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Prescott on Macro

Nobel Laureate Edward Prescott takes an Hayekian approach to macro in this commentary at the WSJ:

The sky is not falling. No need to panic and start
playing around with all sorts of policy responses. Despite the
impression created by some economic pundits, the U.S. economy is not a
delicate little machine that needs to be fine-tuned with exact
precision by benevolent policymakers to keep from breaking down.
Rather, it is large and complex, with millions of people making
billions of decisions every day to improve their lives, the lives of
their families and the health of their businesses.

On the one hand, it’s difficult to screw up all these
well-intentioned people by crafting bad policy, but, on the other hand,
it is of course entirely possible to do so. And once things are broken,
they are much harder to fix. For example, all those doomsayers
predicting a recession will get their wish if taxes are suddenly
raised, new productivity-strangling regulations are enacted, the U.S.
turns against free trade, or some combination thereof. Otherwise, we
should expect 3% real growth, based on 2% increases in productivity and
1% population growth. This economy is fundamentally sound.

Read the whole thing.