It is then commonly assumed that the three decades of low unemployment after wwii showed the doctrine to be clearly wrong. A model of secular stagnation 127 inflation, which can be no lower than the negative of the natural rate of interest. Consumer motivation in developed economies with secular. The keyneshansensamuelson multiplieraccelerator model of. As capital becomes more abundant, the expected return on new investment, allowing for risk, falls toward zero. A brief history of secular stagnation world economic forum. He has analyzed trade cycles, as well as he has suggested the measures regarding sustained economic growth. The purpose of this thesis is to study the theory of secular stagnation, which was made famous by the american keynesian economist alvin hansen in his book full recovery or stagnation. Hansen march progress, the development of new industries, the discovery of new resources, the opening of new territory were the basic causes of the boom, which in turn was the progenitor of depression. Hansens thesis has been revived in recent times, when it became clear that productivity and potential growth in the oecd countries have been. The risk to our economy from secular stagnation the. To what extent can the crisis itself explain the singular features of the postcrisis experience. Six years after the global crisis, the recovery is still anaemic despite years of nearzero interest. Alvin hansens economic progress and declining population growth aea.
This article traces some of the historical roots of current debates about secular economic stagnation, involving l. If you havent read the speech, i recommend that you doits an interesting and easy read. The nature of macroeconomics has changed dramatically in the last seven years. This ebook gathers the views of leading economists including summers, krugman, gordon, blanchard, koo, eichengreen, caballero, glaeser and a dozen others. Hansen in a foreboding presidential address to the american economic association. Thats why i took such exception to dsquareds defense of the finance industry as mere bystanders. Secular stagnation on the supply side takes the form of a slow 1.
The concept of secular stagnation originally formulated by the eminent depressionera economist alvin hansen, has experienced a revival since my. Rediscovery of idea proposed in alvin hansen s economic progress and declining. Four observations on secular stagnation 65 so put these items together. When secular stagnation is mentioned, the term is usually correctly attributed to alvin hansens 1938 aea presidential address 1939. A much higher probability of hitting the zero lower bound than we used to think. Hansen was manifestly wrong, in the sense that what prevailed after he wrote those words in 1939 was by no stretch secular stagnation. 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 idea of secular stagnation dates to alvin hansen, who wrote in the 1930s that it was possible for privatesector investment demand to.
Incorporated as a notforprofit foundation in 1971, and headquartered in geneva, switzerland, the forum is tied to no political, partisan or national interests. There has been an outpouring of chat in both policy circles and the blogosphere concerning secular stagnation. Indeed he believed that once the main resources of the globe had been discovered and exploited, once the whole. Hansen replied that secular stagnation was just another name for keyness underemployment. Hansen interpreted the economic problems of the 1930s not just as the manifestation of a particularly sharp cyclical downturn, but as evidence of secular stagnation caused by the closing of the economic frontier, sluggishness in technological innovation, and, not least, a drastic decline in population growth. Secular stagnation and the zero lower bound this brings us to the secular stagnation hypothesis put forward by hansen 1939. 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. 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.
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. Pdf consumer motivation in developed economies with secular. Gordon alvin hansen 1939 popularized the term secular stagnation, and we are now, at the suggestion of larry summers 2014, considering the application of hansens term to the current us economy, because the pace of out. This is the source of stagflation and alvin hansen s ph. In this context, the term secular means longterm from latin saeculumcentury or lifetime, and is used in contrast to cyclical or shortterm. Alvin hansen secular stagnation pdf in december, one of the most eminent economists of the time, alvin e.
Dec 23, 2016 behind the daytoday statistics, most americans are suffering from real economic problems with deep causes that eventually lead to economic collapse. Alternatively, tim taylor provides a concise and accurate summary here. 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. Yet even alvin hansen, a keen economic observer, did not recognize the surge in innovation taking place. 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. Four observations on secular stagnation pierre ratcliffe. The argument is that the industrial world is plagued by an increasing. Hansen s thesis has been revived in recent times, when it became clear that productivity and potential growth in the oecd countries have been. What it means to suffer from secular stagnation the economist.
Association, alvin hansen, delivered a disturbing message in his presidential address to the association see hansen 1939. Alvin harvey hansen august 23, 1887 june 6, 1975, often referred to as the american. The generalized version of this proposition is that secular stagnation the persistent underuse of potential resources is the fate of all economies that rely on private investment to fill the gap between income and consumption. Regular readers of this blog are aware that we have been referring to the risk of a long period of very low interest rates and subdued growth before. Facts, causes and cures edited by coen teulings and richard baldwin centre for economic policy research 77 bastwick street, london ec1v 3pz tel. And did any of those preexisting trends contribute to setting the stage for. American economist at harvard, that began as an american institutionalist but converted into one of the leading proponents of keynesianism in the united states alvin harvey hansen was born in viborg, south dakota, the son of danish immigrants. In december, one of the most eminent economists of the time, alvin e. Stagnation theories have a long history going back at least 200 years inequality and aggregate demand.
Changes in fundamentals an end to everrising leverage and a sharp demographic. The paper presents a history of the concept of secular stagnation, from alvin hansen in the 1930s and 1940s to its recent revival by larry summers. Six years after the crisis and the recovery is still anaemic despite years of zero interest rates. Dec 23, 2015 the secular stagnation thesis in a keynesian form was popularized by harvard university economist alvin hansen. Alvin hansens secular stagnation theory salmo trutta. 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. The supply side of secular stagnation refers to potential real gdp. Countries suffering from the stagnation bug are burdened.
Hansen s original idea was that the feeble recovery from the great depression could become a permanent. The term secular stagnation refers to a market economy with a chronic secular or longterm lack of demand. Secular stagnation hansens thesis features secular. Smashwords secular stagnation a book by uzair paracha.
Lawrence summers produced a big upset within the economics profession when he revived alvin hansens theory of secular stagnation, which had been thought of as an oldkeynesian fallacy. While some economists like brad delong and paul krugman instantly recognized summerss contribution, a large share of the economics profession remained. The underselling is reflected in the fact that too little is invested compared to the amount of savings. We focus on early contributions by alvin hansen and john a. Hansen, delivered the presidential address, titled economic. The phrase secular stagnation was first introduced by alvin hansen in a speech he prepared for the aea meetings in 1938. The empirical dimension of hansens secular stagnation thesis was. 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. Alvin hansen and the origins of the stagnation thesis.
Secular stagnation rediscovery of idea proposed in. 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. 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. Countries suffering from the stagnation bug are burdened with too much saving and too little investment. The cepr press ebook on secular stagnation has been viewed over 80,000 times since it was published on 15 august 2014. The term secular stagnation was coined by harvard economist alvin hansen in the 1930s. This return of the secular stagnation hypothesis occurred in november 20, when. Alvin hansen on economic progress and declining population. Secular stagnation and macroeconomic policy, mundellfleming lecture, by lawrence h.
Summers theory of secular stagnation a term first used by the economist alvin hansen back in holds that, in the united states, the. Which of those features continuewhile perhaps reinforcingtrends that began before the crisis. 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. A secular downward trend in real interest rates even before the 2008 crisis. Nevertheless, lower average gdp growth and the prolonged era of very low interest rates have led observers such as larry summers 2014, summers 2016 to argue that the u.
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. That is because its not being used primarily as an explanation of lower growth, but as an excuse for increased in inequality. Pdf consumer motivation in developed economies with. Hansen 18861895approachedbusinesscycleanalysis broadlyfromthetheoretical. The theory of secular stagnation has reappeared in economic circles today due to recent economic conditions since the financial crisis of 20072008. Storm wp 108 the secular stagnation of productivity growth. The secular stagnation thesis in a keynesian form was popularized by harvard university economist alvin hansen. In his presidential address to the american economic association in 1938, he. The world economic forum is an independent international organization committed to improving the state of the world by engaging business, political, academic and other leaders of society to shape global, regional and industry agendas. How to tackle secular stagnation world economic forum. Lawrence summers deserves a nobel prize for reviving the.
He suggested that the great depression might just be the start of a new era of ongoing unemployment and economic stagnation without any natural force towards full employment. Though hansen had derived most of his ideas independently of keynes, not making any connection between underemployment equilibrium and secular stagnation, and though samuelson was far closer, intellectually as well as personally, to hansen than to keynes, it was keynes with whom the socalled new economics came to be associated. Initially predominant in new deal economic analysis, the structural approach was challenged and eventually displaced by another longrun. 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. This idea was termed the secular stagnation hypothesis. Summers theory of secular stagnation a term first used by the economist alvin hansen back in holds that, in the united. Secular stagnation theory originated with alvin hansen, a keynesian economist, in the 1930s. The demandside explanation for secular stagnation phenomena was initially proposed by alvin hansen hansen 1939 back then and has been revived. The disappointing recovery following the 2008 great financial crisis has brought to life alvin hansens thesis of the late 1930s. Returns on government debt bear little resemblance to returns on productive capital. 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.
This work aims to explain the practical impact of popular government policies at the top on the fate of everyone below. In economics, secular stagnation is a condition when there is negligible or no economic growth in a marketbased economy. The basic notion behind secular stagnation is this that the capitalistic economy is basically characterized with instability. Now, instead of being concerned with minor adjustments to stabilize about a given trend, concern is focused on avoiding secular stagnation. The secular stagnation hypothesis was first formulated by the economist and keynes disciple alvin harvey hansen 18871975 in his famous speech to the american economic association at its annual meeting in december 1938. Much of this concern arises from the longrun effects of shortrun developments and the inability of monetary policy to accomplish much more when. The result is that excessive saving acts as a drag on demand, reducing. The economics of secular stagnation secular stagnation. T his characterization has generated calls for more government spending stimulus. In 1938, nine years after the beginning of the great depression, alvin hansen delivered his presidential address, economic progress and declining population. There are a number of things we would expect to see if secular stagnation has been taking hold in recent years. Hansen march progress, the development of new industries, the discovery of new resources.
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