Hansen replied that secular stagnation was just another name for keyness. Thus, for example, if the natural rate of interest is 4%, then there is no equilibrium that is consistent with inflation below 4% in steady state. Association, alvin hansen, delivered a disturbing message in his presidential address to the association see hansen 1939. The term secular stagnation was coined by alvin hansen 1938, 1939 in response to the great depression and the sharp downturn of 193738. Murray 2012 documents changes in social indicators for the. The term refers to longterm stagnation, or stagnation lasting for years. Summers theory of secular stagnation a term first used by the economist alvin hansen back in holds that, in the united states, the. The slow recovery in the us since the global crisis is his starting point and he argues that secular stagnation could also retrospectively explain features of previous decades such as low inflation. Economy barry cynamon and steven fazzari preliminary draft prepared for inet conference session a decade of stagnation. Suppose that the economy really needs a 4% inflation target. In such an attempt summers has been backed up by paul krugman, who brought up again his contribution about the japanese stagnation of the lost decade. Aug 25, 2015 the concept of secular stagnation can be traced back to an article by alvin hansen written in 1939.
Third, with international capital flows, aging in one country might affect gdp per capita in others as well. Hansen 18861895 approached business cycle analysis broadly fromthe. The former pages history now serves to provide attribution for that content in the latter page, and it must not be deleted so long as the latter page exists. Secular stagnation and returns on capital economic. Hansen s idea was that there was a shortage of impetus to invest such that there would not be adequate demand to absorb all of the saving. Committee on the history of the federal reserve system. Secular stagnation and growth measurement conference paris. This return of the secular stagnation hypothesis occurred in november 20, when. Secular stagnation refers to a prolonged and indefinite period of slow growth and high unemployment or subnormal factor utilization. A model of secular stagnation 127 inflation, which can be no lower than the negative of the natural rate of interest. Alvin hansen coined the term in his 1938 american economic association presidential address hansen, 1939, and lawrence summers 2014 resurrected it in reference to the sluggish recovery from the great recession. With a somewhat different list of factors in mind, the harvard economist alvin hansen labeled the failure of private investment to fully absorb private savings secular stagnation because of the threat that it would mean insufficient. The reasons for this are explored here and why current policy solutions are insufficient to overcome this state of affairs.
When was the last time this happened in the united states. Chapter 2 low equilibrium real rates, financial crisis, and. He suggested that the great depression might just be the start of a new era of ongoing unemployment and economic stagnation without any natural force towards. The term secular stagnation was coined by alvin hansen in his 1938 american economic association presidential address, economic progress and declining population growth. How did forecasters respond to the american growth. It suggests a change of fundamental dynamics which would play out only in its own time. Secolae stagnation hypothesis problem of excessive savings digitized for fraser. In december, one of the most eminent economists of the time, alvin e. The honest broker 20151012 the scary debate over secular stagnation 20151001 is secular stagnation a monetaryfinancial problem or a fundamentaltechnological problem. The south african journal of economics, december, 1942.
Sep 03, 2019 secular stagnation is a situation where the private sector of an economy has a tendency to save a great deal and a limited propensity to invest, so that theres all this cash that needs to be. The original idea aof secular stagnation began with the views of alvin hansen in 1938. Weve managed to get to 2% growth, not much inflation pressure, 4% unemployment and in order to be there, weve got a fedfunds rate eight years into a. Indeed he believed that once the main resources of the globe had been discovered and exploited, once the whole.
The key to understanding this situation lies in the concept of secular stagnation, first put forward by the economist alvin hansen in the 1930s. Four observations on secular stagnation 67 announces a 2% inflation target, the actual rate of inflation will fall short of 2 %, even if everyone believes the bank s promise which they will not do for very long, in any case. Returns on government debt bear little resemblance to returns on productive capital. In particular, larry summers 2014 stressed the possibility that advanced capitalism was facing longterm stagnation, echoing alvin hansen s worry 1939 in the aftermath of the great depression, and a fervent discussion started to take root inside the academic community. Investing in innovation infrastructure to restore u. Investment opportunities, according to his explanation. Secular stagnation and the zero lower bound this brings us to the secular stagnation hypothesis put forward by hansen 1939. Secular stagnation in the form of slow poten tial output growth over the past halfdecade reflects the slowness of growth in both labor productivity and in aggregate hours of work, and slow growth in the latter is due both to slowing population growth and to a decline in the labor force participation rate lfpr. Alvin harvey hansen august 23, 1887 june 6, 1975, often referred to as the american.
Hansen, economic progress and declining population growth. And the european economy, like the american economy, had unsustainable finance in the pre 2008 period and has had manifestly unsatisfactory growth in output and employment since that time figure 2. Four observations on secular stagnation pierre ratcliffe. Hansen replied that secular stagnation was just another name for keyness underemployment equilibrium. Do demographic trends support the secular stagnation hypothesis for the euro area. However, the economist criticizes secular stagnation as a baggy concept, arguably too capacious for its own good. Hansen was manifestly wrong, in the sense that what prevailed after he wrote those words in 1939 was by no stretch secular stagnation. Text andor other creative content from economic stagnation was copied or moved into secular stagnation theory with this edit on may 25, 2016. Except nobody called it secular stagnation back then. This article traces some of the historical roots of current debates about secular economic stagnation, involving l.
Secular stagnation has been discussed by summers, krugman, gordon, rogoff, and bernanke. Low equilibrium real rates, financial crisis, and secular stagnation 43 throughout the 1980s. October 21, 2017 the concern that weak demand could lead to a persistently stagnant economy goes back to keyness general theory and led alvin hansen to coin the. Gordon alvin hansen 1939 popularized the term secular stagnation, and we are now, at the suggestion of larry summers 2014, considering the application of hansen s term to the current us economy, because the pace of out. This has led to a revival of interest in the secular stagnation hypothesis, according to which a chronic. Pdf in this paper, we are going to focus on the new secular stagnation theory developed by larry summers and others. Consumer motivation in developed economies with secular. The supply side of secular stagnation refers to potential real gdp. If you go back to the alvin hansen who coined the secular stagnation phrase in 1939, he talked about weak recovery. Summers thereby picked up an old term from alvin hansen 1939, who used it in the presidential address of the american. Alvin hansen and the origins of the stagnation thesis. Secular stagnation what it is and what to do about it by.
Alvin hansen coined the term in his presidential address to the american economic association in 1938 to describe a prolonged period of low growth and high unemployment, with no selfcorrecting mechanism to return the economy to full employment and rapid growth. Hansen, delivered the presidential address, titled economic. Alvin hansen s secular stagnation centered on the basic real phenomenon subsequently formalized by the keynesian cross. To those who have grown up postwwii such secular stagnation may seem unique to our time, but it is not. This idea was termed the secular stagnation hypothesis. Aug 05, 2015 secular stagnation and space, a way beyond our current economic plateau. This formulation reenforced the fiscalist thesis emerging from the keynesian analysis, a thesis that attributed dominant positive and normative. Secular stagnation was dusted off by hanswerner sinn in a 2009 article dismissing the threat of inflation, and became popular again when larry summers invoked the term and concept during a 20 speech at the imf. Chapter 2 low equilibrium real rates, financial crisis. We focus on early contributions by alvin hansen and john a. The concept of secular stagnation originally formulated by the eminent depressionera economist alvin hansen, has experienced a revival since my november 20 speech on the topic. Hansen s idea was that there was a shortage of impetus to invest such that there would not be adequate demand to absorb all of the. Since then, the world has experienced remarkable growth but also another major crisis in 2007.
In 1938, nine years after the beginning of the great depression, alvin hansen delivered his presidential address, economic progress and declining population. Alvin hansen, professor of economics at harvard and a leading american proponent of keynesian economics, was the first to develop the theory of secular stagnation. However, the sustained economic growth, beginning in 1940, undercut hansens predictions and his stagnation model was forgotten. Hansen proposed a demandbased explanation for the us economys tendency to stagnate. Back then, hansen pinpointed demographic factors as a major cause of secular.
Although hansen has been the main influence on the secular stagnation literature, hobsons suggested link between economic inequality and stagnation is of interest in view of t. Second, this type of secular stagnation could be partially offset by monetary policy. The term was coined in the late 1930s by the economist alvin hansen, who suggested that the great depression might herald a new era of persistently depressed economy2. Secular stagnation and space, a way beyond our current economic plateau. An increasingly popular thesis, building on alvin hansen s famous 1938 presidential address to the aea, views developed economies as being a.
Jan 16, 2017 categorical as secular stagnation, and which describe the long term. The pattern is evident in the most recent episode, as it is in the 1970s. Secular stagnation is a situation where the private sector of an economy has a tendency to save a great deal and a limited propensity to invest, so that theres all this cash that needs to be. The empirical dimension of hansens secular stagnation thesis was critically examined by. One of the main driving forces of secular stagnation, according to hansen, was a decline in the population birth rate and an oversupply of savings that was suppressing aggregate.
There has been an outpouring of chat in both policy circles and the blogosphere concerning secular stagnation. The idea of secular stagnation was originated by the keynesian economist alvin hansen in 1937 to explain why the new deal programs were not working to produce economic growth. This concept faded into obscurity in the course of the global economic boom after world war ii. What links here related changes upload file special pages permanent link page. In this context, the term secular means longterm from latin saeculumcentury or lifetime, and is used in contrast to cyclical or shortterm. Hansen march progress, the development of new industries, the discovery of new resources, the opening of new territory were the basic causes of the boom, which in turn was the progenitor of depression. The economies of the industrial world, in this view, suffer from an imbalance resulting from an increasing propensity to save and a decreasing propensity to invest. On secular stagnation in the industrialized world brookings. Summers 20 revived the idea of secular stagnation as the cause of the slow recovery from the great recession.
The economics of secular stagnation secular stagnation. The exact definition of secular stagnation is not entirely clear. Hansen 18861895approachedbusinesscycleanalysis broadlyfromthetheoretical. The concept of secular stagnation was first introduced in 1939 at the annual. Secular stagnation and monetary policy federal reserve bank of. I use it in the same way that summers does, and that alvin hansen did before him. At the end of the 1930s, the harvard economist alvin hansen, who was a leading disciple. The issue of secular stagnation was rst raised in 1938 by alvin hansen 1939 in his presidential address economic progress and declining population growth, delivered nine years after the onset of the great depression, when he. Space, secular stagnation, and the economic crisis room. The effect of aging on economic growth in the age of automation by daron acemoglu and pascual restrepo. The term secular stagnation was coined by alvin hansen in his 1938 american economic association.
Nber working paper series a model of secular stagnation gauti b. Demographic trends are pushing the worlds economies into uncharted territory as the relative weight of borrowers and savers is changing and with it the possibility increases that the interest rate. For sure we have had a prolonged period where policies of maximal stimulus have struggled to generate a recovery, and keep inflation on track. Mar 21, 2016 this seems consistent with alvin hansen s secular stagnation hypothesis see my earlier post here. Reflections on secular stagnation princeton university. Low equilibrium real rates, financial crisis, and secular stagnation.
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