Limits of the Secular Stagnation Theory

 

One of the main opponents to the Secular Stagnation theory is John Taylor. For him, Secular Stagnation is only an alternative explanation to exonerate the US policy from disappointing economic performance. He considers that business firms are reluctant to invest and to hire because of policy uncertainty and increased regulation (Dodd Franck and Affordable Care Act), and not because of Secular Stagnation. (Read more)

 

James K. Galbraith considers that Secular Stagnation does not fit to reality. For him, the US economy has done as well as it can, and is not likely to “see full recovery on the familiar model”, because the general framework has changed: the workforce is getting older and technology is “replacing whole sectors with servers”. He explains that the ageing population is not a problem, because retired people can be a new “potent source of purchasing power” and therefore of demand. A full return to normal seems impossible to him, even with a lot of stimulus. (Read more)

 

Joel Mokyr argues that the statistics used to measure the performance of an economy, such as factor productivity and GDP per capita are no more adequate to describe today’s economy. He considers that these measures were designed for a “steal-and-wheat” economy, and are, therefore, not adapted for an economy where the information and data are the most dynamic sector. (Read more)

 

Robert J Gordon differentiates Secular Stagnation and slow long-term growth. He considers that the past forecasts over-evaluated potential growth and therefore, made us think that current growth rates are far under their potential. For Gordon, we are not in Secular Stagnation, but revising overoptimistic growth forecasts due to decline in total factor productivity (see section 4). This calls for a pick-up in investment, in sectors like energy, agriculture or manufacturing (see section 3). (Read more).