Until the summer of 2013, positively nobody was talking about “secular stagnation.” But over the past year or so, interest in the subject has boomed to the extent that we already have economics writers complaining that other writers are misusing the term and scholars making formal models to show how it’s possible. Google Trends shows that discourse around the idea is surging.
What is secular stagnation?
For starters, it has nothing to do with secular versus religious. Instead, the term comes to us from a 1939 presentation given by Alvin Hansen titled “Economic Progress and Declining Population Growth.” In these tailing days of the Great Depression, Hansen was trying to draw a contrast between a cyclical period of slow growth and a structural transformation of the economy. Hansen believed that the world was not experiencing a down period during an up-and-down series of fluctuations. Instead, he said, “we are passing, so to speak, over a divide which separates the great era of growth and expansion of the nineteenth century” from a new era of much slower growth.
The Depression, in other words, was not a passing phenomenon but rather something that might last indefinitely. Instead what happened is that Nazi Germany launched a war that ended up intersecting with an already-ongoing military conflict between Japan and China. This battle lasted for years and involved nearly the entire planet. During its course, global output surged — though production was mostly dedicated to killing people and blowing things up rather than increasing living standards. But after the war, the economies of Western Europe and North America boomed. Secular stagnation was largely forgotten. But with growth consistently disappointing in recent years, interest in Hansen’s ideas has rebounded.
Importantly, although the rapid return of growth led to a collapse of interest in the secular stagnation hypothesis it didn’t exactly debunk it. Hansen’s argument was that the American economy lacked the kind of self-correcting forces that would restore an adequate level of demand and end the Depression. The outbreak of a giant world war is definitely not the same thing as an economy self-correcting — it was an enormous external source of stimulus.
Why are people talking about secular stagnation now?
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