Are we facing the end of growth?
An interesting concept
Secular stagnation
AN ANCIENT CONCEPT…
​
“Secular stagnation” was first used and described by Alvin Hansen in the 1930s as a prolonged period of negligible or no economic growth in a market-based economy. In the context of the sluggish recovery following the Great Depression, Hansen predicted that slower population growth and a lower speed of technological progress would combine to counter full employment, wage increases, and general economic expansion.
THAT HAS RECENTLY RESURFACED
​
Recently Larry Summers (Bill Clinton's treasury secretary) reaffirmed the concept saying:
“Today, I think there are risks of what I’ve called the new secular stagnation. By that I mean that in the industrialized world economies, it may be very difficult for investment to absorb all saving. Or if that is made possible by the provision of extraordinary liquidity, it will come along with substantial risk of financial bubbles or financial instability.”
​
His analysis concerns the demand side: and his main question is “about how we manage an economy in which the zero nominal interest rate is a chronic and systemic inhibitor of economic activity, holding our economies back below their potential” (a speech in 2013)
ROBERT GORDON’s views: secular stagnation is also a problem of supply
Why a fruit tree?
The best fruits are those we pick up the most easily.
Then the picking becomes harder and less juicy…
In the same way, the great innovations have already taken place.
And new innovations are less likely to emerge.
It is not a problem involving technical progress. Indeed, technological advance will continue at its “normal” historical rate (before 1930 and since 1980, US total factor productivity (TFP) growth averaged about 0.5% annually… The “Glorious Thirty” where TFP grew three times faster was the aberration not the norm).
Rather, the source of the growth slowdown is a set of four structural headwinds:
-
Demography: the population is stagnant, life expectancy is increasing rapidly.
-
Education, the mass education revolution is “complete”, no further increase in the average US education level is to be expected.
-
Inequality: the raising share of the top 10% of the income distribution has deprived the middle class of income growth since 1980.
-
And public debt: the gloomy outlook for public debt makes current public services unsustainable.
Thesis
Do you agree with Robert Gordon ?
The author
Robert Gordon
​​
-
An American economist born is 1940
​
​
-
Graduated from Harvard in 1962. He then attended Oxford University receiving a B.A in 1964. Finally, he obtained a PhD from the Massachusetts Institute of Technology (MIT) in 1967
​
​
-
Known for his work on productivity, growth and the causes of unemployment.
School of thought: New Keynesian Economics
Doctoral advisor: Robert Solow
Interested enough to read more on secular stagnation?
Robert Gordon: death of innovation
Where to find adverse opinions?
PHILIPPE AGHION
-
A French economist born is 1956
​
-
Graduate of the Ecole Normale Supérieure de Cachan (ENS Cachan), DEA (diplome d’Etudes Approfondies) from University of Paris 1 (Pantheon-Sorbonne), Ph.D. from Harvard University1987
-
Known for his work on growth, innovation, and contract theory.
School of thought: Neo-Schumpeterian. Teacher at College de France.
