[SOUND] The roaring 1990s would truly be a macroeconomist's dream. A technology boom would usher in the age of the internet and this digital revolution helped robustly push the aggregate supply curve out. This shift of the AS curve significantly increased potential output, while dropping the natural rate and actual rate of unemployment. In this Goldilocks economy, not too hot, not too cold. Real GDP growth averaged close to 4% a year. A resultant surge in tax revenues and drop in welfare payments helped balance the US budget at the end of the Clinton Administration for the first time in decades. But, of course, all good things must end. Just two months after newly elected George W Bush took office. The March 2001 recession in the United States would start what would be more than a decade of slow growth and trouble for much of the world. Consider that in the five and half decades prior to 2001 the real Gross Domestic Product of the United States grew at a rate of roughly 3.5%. However, over the next decade that growth would fall to around 1.5%. So how many jobs do think were lost due to slow growth during the stagnant 2000s? The rule of thumb is that one percentage point of GDP growth lost is equal to one million new jobs not created. So a difference of 3.5% growth versus 1.6% growth in the 2000s is about two GDP points a year or two million jobs lost per year. So over a decade, that's about 20 million jobs not created because of slow growth below potential output. Not coincidentally, that was about the same amount America needed to bring it's unemployment rate back down to it's natural rate. It wasn't just slow GDP growth plaguing the economy. Wage growth would fall dramatically as well. In fact, average median household income. The best measure of income growth. Plunged to roughly zero during the 2000s, after growing close to 2% a year in the previous two decades. Of course, the worst part of the 2000s was the great recession of 2007. This was the steepest economic downturn since the great depression. It was an era characterized by massive bailouts, not just to private corporations like General Motors and AIG, but also public corporations like housing agencies, Fannie Mae and Freddie Mac. In the slow growth years following the great recession, the outgoing Bush administration, and the new Obama administration, would team up to execute the largest fiscal stimulus in world history. At the same time, central bankers from Washington and Ban to Tokyo and Seoul, would print vast sums of money in their Keynesian struggle to restart their respective economies. The US Federal Reserve alone added trillions in liabilities to its balance sheet while printing money. Moreover, in an effort to stimulate the US economy in an era of nearly zero short-term interest rates, Fed Chairman Ben Bernanke would inaugurate a new Keynesian monetary policy tool known as quantitative easing. Or QE. QE involves the massive purchase of long-term government bonds by the Fed to drive up bond process and thereby drive down yields and interest rates. Of course the Fed's goal in lowering long-term interest rates was to stimulate both domestic investment and US exports. Domestic investment benefits from low, fixed long-term rates because most investment requires longer term financing. At the same time, lower long-term interest rates, and a flood of easy money, would help depress the value of the U.S. dollar, giving U.S. exports a boost. Despite all these Keynesian fiscal and monetary policy stimuli, unemployment in both the US and Europe would soar to double digits. Our next question is why, just as in the 1970s, was Keynesian economics so inadequate at bringing about a full and robust global economic recovery?
