The Economist explains: What it means to suffer from secular stagnation

Posted: March 9, 2015 in economy
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ECONOMICS textbooks talk of “business cycles”. After a recession, they say, economies are supposed to bounce back. So what has gone wrong in the rich world? Following the “great recession” of 2008-09 rich countries struggled to make up the ground that they had lost. Real GDP in the euro zone is still lower than it was in 2009. Britain only passed its pre-crisis peak last summer. Performance has been sluggish even though interest rates in the rich world have been at rock-bottom for years. To explain rich countries’ poor growth, some economists (most notably Larry Summers, a former American Treasury secretary, pictured above), suggest that they are stuck in “secular stagnation”. What does that mean?Secular-stagnation theory originated with Alvin Hansen, a Keynesian economist, in the 1930s. Countries suffering from the stagnation bug are burdened with too much saving and too little investment. Hansen reckoned the slumping economies of the 1930s were doomed to stagnation by poor growth prospects, a product of slowing innovation and ageing populations. Mr Summers's diagnosis is not all that different. Saving today is high for a number of reasons.&nbsp;In recent years many emerging markets have embarked on a savings binge, accumulating massive foreign-exchange reserves. China’s are now worth over $3 trillion. But demography is also important.&nbsp;Rich countries are ageing …<div class="og_rss_groups"></div>

via Economic Crisis


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