Demand and Supply: Learning from the United States and Japan

I will start by discussing the recovery in the advanced economies, focusing especially on the fiscal-policy experiences of the United States, Japan, and Europe. I will then go on to discuss two major structural issues: productivity and labor force participation. One issue that is especially important for the United States but is beyond the scope of my comments today is inequality, including its links to economic rents, which I have addressed elsewhere (CEA 2016a; Furman and Orszag 2015). It is important to note that this is an area where Japan has fared far better than the United States: while the share of income going to the top one percent of households in each country was comparable in 1975, Japan's has risen only slightly, while that of the United States has more than doubled, according to the most recently available data (WWID 2016).My argument will be that demand, productivity, and participation are related: the magnitude and composition of short-run demand can affect the supply side, including productivity and the labor force. At the same time, productivity and the labor force can themselves affect one another. Global conditions affect long-run equilibrium interest rates; technological progress is not entirely in our hands; and birth rates from past decades affect the size of the population in the future. But none of these changes represent our destiny, and rather than debating whether we are in an era of secular stagnation or lower productivity growth for the long term, the relevant question for policymakers is what we can do about it. And in that regard, I think the United States and Japan have much to learn from each others successes and challenges-both through more economic research like that discussed in today's conference, as well as through policymakers sharing views with one another.