be rational, but he ’ s a great rationalizer, ” which is a quote that often comes to mind when listening to stock market analysts. after four years at chicago, i returned to the mit department of economics, and thought that i would never leave – even more so when mit succeeded in persuading rudi dornbusch, whom i had met when he was a student at chicago, to move to mit – thus giving him too the benefit of having learned his economics at both chicago and mit, and giving mit the pleasure and benefit of having added a superb economist and human being to the collection of such people already present. mit was still heavily involved in developing growth theory at the time i was a ph. d. student there, from 1966 to 1969. we students were made aware of kaldor ’ s stylized facts about the process of growth, presented in his 1957 article “ a model of economic growth. ” they were : 1. the shares of national income received by labor and capital are roughly constant over long periods of time. 2. the rate of growth of the capital stock per worker is roughly constant over long periods of time. 3. the rate of growth of output per worker is roughly constant over long periods of time. 4. the capital / output ratio is roughly constant over long periods of time. 5. the rate of return on investment is roughly constant over long periods of time. 6. the real wage grows over time. well, that was then, and many of the problems we face in our economy now relate to the changes in the stylized facts about the behavior of the economy : every one of kaldor ’ s stylized facts is no longer true, and unfortunately the changes are mostly in a direction that complicates the formulation of economic policy. 5 while the basic approach outlined so far remains valid, and can be used to address many macroeconomic policy issues, i would like briefly to take up several topics in more detail. some of them are issues that have remained central to the macroeconomic agenda over the past 50 years, some have to my regret fallen off the agenda, and others are new to the agenda. 1. inflation and unemployment : estimated phillips curves appear to be flatter than they were estimated to be many years ago – in terms of the textbooks, phillips curves appear to be closer to what used to be called the keynesian case ( flat phillips curve ) than to the classical case ( vertical phillips curve ). since the u.

. government policies could also be designed to make work more attractive to other demographic groups. finally, to a limited extent, immigration has the potential to alter the future pace of labor force growth. most directly, if future immigration rates exceed those assumed by the census bureau, the population, and hence the labor force, would grow faster than the census bureau currently projects. in addition, because new immigrants tend to be younger and are more likely to participate in the labor force than are native - born individuals, higher immigration would also lead to a higher overall participation rate. some of the influences described above may already be boosting the participation rate relative to the model ’ s prediction. as shown in exhibit 6, the labor force participation rate of individuals aged 62 and older had been trending down since the late 1970s but has been rising markedly since 1995. to some extent, this increase simply reflects the aging of a generation of women who were more likely to be in the labor force throughout their lifetimes than were earlier generations of women. however, the magnitude of the rise is greater than can be explained by this factor alone. because the factors just discussed have the potential to offset some of the effects of population aging, and given the considerable uncertainty that surrounds any long - term economic projection, economists hold a range of views about the pace of future labor force growth. a projection from the congressional budget office is shown in exhibit 7. the cbo foresees the pace of trend labor force growth slowing to 1 / 2 percent per year by 2015, a smaller deceleration than projected by the model developed by board staff but still a significant slowing. as i indicated at the outset, the aging of the population has important implications for the living standards of current and future generations. because total output is equal to output per worker times the number of workers, a slowdown in the rate of labor force growth will, all else equal, tend to slow the growth of output – as shown in the right - most column of exhibit 7. moreover, if the growth in the labor force is lower than population growth, output per person will, all else equal, rise even more slowly than output per worker. indeed, as indicated in the exhibit, both the federal reserve staff projection and the cbo projection for the growth of the labor force through 2015 are lower than the growth of the population expected in that period by the census bureau. consequently, on these projections, the level of output per person will be lower than it would have been without