at least for a while, and then in addition make sure that money growth didn't decline."

While the Federal Reserve needs to dismantle is simulative policies bit and bit and mop up excess reserves gradually, government spending must come down as well.

"Take the 1990s," Taylor says. "Government spending as a share of GDP came down and down and it was a great period of economic growth."

Republicans are at odds with the White House over ways to narrow fiscal deficits and avoid a government default, with tax increases serving as a hurdle.

"It is time for the president to speak clearly and resolve the tax issue," says Republican House Majority Leader Eric Cantor, according to Reuters.

The government has hit its $14.3 trillion debt ceiling and needs Congress to lift that limit in order to avoid an Aug. 2 default.

With congressional leaders at an impasse, President Obama will likely see to hammer out a deal with Republican House Speaker John Boehner.

"I think it's in the hands of the speaker and the president, and sadly, probably me," says Senate Democratic Leader Harry Reid, according to Reuters.

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Like today's sluggish economy? Get used to it, says noted Stanford economics professor and monetary policy expert John Taylor. Because unless the government gets its spending issues under control, the U.S. economy will remain stuck in a period of elevated unemployment and...
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2011-42-28
Tuesday, 28 Jun 2011 08:42 AM
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