Much of my interest in macro policy has been founded on the belief that it can and should improve the lives of the broad range of our nation's people. I think of this as happening through two channels. First, policies that reduce the frequency and size of the fluctuations in business cycles can spare people the painful disruptions that occur during recessions, or, in the worst cases, tragic events like the Great Depression of the 1930s. Second, policies that succeed in enhancing the long-run growth of productivity should help lift the average standard of living over time.
By many measures, these two channels have been operating extremely well in our economy for some time. In terms of the business cycle, for almost two decades we have been enjoying an era that many economists call the "Great Moderation"; in other words, recessions have been less frequent, and the swings have been less severe, while, at the same time, inflation has come down to quite moderate levels and itself has been less volatile.