Traditionally, economic growth and business cycles have been treated independently. However, the dependence of GDP levels on its history of shocks, what economists refer to as “hysteresis,” argues for unifying the analysis of growth and cycles. In this paper, we review the recent empirical and theoretical literature that motivate this paradigm shift. The renewed interest in hysteresis has been sparked by the persistence of the Global Financial Crisis and fears of a slow recovery from the Covid-19 crisis. The findings of the recent literature have far-reaching conceptual and policy implications. In recessions, monetary and fiscal policies need to be more active to avoid the permanent scars of a downturn. And in good times, running a high-pressure economy could have permanent positive effects.

We explore two issues triggered by the crisis. First, in most advanced countries, output remains far below the pre-recession trend, suggesting hysteresis. Second, while inflation has decreased, it has decreased less than anticipated, suggesting a breakdown of the relation between inflation and activity. To examine the first, we look at 122 recessions over the past 50 years in 23 countries. We find that a high proportion of them have been followed by lower output or even lower growth. To examine the second, we estimate a Phillips curve relation over the past 50 years for 20 countries. We find that the effect of unemployment on inflation, for given expected inflation, decreased until the early 1990s, but has remained roughly stable since then. We draw implications of our findings for monetary policy.

Our answer: Not so well. We reached that conclusion after reviewing recent research on the role of technology as a source of economic fluctuations. The bulk of the evidence suggests a limited role for aggregate technology shocks, pointing instead to demand factors as the main force behind the strong positive comovement between output and labor input measures.

This book examines the array of financial crises, slumps, depressions and recessions that happened around the globe during the twentieth and early twenty-first centuries. It covers events including World War I, hyperinflation and market crashes in the 1920s, the Great Depression of the 1930s, stagflation of the 1970s, the Latin American debt crises of the 1980s, the post-socialist transitions in Central Eastern Europe and Russia in the 1990s, and the great financial crisis of 2008-09. In addition to providing wide geographic and historical coverage of episodes of crisis in North America, Europe, Latin America and Asia, the book clarifies basic concepts in the area of recession economics, analysis of high inflation, debt crises, political cycles and international political economy. An understanding of these concepts is needed to comprehend big recessions and slumps that often lead to both political change and the reassessment of prevailing economic paradigms.

At the root of inequality, unemployment, and populism are radical changes in the world economy. Digital technology is allowing talented foreigners to telecommute into our workplaces and compete for service and professional jobs. Instant machine translation is melting language barriers, so the ranks of these "tele-migrants" will soon include almost every educated person in the world. Computing power is dissolving humans' monopoly on thinking, enabling AI-trained computers to compete for many of the same white-collar jobs. The combination of globalization and robotics is creating the globotics upheaval, and it threatens the very foundations of the liberal welfare-state. Richard Baldwin, one of the world's leading globalization experts, argues that the inhuman speed of this transformation threatens to overwhelm our capacity to adapt. From computers in the office to automatic ordering systems in restaurants, we are familiar with the how digital technologies offer convenience while also eliminating jobs. Globotics will disrupt the lives of millions of white-collar workers much faster than automation, industrialization, and globalization disrupted the lives of factory workers in previous centuries. The result will be a backlash. Professional, white-collar, and service workers will agitate for a slowing of the unprecedented pace of disruption, as factory workers have done in years past. Baldwin argues that the globotics upheaval will be countered in the short run by "shelter-ism" - government policies that shelter some service jobs from tele-migrants and thinking computers. In the long run, people will work in more human jobs-activities that require real people to use the uniquely human ability of independent thought-and this will strengthen bonds in local communities. Offering effective strategies such as focusing on the social value of work, The Globotics Upheaval will help people prepare for the oncoming wave of an advanced robotic workforce.