Secular stagnation


Secular stagnation is a situation of low economic growth for a long time, and where episodes of full employment are sporadic and distant from each other.

Secular stagnation then implies an economic depression that becomes a new normal, with low rates of expansion of the gross domestic product (GDP) and other symptoms such as a persistent unemployment rate and low interest rates.

The first to coin the term was Alvin Hansen in 1930. This, in the context of the Great Depression, when the greatest economic crisis of the 20th century was unleashed, which left its consequences in subsequent years.

Later, the term secular stagnation was taken up in 2013 by Larry Summers, who sought to find an explanation for the slow recovery of the economy after the Great Recession.

For Summers, the secular stagnation is due to low demand, which brings deflation as one of its main consequences. This implies that companies are receiving lower returns.

Causes of secular stagnation

The causes of a secular stagnation caused by the Great Recession of 2008 would be the following:

  • Much saving and little investment: A greater propensity to save is observed, particularly in developed countries, decreasing those funds earmarked for investment. This phenomenon is reflected in low interest rates, even close to zero. Thus, it can be interpreted that there is an excess supply of funds available to lend, so that the price of money (the interest rate) falls.
  • Low demand: It is related to the previous point. If saving increases, fewer resources remain for spending and investment. Thus, the rate of economic growth is reduced.
  • Relatively less efficient new technologies: The new technologies of the 21st century would not have increased the productivity of the economy as much as inventions from the early 20th century such as electricity and aviation did.
  • Lower population growth rate: A lower birth rate is observed, both in developed and emerging countries. Consequently, this would be expected to generate lower GDP growth due to a reduction in one of its production factors, labor.

Arguments against secular stagnation

Although there is evidence that developed countries have shown signs of secular stagnation after the 2008 crisis, it must be taken into account that there is a factor that should not be assumed as static: technology.

As long as humanity can continue to generate innovations in the future, there will always be the possibility that the productivity of the global economy will rebound. In this way, higher growth rates can be achieved.

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