The economic constraint that has preoccupied policymakers in recent decades has been that of wage and price inflation. The policy response — structural reform of labour markets and monetary policy rules — is credited with giving rise to the ‘great moderation’, a reduced volatility of output and price inflation. The success of this approach was accepted by many until the great financial crash, though not everyone was entirely sure. As the head of the US Federal Reserve explained (Bernanke 2004): ‘if the Great Moderation was largely the result of good luck rather than a more stable economy or better policies, then we have no particular reason to expect the relatively benign economic environment of the past twenty years to continue’. Just so — looking back, good luck, including the effects of cheap imports from China and elsewhere, does seem a strong contender, but even without such retrospective vision, the great moderation needed to be questioned; success in reducing volatility and inflation was bought at the expense of a falling labour share, more severe recessions and increased inequality which implies new problems.
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