Obama Economic Adviser: The Great Moderation is Over, if it Ever Existed

The so-called “Great Moderation” of low economic volatility between the mid-1980s and the financial crisis of 2008 was not as great as it seemed, and the future likely won’t be as pleasant, according to President Obama’s top economic adviser.

Jason Furman, the chairman of the Council of Economic Advisers, said in a speech in Washington on Thursday that “the Great Recession certainly does reveal serious limitations of the concept of a great moderation,” and that the U.S. economy shouldn’t be expected to return to a pattern of relatively smooth growth now that the banking crisis is in the past.

The “Great Moderation” was a term coined by economists James Stock, another current member of the CEA, and Mark Watson in a 2003 paper. It was meant to describe the decline in volatility in macroeconomic indicators such as gross domestic product growth and inflation since Federal Reserve Chairman Paul Volcker brought the high inflation rates of the 1960s and ’70s to an end.

In 2004, Ben Bernanke, then a Fed governor under Chairman Alan Greenspan, popularized the term in a speech that attributed the smoothing out of the business cycle to better monetary policy by the Fed — although Bernanke also acknowledged that luck may also have played a significant role, and that luck might run out in the future.

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