Lessons from the Secular Stagnation Theory

Wrapping up my series on the secular stagnation theory with some more things I learned along the way. Again, filter on #stag as desired.

Glaeser: 72.7% of US college grads ages 25+ are employed, vs 39.4% of high school dropouts in same cohort. I’d like to quote Mokyr’s entire essay in the Vox ebook but that would be rude, so read the whole thing here.

Olivier Blanchard: Post-crisis reforms require financial institutions to hold another $3 trillion in safe assets. (!) #stat

Reference for all of the above: http://www.voxeu.org/article/secular-stagnation-facts-causes-and-cures-new-vox-ebook

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13,14


A Few Tentative Conclusions on Secular Stagnation and Our Economy

A few tentative conclusions on secular stagnation and our economy, with a vigorous disclaimer that I am far from a macro economist. It seems a core dynamic of our times is too much capital relative to the number of productive investable economic opportunities. Coupled with a massive global capital flight to quality since 2008, it’s hard to see interest rates rising dramatically anytime soon.

While I am a bull on technological progress, it also seems that much of that progress is price deflationary in nature, so even extremely rapid tech progress may not show up in GDP or productivity stats, even as it equals higher real standards of living. I think economists, particularly on the center-left and left, are really underestimating two factors that are inhibiting investment. The developed world and the sheer level of regulatory burden on business formation and growth, per George McGovern.

On this point I agree deeply with : Many sectors of Western business are now wired to prevent or inhibit new investment. In the developing world, often brutally high levels of corruption and expropriation are making new investment extremely risky. It seems straightforward to identify ways to increase rate of investment and also hard to see how any of that politically happens.

For these and other reasons, we may be living with an oversupply of capital relative to opportunity set for a long time. But this is not necessarily a terrible world to live in. In fact, it might be a wonderful world to live in, for these reasons: Oversupply of capital means that any investable project can get funded. We see that today in tech, and it may broaden from here. We may experience a massive global demographic tailwind, as a huge number of young people worldwide are fully connected to the modern economy.

Virtuous cycle of science and tech advances, with fast-growing number of scientists and technologists globally, may overwhelm expectations. In this world, we can have massive advances in real standards of living even with a formally low investment, GDP, and productivity growth. Beyond that, a world where 7 billion people decide they really do want and deserve an upper-middle-class American-equivalant lifestyle may make all of these current stagnation theories look as silly as Alvin “Secular Stagnation” Hansen now looks 76 years later.

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13,14,15,16,17,18

Excellent Survey of The Original “Secular Stagnation” Thesis of Alvin Hansen in 1938

An excellent survey of the original “secular stagnation” thesis of Alvin Hansen in 1938 by .

Source Tweets: 1,2,3,4,5

A Counterargument From David Beckworth to Larry Summers’ “Secular Stagnation” Thesis

Now, thinking about a counterargument to Larry Summers’ “secular stagnation” thesis from .

In this interpretation, there is no secular stagnation, there was just a crisis and then a slump, which is already ending.


Source Tweets: 1,2,3,4,5,6,7,8,9,10

Larry Summers’ “Secular Stagnation” Thesis

: “Secular stagnation is an economist’s Rorschach Test. It means different things to different people.” Contrary to a lot of public discussion, Larry’s thesis is about interest rates and supply/demand of capital, not technology change.

To quote Notorious BIG, “mo money mo problems“. In this case, mo money equals not enough productive places and projects to put it. As economists do, Larry then proposes a series of reforms to address the dynamic, few of which seem politically likely.

Can the goal be to get to normal if there is no normal? Or should the goal be something else?

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13,14,15,16,17

The Second Industrial Revolution Offers Insight Into Technology-Driven Economic Change

Over the last 2 days I’ve been tweetshotting excerpts from David Wells, “Recent Economic Changes“, 1890. For background reading on the economic period of ~1870-1890: Second Industrial Revolution.

This period is not a direct historical analog to ours, but it’s probably as close an analog as there is, along with the 1920s-1930s. Each of the three periods struggled with serious macroeconomic crises, albeit substantially different natures. It’s hard to compare those.

People of that time did wonder the same questions that are being so frequently asked today: What is the nature of technology-driven economic change and creative disruption? What is the future of income and wealth distribution and returns from progress — for labor and for capital? How do present changes compare to those in the past, and what can be forecast about the changes yet to come? What kind of world are we building, and what kind of world will we leave for our children and grandchildren?

Wells, writing in 1890, would have been wholly gobsmacked at the widely distributed gains of the next 100 years! It may not surprise you that I think we are going to repeat what Brad describes in Slouching Towards Utopia? in this century again. But, we actually have to prove it, and do it.

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12


The Secular Stagnation Hypothesis From The Bank of Italy

Fascinating overview of the secular stagnation hypothesis from the Bank of Italy (In English).

After reviewing recent long-run projections, we argue that similar warnings were issued in the past after all deep recessions.


Interestingly, pessimistic predictions turned out to be wrong neither because they were built on erroneous theories or data nor because they failed to predict new tech, but because they underestimated the potential of the technologies that already existed.


These findings suggest that today we should not make the same mistake and undervalue the effects of information technology.

This matches my personal belief: Much current economic commentary is the result of living through a 15 year down cycle, which will change.

Interestingly, our friend Larry Summers on CNBC today conceded secular stagnation may be more a Europe/Japan issue than a US issue. If the US economy is indeed at the front of a broad-based recovery, as it appears, it will be interesting to see where this issue lands.


Source Tweets: 1,2,3,4,5,6,7,8