Secular stagnation: Fad or fact?

Posted: August 16, 2014 in economy
Tags: , ,

ADVANCED countries have struggled to make up the ground that they lost in the “great recession” that followed the financial crisis of 2007-08. America and Germany were relatively quick to regain lost ground but Britain has only just surpassed its pre-crisis GDP peak. And despite the support from generally strong German growth since the middle of 2009, the euro zone as a whole has failed to do so owing to a double-dip recession that lasted even longer than the first one and a subsequent feeble recovery that ground to a halt in the second quarter of 2014. The overall lack of progress has occurred even though interest rates are pinned to the floor and despite the stimulus from big quantitative easing programmes in Britain and America.This suggests that something more fundamental has gone wrong than the usual down-phase of the business cycle. That misgiving was encapsulated when Laurence Summers, a prominent American economist, suggested last year that advanced economies might be suffering from “secular stagnation”. That term had first been 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.Hansen’s forebodings were proved to be quite wrong. Will a …

via Economic Crisis


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