Secular Stagnation

It seems that some Keynesians, worried by the slow economic growth since we emerged from the “Great Recession” in 2009, are dusting off the old Keynesian idea of “secular stagnation.” Larry Summers, who served as President Clintons’ Secretary of the Treasury, Obama’s Director of the National Economic Council, as well as President of Harvard, gives the names of a number of Keynesians who are entertaining this idea. He also provides a link to download an eBook where these economists give reasons why we might be entering a period of secular stagnation.

The idea of secular stagnation was originally created by an economist named Alvin Hansen in 1937 to explain why the New Deal programs were not working to produce economic growth. The basic idea is that businesses and investors run out of useful ways to put their assets to work to produce economic growth. Possible causes for this sad condition are the following:

  • Society ceases to produce technological innovation at the rate required to produce new economic opportunities.
  • The economy already has excess capacity, and more investment will not lead to increased profits for companies.
  • The damage caused by the preceding recession/depression was so great, long-lasting, and permanent that many workers have permanently left the labor market and will never work again.
  • An advanced economy is now paying the price for years of inadequate investment in infrastructure and education.

As a result of one or more of these causes, businesses cease to invest in economic growth and the economy stagnates. Note that none of these proposed causes are created by anything the government has done; the private sector is the primary culprit.

Charles Gasparino has noted that these explanations are really pretty lame and can be easily refuted. He notes that there are plenty of reasons why we have very slow economic growth due to the damage done by government policies. We have already taken notice of some of these in the posts “The Burden of Government Regulations” and “Even Some Progressives Becoming Worried About the Economy”.

Views: 2,672

GO TO HOME

0 0 votes
Article Rating

Sharing is caring!

Subscribe
Notify of
guest

This site uses Akismet to reduce spam. Learn how your comment data is processed.

0 Comments
Inline Feedbacks
View all comments
0
Would love your thoughts, please comment.x
()
x