Academic journal article ABA Banking Journal

At a Standstill? the Debate over 'Secular Stagnation'

Academic journal article ABA Banking Journal

At a Standstill? the Debate over 'Secular Stagnation'

Article excerpt

DURING ONE PARTICULARLY stormy day this winter, I asked my daughter to unearth herself from the couch and help me clear the snow from the driveway. Unfortunately, the prospective reward of industry was no competition for the television remote, and I was left to fend for myself.

Before braving the accumulating squalls, I warned her that prolonged inactivity could doom her to secular stagnation. She rolled her eyes at the econo-speak and turned her attention back to The Walking Dead marathon.

I found irony in her choice of programming as I shoveled. Some in my profession have suggested that developed economies are heading for a zombie-like state, with little growth and frightening consequences for those left alive. Dark-siders suggest that measures aimed at animating things have become increasingly extreme and have done little to slow the advancing danger.

Growth has been re-established in some places but not in others, requiring significant amounts of performance-enhancing policy to keep things from getting worse.

It is this combination of circumstances that led some observers back to the secular stagnation argument. Former U.S. Treasury Secretary Larry Summers has been the most vocal adherent, but economists from around the world have joined him.

Robert Gordon of Northwestern University has highlighted troublesome trends on the supply-side of the economy. Potential growth is often described as the sum of labor force expansion and increases in productivity. On both of these fronts, many world economies are struggling.

The demographic challenge faced by many developed countries is well-documented. Increased living standards and the entry of women into the workforce have both served to depress birth rates. Sizeable postwar generations are gradually moving into retirement, reducing labor force participation. Projections from the International Monetary Fund suggest that the size of the workforce in many nations may struggle to show any growth over the next 20 years. …

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