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Is The Economy Suffering From Secular Stagnation?


OK, we are years into an economic recovery, which sounds awfully good when you say it. The word recovery suggests the economy is getting better and better. But there's growing attention to a countering view which has its own vocabulary. This one suggests we're in for a long period of slow growth and lousy wage increases at best. To shed light on this, we turn, as we often do, to David Wessel. He's with the Brookings Institution and is also a contributor to The Wall Street Journal. David, good morning.

DAVID WESSEL: Good morning, Steve.

INSKEEP: OK, help us find the words to describe what's going on. Technically it is a recovery - doesn't feel like it to many people. So what is it?

WESSEL: That's right. So one way to think of it is the economy had a heart attack, and now it's recovering. That's true, but there's a band of economists - the most prominent is Larry Summers, the former Treasury secretary - who argue the economy is also suffering from a chronic disease that they call secular stagnation.

It means that the economy is suffering from a very slow growth rate and there's - the Federal Reserve can't get interest rates low enough to get a job for everybody who wants to work. And they say that this has really been a condition the economy's been suffering for some time, but it was masked by unsustainable bubbles and borrowings before the great recession.

INSKEEP: OK, secular stagnation doesn't sound too good. So what's the cause of that?

WESSEL: Well, there are a lot of 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 so long-lasting and permanent, so many workers will never get jobs again, that we really can't recover.

A third is that there's this persistent and disturbing reluctance of businesses to invest and consumers to spend, perhaps in part because so much of the recent gains have gone to the people at the top, and they tend to save more of their money than people - ordinary working people who can't afford to do that.

And a fourth is that the U.S. and other developed countries are just simply paying the price for years of inadequate investment and infrastructure and education, the basic ingredients of growth.

INSKEEP: OK, let me go out on a limb and speculate that secular stagnation may not actually get to be a phrase that's on everybody's lips, even though it's got that nice alliteration there, but it certainly describes real trends that people fear. So where did the phrase come from?

WESSEL: Well, Larry Summers reintroduced it to the conversation late last year, but it's actually a term that dates to the Great Depression. In 1938 Alvin Hansen, then the president of the American Economic Association, used it and worried that the effects of the Depression would be long-lasting and that we'd never see enough business investment to sustain future growth. Of course he turned out to be wrong.

First there was World War II with all the production and then the baby boom and all that. So some people who are skeptical of this view point out that today's advocates of secular stagnation are as myopic as he was and that in particular there's so much going on in China and other developing countries that there'll always be enough momentum to keep the global economies moving, and we just have to patient.

INSKEEP: Well, it's certainly true we don't know what might happen next. But there are problems well beyond the United States right now. Aren't there?

WESSEL: That's right. One of the reasons this is so disturbing is that this is not a uniquely American condition. Japan has been suffering from a decade of very slow growth. It's trying to get things going again, and Europe is in even worse shape than the U.S. The outlook there is bleaker than in the U.S.

INSKEEP: You know, if you're a policymaker and you're trying to improve the economy, attack this condition, what do you do?

WESSEL: Well, one implication - it's going to be hard for the Fed or its counterpart in Europe, the European Central Bank, to fight this on their own, particularly if they want to avoid blowing new financial bubbles. So the cure is more likely involve a rather familiar list of things, less preoccupation with reducing budget deficits and spending more on infrastructure, education training, other things that will create jobs now and pay dividends in the form of faster growth in the future.

INSKEEP: David, thanks as always.

WESSEL: You're welcome.

INSKEEP: That's David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at Brookings, also a contributing correspondent to The Wall Street Journal. Transcript provided by NPR, Copyright NPR.