Lucas on the Recovery

Robert Lucas gave a talk recently at University of Washington on Macroeconomic recovery in the US. His slides are available.

Lucas argues that, by imitating European policies on labor markets, welfare, and taxes, the U.S. has chosen a new, lower GDP trend. If this is correct, the weak recovery we have had so far may be all the recovery we will get. He uses these two slides to support his argument. The first shows the spread in growth rates which Lucas describes as the cost of the welfare state--note the lower trend for most of Europe. The second shows the US recovery in the recent recession.

What do you think?

[HT: PJB]