Hansen was manifestly wrong, in the sense that what prevailed after he wrote those words in 1939 was by no stretch secular stagnation. 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. The economics of secular stagnation secular stagnation. More recently, the revival of alvin hansen s 1939 secular stagnation hypothesis by lawrence summers and others has brought to the fore the notion of a negative natural rate of interest, in the sense that there is no positive rate of interest able to equilibrate saving and investment at fullemployment income.
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. Alvin harvey hansen august 23, 1887 june 6, 1975, often referred to as the american. The secular stagnation hypothesis is the claim that underlying changes in saving and. 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. A comparison of developed economies page 1 is secular stagnation the new reality for the first world. Europe, between stagnation and technological revolution. The underselling is reflected in the fact that too little is invested compared to the amount of savings. Alvin hansen project gutenberg selfpublishing ebooks. The empirical dimension of hansens secular stagnation thesis. Unlike hansens original idea, todays version of the secular stagnation hypoth esis does not rely as much on a technological slowdown, even if. Secular stagnation was introduced by alvin hansen in 1938 during the great depression period. Hansen replied that secular stagnation was just another name for keyness underemployment equilibrium. The growth of modern industry has not come in terms of millions of small increments of.
The phrase secular stagnation was first introduced by alvin hansen in a speech he prepared for the aea meetings in 1938. In economics, secular stagnation is a condition when there is negligible or no economic growth in a marketbased economy. 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. Hansen s position was best summed up in his 1938 book full recovery or stagnation. The term secular stagnation was coined by alvin hansen before world war ii. October 12, 2014 abstract we propose an overlapping generations new keynesian model in which a permanent or very persistent slump is possible without any selfcorrecting force to full employment. It suggests a change of fundamental dynamics which would play out only in its own time. Hansen s thesis has been revived in recent times, when it became clear that productivity and potential growth in the oecd countries have been. Back to alvin hansen in december 1938, one of the most eminent economists of the time, alvin e. Facts, causes, and cures a new vox ebook coen teulings, richard baldwin 10 september 2014 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. It concludes that a more efficient banking system is a structural reform that would facilitate better resource allocation, reduce the cost of capital, and improve the transmission of monetary policy.
Hansen argued that, due to certain structural characteristics such as the declining. The financial technology for producing riskfree assets proved to. Demand, distribution, productivity, structural change, and secular. Secular stagnation on the supply side takes the form of a slow 1. The age of secular stagnation what it is and what to do about it by lawrence h. Economic stagnation wikimili, the free encyclopedia. This article traces some of the historical roots of current debates about secular economic stagnation, involving l.
Thunder bay, on, mar 3, 2015 troy media the chronic low growth and slow recoveries of world economies since 2009 has reignited speculation that we are in the midst of a period of exceptionally low economic growth or what has been termed secular stagnation, particularly in europe and america where average annual growth. Users may download andor print one copy of the publication from the university of birmingham research portal for the purpose of. A decade or so later, we had the baby boom and one of the strongest economic expansion the world has ever experienced in french, les trente. Alvin harvey hansen august 23, 1887 june 6, 1975, often referred to as the american keynes, was a professor of economics at harvard, a widely read author on current economic issues, and an influential advisor to the government who helped create the council of economic advisors and the social security system. Hansen, who suggested that the great depression might herald a. Summers purchase article listen to article purchase audio as surprising as the recent financial crisis and recession were, the behavior of the worlds industrialized economies and. Pdf demand, distribution, productivity, structural. This return of the secular stagnation hypothesis occurred in november.
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. The risk to our economy from secular stagnation the. The term secular stagnation was coined by harvard economist alvin hansen in the 1930s. 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. The key to understanding this situation lies in the concept of secular stagnation, first put forward by the economist alvin hansen in the 1930s. The keynes hansen samuelson multiplieraccelerator model of secular stagnation.
Lawrence summers deserves a nobel prize for reviving the. Seventysix years ago, alvin hansen introduced the term secular stagnation in a. Among the driving factors of the slowdown he predicted were limited population growth and lack of innovation. The two most prominent protagonists were alvin hansen and joseph schumpeter, harvards top economists of the 1930s. Lawrence summers produced a big upset within the economics profession when he revived alvin hansen s theory of secular stagnation, which had been thought of as an oldkeynesian fallacy.
Imf fears global economy is suffering secular stagnation. For sure we have had a prolonged period where policies of maximal stimulus have struggled to generate a recovery, and keep inflation on track. The existence of an area of free land, jackson wrote. The age of secular stagnation r3 ma r c h\apr i l2 0. This paper covers the history of secular stagnation from alvin s hansen s aea presidential address in 1938 to the recent rediscovery of the idea by lawrence su. Hansen march overwhelmingly significant, but as yet all too little considered by.
Looking at the economy of the late 1930s, hansen wrote. The concern that an economy could experience persistent stagnation, caused by a structural weakness of aggregate demand, goes back to alvin hansen s 1939 thesis of secular stagnation. The pdf remains freely downloadable, but as the european debate. In november 20, lawrence summers revived the secular stagnation hypothesis first formulated by keynesian economist alvin hansen in. He is best known for introducing keynesian economics in the united states in. Consumer motivation in developed economies with secular. Summers purchase article listen to article purchase audio as 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. The cepr press ebook on secular stagnation has been viewed over. In this context, the term secular means longterm from latin saeculumcentury or lifetime, and is used in contrast to cyclical or shortterm. If you havent read the speech, i recommend that you doits an interesting and easy read.
The concept of secular stagnation originally formulated by the eminent depressionera economist alvin hansen, has experienced a revival since my. Secular stagnation university of birmingham research gateway. European journal of the history of economic thought, vol, 23 6, 2016. Alvin hansen proclaimed the risk of secular stagnation at the end of the 1930s, only. The deep causes of secular stagnation and the rise of. Second, it is a well known, going back to alvin hansen and way before, that a declining rate of population growth. 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 demand.
The whole argument on the dialectic of stagnation and financialization was brought together by magdoff and sweezy in a book entitled stagnation and the financial explosion, published in 1987the year that reagan appointed greenspan chair of the federal reserve board. The orthodox view on secular stagnation seems to adopt one of two perspectives. Secular stagnation can arise if there is a persistent decline in the natural rate of interest, which, if severe. Owing to a slowdown in population growth, and thus lower demand for capital, the world, hansen claimed, faced a problem of secular, or structural, unemployment in the decades before us. Secular stagnation and the zero lower bound this brings us to the secular stagnation hypothesis put forward by hansen 1939.
The paper presents a history of the concept of secular. Is secular stagnation the new reality for the first world. Secular stagnation theory has developed substantially recently and offers substantial insights that policymakers have yet to fully internalize. Wicksell, secular stagnation and the negative natural rate. Unraveling the secular stagnation story cato institute. We focus on early contributions by alvin hansen and john a. The keyneshansensamuelson multiplieraccelerator model. Alvin hansen, an early and prominent keynesian economist at harvard university, popularized the notion of secular stagnation in the 1930s. Secular stagnation a prolonged period in which satisfactory growth can only be achieved by unsustainable financial conditions may be the defining macroeconomic challenge of our times. Fazzari preliminary draft prepared for inet secular stagnation conference december 15, 2017 the concern that an economy could experience persistent, and in some sense unusual, weakness goes back to keyness general theory and led alvin hansen to coin. Those who know their history will recognize that summers is reviving an argument advanced by the american economist alvin hansen in 1938. Secular stagnation, hysteresis, and the zero lower bound. This paper is written to commemorate the centennial of alvin hansen, my mentor and companion at arms and americas key macroeconomist at midcentury.
In hansens view, the weak growth in the economy was therefore here to stay secular means long term in this context. 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. A large equity premium and low risk free rate because of the risk of disruptive technological change e. The term secular stagnation was originally coined by alvin hansen in 1938 to describe what he feared was the fate of the american economy following the great depression of the early 1930s. Secular stagnation and macroeconomic policy springerlink. Secular stagnation refers to a situation of chronic underselling of a countrys goods and services. Hansen, delivered the presidential address, titled economic progress and declining population growth, at the annual meetings of the american economic association. It reflects a situation where interest rates as low as zero wont be able to stimulate the economy to. Nothing more than a phony rationale for more government waste. I take secular stagnation to be, well, secular, ie relating to i demographics, ii some change in the rate of technical progress. This idea was termed the secular stagnation hypothesis. A model of secular stagnation 127 inflation, which can be no lower than the negative of the natural rate of interest.