A rise in the level of saving can reduce aggregate activity temporarily but only a sustained high level of saving makes it possible to have the sustained high level of business investment that contributes to the long-run growth of output.
I think that over the last few decades, we have seen better economic outcomes than in the past.
Inflation is lower and more stable and the real business cycle fluctuations are more modest.
Thirty years ago, many economists argued that inflation was a kind of minor inconvenience and that the cost of reducing inflation was too high a price to pay. No one would make those arguments today.
We pay some price when necessary to bring down inflation but that price is temporary and is not large relative to the permanent gain from reduced inflation.
A second reason why science cannot replace judgement is the behavior of financial markets.
And finally, no matter how good the science gets, there are problems that inevitably depend on judgement, on art, on a feel for financial markets.
The price of imported oil in the US doubled between summer 2003 and summer 2005, reducing consumers' purchasing power by more than 1 per cent of gross domestic product.
Homeowners who refinanced their mortgages took out cash and reduced their monthly payments at the same time. Much of the cash obtained by refinancing was spent on consumer durables, home improvements and the like.
