Free exchange: Stagnant thinking

Posted: December 6, 2013 in economy
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The rise of BlackRock

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Free exchange


An old explanation for economic drift gains a new following

EVEN before the financial crisis, there was a lurking suspicion that bubbles were the only way listless rich economies could keep growth up and unemployment down. “Recession-plagued nation demands new bubble to invest in,” joked the Onion, a satirical newspaper, in 2008. In a speech last month Larry Summers, an economist at Harvard University, gave the idea new credibility when he suggested that the rich world might be suffering from “secular stagnation”. He joins a growing rank of economists worrying that advanced economies will keep inflating bubbles in a doomed attempt to resurrect growth.
Secular stagnation is not a new idea. It was first popularised by Alvin Hansen, an economist and disciple of John Maynard Keynes, in the stagnant 1930s. Hansen thought a slowing of both population growth and technological progress would reduce opportunities for investment. Savings would then pile up unused, he reasoned, …

via Economic Crisis


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