The number of job openings has steadily risen as well. Larry summers on why the economy is broken and how to fix. Low equilibrium real rates, financial crisis, and secular stagnation 43 throughout the 1980s. April 14, 2017 abstract this paper formalizes and quanti. Economists, such as larry summers have written on secular stagnation arguing the world has entered a period of substantially lower economic growth. Secular stagnation requires rethinking macroeconomic. Secular stagnation and monetary policy by lawrence h. Secular stagnation even truer today, larry summers says. Larry summers and lukasz rachels most recent study documents a secular fall in neutral real rates in advanced economies. Sectioni describes why recent economic performance is of concern. Larry summers has always had a talent for stirring up a debate, and in recent weeks he has outdone himself.
The harvard economist says he believes that more and more people are buying into his secular stagnation thesiseven though economic growth has. Former treasury secretary larry summers, shown in 2014, says were witnessing a period of secular stagnation. Secular stagnation and returns on capital economic. On falling neutral real rates, fiscal policy, and the risk. Secular stagnation refers to the idea that the normal, selfrestorative properties of the economy might not be sufficient to allow sustained full employment along with financial. Aging, output per capita and secular stagnation gauti b. And the european economy, like the american economy, had unsustainable finance in the pre 2008 period and has had manifestly unsatisfactory growth in. Section ii relates this very poor performance to the zero lower bound on nominal interest rates and the secular stagnation hypothesis. Aug 10, 2016 larry summers is the secular stagnation that burdens us with a lowgrowth global economy john tamny contributor opinions expressed by forbes contributors are their own. Mar 25, 2016 summers and his colleagues suspect all the factors behind secular stagnation make investment so unattractive that, in order to get enough spending to reach full employment, the ferir would have to. Secular stagnation, coalmines, bubbles, and larry summers. What mainstream economists get wrong about secular stagnation.
However, the economist criticizes secular stagnation as a baggy concept, arguably too capacious for its own good. On secular stagnation in the industrialized world by. Mar 07, 2019 the idea of secular stagnation dates to alvin hansen, who wrote in the 1930s that it was possible for privatesector investment demand to fall far short of privatesector saving and that interest. Larry summers has responded to ben bernankes post about secular stagnation ben bernanke has inaugurated his blog with a set of thoughtful observations on the determinants of real interest rates see his post here and the secular stagnation hypothesis that i have invoked in an effort to understand recent macroeconomic developments. Ben bernanke and larry summers are in a blog war over secular. Pdf secular stagnation and the discourse of reproductive. Larry summers is doubling down on his secularstagnation hypothesis. While matters are still far from clear, the events since then lead us to regard secular stagnation as a significant threat to advanced countries. Nov 19, 20 transcript of larry summers speech at the imf economic forum, nov. Summers and his colleagues suspect all the factors behind secular stagnation make investment so unattractive that, in order to get enough spending to reach full employment, the ferir would have to.
Stagnation hypothesis set forth in 20 by larry summers, whose effort has been in recent years to depict the current western economies stagnation in terms of the framework provided in the 30s by alvin hansen 1939. Ben bernanke, former federal reserve chairman, and larry summers of harvard university were debating. The pdf remains freely downloadable, but as the european debate on secular stagnation is moving into policy circles, we decided to also make it a kindle book. Lawrence summers, secular stagnation and monetary policy 2016 homer jones lecture duration. Summers jfk school of government, harvard university, mailbox 8, 79 jfk street, cambridge, ma 028 email. The economics of secular stagnation secular stagnation. Eliot university professor and president emeritus at harvard university. 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. But for extraordinary fiscal policies, real interest rates would have fallen much more and be far below their current slightly negative level, current and prospective inflation would be further short of the two percent target.
From somewhat different perspectives blanchard 2019, and rachel and summers 2019, we have increasingly come to believe that a major rethinking of macroeconomic policy, and in particular of fiscal. Chapter 2 low equilibrium real rates, financial crisis, and. Secular stagnation meets the headwinds 47 robert j gordon 4 four observations on secular stagnation 61. For the technically inclined, an effort to develop a formal model of secular stagnation. Secular stagnation and the discourse of reproductive limit. He served as the 71st secretary of the treasury for president clinton and the director of the national economic council for president obama. 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. The rediscovery of secular stagnation on 8 november 20, at an imf conference in honour of stanley fisher, lawrence summers revived the doctrine of secular stagnation, an expression introduced by alvin hansen 1934, 1938, 1939. On falling neutral real rates, fiscal policy, and the risk of. Returns on government debt bear little resemblance to returns on productive capital. Summers this article is based on the authors homer jones memorial lecture delivered at the federal reserve bank of st. Potential output might be growing but actual output falls short, resulting in high unemployment and. Secular stagnation is a term coined to describe a prolonged period of lower economic growth.
Larry summers is the secular stagnation that burdens us with a lowgrowth global economy john tamny contributor opinions expressed by forbes. Larry summers, the threat of secular stagnation has not gone away, the financial times. The risk to our economy from secular stagnation the. Apr 01, 2015 in the 10 months since summers initial secular stagnation talk, the unemployment rate has fallen from 7 percent to 5. What it is and what to do about it, in the february issue of foreign affairs. Apr 07, 2015 two of the biggest names in macroeconomics met on the battlefield of the blogosphere last week. Indeed, the private sector has undertaken large capital outlays since the end of the recession.
Summers, secular stagnation and monetary policy, federal reserve bank of st. Oct 12, 2017 secular stagnation is a term coined to describe a prolonged period of lower economic growth. Transcript of larry summers speech at the imf economic forum. Potential growth, effective demand, and sclerosis 2 secular stagnation. Ar interpret their empirical evidence as contradicting the socalled secular stagnation hypothesis see summers 20, 2014 or eggertsson and mehrotra 2014 because the secular stagnation hypothesis is often tied to aging as one explanatory force, while the secular stagnation itself is a story about subpar output growth. The latter, indeed, was the original founder of the concept of secular stagnation. Summers the nature of macroeconomics has changed dramatically in the last seven years. Before turning to policy, though, there are two central issues regarding the secular stagnation thesis that have to be addressed. The harvard economist says he believes that more and more people are buying into his secular. Nov 08, 20 lawrence summers, secular stagnation and monetary policy 2016 homer jones lecture duration.
Larry summers is the secular stagnation that burdens us. 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. In several important papers, larry summers 2014, 2016 revived the notion of secular stagnation and suggested that the u. Stan a set of older ideas that went under the phrase secular stagnation are not profoundly important in understanding japans experience, and may not be without relevance to americas experience. There has been an outpouring of chat in both policy circles and the blogosphere concerning secular stagnation. He points to factors, such as ineffective monetary policy and weak demand for. Most observers expected the unusu ally deep recession to be followed by an unusually rapid. Dec 16, 20 if secular stagnation concerns are relevant to our current economic situation, there are obviously profound policy implications that i will address in a subsequent column. His presentation at the imf research conference is, justifiably, getting a lot of attention. Secular stagnation requires rethinking macroeconomic policy. Problematic postcrisis economic performance in the industrial world ii. The cepr press ebook on secular stagnation has been viewed over 80,000 times since it was published on 15 august 2014. In the 10 months since summers initial secular stagnation talk, the unemployment rate has fallen from 7 percent to 5. May 30, 2017 larry summers is doubling down on his secularstagnation hypothesis.
He argues for more government demand stimulus as a solution. Despite the prominence of summers discussion of the secular stagnation hypothesis and a. Secular stagnation and the future of economic stabilisation. Chapter 2 low equilibrium real rates, financial crisis. Stan a set of older ideas that went under the phrase secular stagnation are. Transcript of larry summers speech at the imf economic. Ben bernanke and larry summers debated secular stagnation on their respective websites. According to the authors, this fall would be even more marked in the absence of offsetting fiscal policies.
Section iii responds to a variety of questions and challenges raised about the secular. Summers 2014 and others have articulated the secular stagnation hypothesis based on insufficient aggregate demand. Larry summers on why the economy is broken and how to. The harvard economist and former treasury secretary first offered the bleak diagnosis in november 20 at an international monet. On secular stagnation, ben bernankes theory meets larry. The article explores how expansionary fiscal policy by the u. Summers s surprising as the recent financial crisis and recession were, the behavior of the worlds industrialized economies and financial markets during the recovery has been even more so. On falling neutral real rates, fiscal policy, and the risk of secular stagnation lukasz rachel, lse and bank of england lawrence h.
Section ii relates this very poor performance to the zero lower bound on nominal interest rates and the secular stagnation hypothe. Users who like 75 larry summers on secular stagnation, fiscal policy, and fed policy. Larry summers on secular stagnation vox, cepr policy portal. Secular stagnation, hysteresis, and the zero lower bound lawrence h. Monetary policymakers at the federal reserve are in a fix, because they cannot lower the interest rate further as it is stuck at the zlb.
Summers 2015 regards a chronic excess of saving over investment as the essence of secular stagnation. Oct 30, 2014 the notion that europe and other advanced economies are suffering secular stagnation is gaining traction. His argument that the united states economy may be suffering from secular stagnation. Larry summers 2014, 2016 has argued that we are in a new era of secular stagnation. Nov 16, 20 larry explicitly invokes the notion of secular stagnation, associated in particular with alvin hansen pdf. Larry summers says his secular stagnation thesis is. The idea of secular stagnation dates to alvin hansen, who wrote in the 1930s that it was possible for privatesector investment demand to. Apr 01, 2019 secular stagnation and the future of economic stabilisation. The age of secular stagnation what it is and what to do about it lawrence h. In the first, summers 2014, he appeals to possible hysteresis effects of business cycles, whereby business cycles can affect growth trends. Jan 07, 2014 larry summers has always had a talent for stirring up a debate, and in recent weeks he has outdone himself. The evidence on investment strongly suggests otherwise.
Now, instead of being concerned with minor adjustments to stabilize about a given trend, concern is focused on avoiding secular stagnation. New approaches are needed to deal with sluggish growth, low interest rates, and an absence of inflation lawrence h. This article is based on the authors homer jones memorial lecture delivered at the federal reserve bank of st. Some time ago speaking at the imf, i joined others who have invoked the old idea of secular stagnation and raised the possibility that the american and global economies could not rely on normal market mechanisms to assure full employment and strong growth without sustained unconventional policy support. Two of the biggest names in macroeconomics met on the battlefield of the blogosphere last week. Sep 03, 2019 former treasury secretary larry summers, shown in 2014, says were witnessing a period of secular stagnation. And this, according to summers, has profound implications for the conduct of monetary. He doesnt say why this might be happening to us now, but its not hard to think of possible reasons. Ive been thinking along the same lines, and have, i think. Point of view accepting the reality of secular stagnation.