A client posed the question last week: “Is the economy stuck in a rut of low growth?” This week we address it. The precise term used these days to talk about the persistence of low growth is “secular stagnation”—a semi-permanent period of weak growth.
Is the Economy Suffering from Secular Stagnation? To tee up the discussion, David Wessel of The Brookings Institution and contributor to The Wall Street Journal describes four hypotheses. One is that all the great inventions have been made, and we’re unlikely to see a quickening of the pace of technological change. Another is that the damage done by the Great Recession was long-lasting and permanent. A third is that there’s this persistent reluctance of business to invest and consumers to spend. A fourth is that the U.S. and other developed countries are just simply paying the price for years of underinvestment in the basic ingredients of growth, such as infrastructure and education.
Why stagnation might prove to be the new normal. In the original Op-Ed piece that started the debate, Lawrence Summers of Harvard states his case for “secular stagnation”—a belief that growth has fundamentally slowed. Financial Times Rogoff: This Time is Not Different. On the other side is Kenneth Rogoff of Harvard University, author of the classic book “This Time is Different,” who argues against the pessimists. Today’s troubles are more reflective of a “garden variety post-WWII financial crisis” than the dawn of a new era of gloom. The aftermath of the 2008 financial crisis is at play in today’s economy—not root causes of a fundamentally new era. Robert Gordon and Erik Brynjolfsson debate—Is growth tapering off for good, or is stagnation evidence of growing pains? Two economists see very different things in this TED Talk. Gordon sees that our best innovations may be behind us; his counterpart sees more innovation ahead. We hope you enjoy reading these articles along with us and that you find them informative. Please forward this to your friends and family. J. Mark Nickell & Co. Disclosure – The articles mentioned in This Week with J. Mark Nickell & Co. are for information and educational purposes only. They represent a sample of the numerous articles that the firm reads each week to stay current on financial and economic topics. The articles are linked to websites separate from the J. Mark Nickell & Co. website. The opinions expressed in these articles are the opinions of the author and not J. Mark Nickell & Co. This is not an offer to buy or sell any security. J. Mark Nickell & Co. is under no obligation to update any of the information in these articles. We cannot attest to the accuracy of the data in the articles.
