Economic stagnation
The term "secular stagnation" was originally coined by Alvin Hansen in 1938 to "describe what he feared was the fate of the American economy following the Great Depression of the early 1930s: a check to economic progress as investment opportunities were stunted by the closing of the frontier and the collapse of immigration".
[1][2] Warnings similar to secular stagnation theory have been issued after all deep recessions, but they usually turned out to be wrong because they underestimated the potential of existing technologies.
[4] In this context, the term secular is used in contrast to cyclical or short-term, and suggests a change of fundamental dynamics which would play out only in its own time.
[10] This helped the United States, which escaped the devastation of World War II, to quickly convert back to peacetime production.
The war created pent up demand for many items, as factories had stopped producing automobiles and other civilian goods to convert to production of tanks, guns, military vehicles and supplies.
The U.S. government also built ammonia plants, aluminum smelters, aviation fuel refineries and aircraft engine factories during the war.
U.S. birth rates began to recover by the time of World War II, and turned into the baby boom of the postwar decades.
[14][15] The period following the 1973 oil crisis was characterized by stagflation, the combination of low economic and productivity growth and high inflation.
Turning Point by Robert Ayres and The Evolution of Progress by C. Owen Paepke were earlier books that predicted the stagnation.
A prescient analysis of stagnation and what is now called financialization was provided in the 1980s by Harry Magdoff and Paul Sweezy, coeditors of the independent socialist journal Monthly Review.
Secular stagnation was dusted off by Hans-Werner Sinn in a 2009 article [25] dismissing the threat of inflation, and became popular again when Larry Summers invoked the term and concept during a 2013 speech at the IMF.
[1] Warnings similar to secular stagnation theory have been issued after all deep recessions, but they all turned out to be wrong because they underestimated the potential of existing technologies.
[28] A fourth is that advanced economies are just simply paying the price for years of inadequate investment in infrastructure and education, the basic ingredients of growth.
[32][33] Economists, such as Paul Krugman, attribute the stagnation to a liquidity trap (a situation in which monetary policy is unable to lower nominal interest rates because these are close to zero) exacerbated by demographics factors.
[34] Economists have asked whether the low economic growth rate in the developed world leading up to and following the subprime mortgage crisis of 2007–2008 was due to secular stagnation.
Paul Krugman wrote in September 2013: "[T]here is a case for believing that the problem of maintaining adequate aggregate demand is going to be very persistent – that we may face something like the 'secular stagnation' many economists feared after World War II."
[35] Larry Summers presented his view during November 2013 that secular (long-term) stagnation may be a reason that U.S. growth is insufficient to reach full employment: "Suppose then that the short term real interest rate that was consistent with full employment [i.e., the "natural rate"] had fallen to negative two or negative three percent.
