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You are optimistic about growth. But you see unemployment at 9.4% at the end of this year. We don't get much job improvement, do we?
Kasman: No, we don't. I think what's going on here is that companies cut back not just on jobs, they cut back on the workweek. Some of the gains we're going to see in income...are going to come because the workers that are working less hours are now being used more intensively. In addition, a lot of people left the workforce discouraged, and they are going to start coming back. It's a slow grind on the unemployment rate. The labor market is going to be a powerful force pushing inflation lower.
We hear about the new normal. Is there a new productivity?
The jury is still out. Our own (JPM) view is that the level of productivity stays higher, but growth of productivity starts to return to lower levels.
I do think a social contract has broken down here. Since the early 1980s margins have been expanding, but they have been expanding alongside greater job security for workers. Now we've had a situation through this recession, with the productivity gains and the dramatic job losses, where we've seen companies maintain their margins. But it's at the expense of a very damaging hit...to labor markets. [It] will heal gradually, but it...has the risk of a political backlash in a world in which workers are going to be for a long period suffering from the events of this downturn.