Lawrence H. Summers’s research while affiliated with The National Bureau of Economic Research and other places

There have been important methodological changes in the Consumer Price Index (CPI) over time. These distort comparisons of inflation from different periods, which have become more prevalent as inflation has risen to 40-year highs. To better contextualize the current run-up in inflation, this paper constructs new historical series for CPI headline and core inflation that are more consistent with current practices and expenditure shares for the post-war period. Using these series, we find that current inflation levels are much closer to past inflation peaks than the official series would suggest. In particular, the rate of core CPI disinflation caused by Volcker-era policies is significantly lower when measured using today’s treatment of housing: only 5 percentage points of decline instead of 11 percentage points in the official CPI statistics.

We study how the recent run-up in housing and rental prices affects the outlook for inflation in the United States. Housing held down overall inflation in 2021. Despite record growth in private market-based measures of home prices and rents, government measured residential services inflation was only four percent for the twelve months ending in January 2022. After explaining the mechanical cause for this divergence, we estimate that, if past relationships hold, the residential inflation components of the CPI and PCE are likely to move close to seven percent during 2022. These findings imply that housing will make a significant contribution to overall inflation in 2022, ranging from one percentage point for headline PCE, to 2.6 percentage points for core CPI. We expect residential inflation to remain elevated in 2023.

Over the past year, substantial progress has been made on the path to economic recovery. Yet, as true with most recessions induced by a financial crisis, recovery is going to be long and slow. This is particularly true for employment. Moreover, there is evidence that indicates there are structural as well as cyclical concerns about this recovery's slow employment growth. The personal as well as macroeconomic costs of this slow growth mean that there is no higher public policy priority than economic recovery and job creation. This address presents and discusses three guiding principles for economic policy: restoring confidence, increasing aggregate demand, and achieving broader and deeper education.

The international financial crisis manifests itself in Ireland not only as a crisis of the banking system, but also as a major fiscal crisis, aggravated by years of soft revenue policy and a housing bubble that has burst spectacularly. The severe drop in economic output results in a crisis of employment and a definitive end to the ‘Celtic Tiger’ era of rapid growth and nearfull employment. Although the political system has proven resilient thus far, with membership of the Euro preventing the catastrophic political crises that affected Latvia and Iceland, for example, the crisis has revealed significant weaknesses in political system. This paper considers institutional shortcomings in three arenas through which policies to deal with the crisis must be managed: the parliamentary system, the public administration, and social partnership structures.

Policymaking for posterity involves current decisions with distant consequences. Contrary to conventional prescriptions, we conclude that the greater wealth of future generations may strengthen the case for preserving environmental amenities; lower discount rates should be applied to the far future, and special effort should be made to avoid actions that impose costs on future generations. -- Posterity brings great uncertainties. Even massive losses, such as human extinction, however, do not merit infinite negative utility. Given learning, greater uncertainties about damages could increase or decrease the optimal level of current mitigation activities. -- Policies for posterity should anticipate effects on: alternative investments, both public and private; the actions of other nations; and the behaviors of future generations. Such effects may surprise. -- This analysis blends traditional public finance and behavioral economics with a number of hypothetical choice problems.

Richard Zeckhauser’s important paper “Investing in the Unknown and Unknowable” provides a very different perspective on the investment process than the approach taken in either standard treatments of financial economics or more recent behavioral finance approaches. He focuses attention on the very large class of investments that are one-off and whose payoffs are not just difficult to predict, but have a range of possible outcomes that is difficult to enumerate. Such an emphasis is surely welcome. Any economist, particularly one who has not had extensive real world experience, will learn a great deal from this paper. While much of the paper is directed at providing investment advice to its readers, its significance goes far beyond the investment process. Investment decisions are among the easiest for economists to study because the objective — making money — is clear, allowing success and failure to be easily judged. Much more consequential decisions, such as whether to invade Iraq, how to combat global warming, choosing whom to marry or how many children to have or what house to buy, have important unknown and unknowable aspects as well. And so lessons learned about how investment decisions and how they are and should be made are significant far beyond the field of finance.In my comments on this paper, I will focus first on the investment advice contained within and then conclude with a broader reflection on the implications of Zeckhauser’s analysis. I have no doubt that the vast majority of us would do very well to take investment advice from Richard Zeckhauser. The examples cited in his paper are, I suspect, not isolated. The same attributes that make him a world class bridge player contribute to his great shrewdness in making investment decisions.This paper is a comment on Investing in the Unknown and Unknowable by Richard J. Zeckhauser which can be found at: http://ssrn.com/abstract=2205821.