Ultimately, while secular stagnation is a powerful metaphor for our current malaise, we dont think its useful for investing. Secular stagnation and macroeconomic policy, mundellfleming lecture, by lawrence h. Rogoff posted an april 22, 2015 article on this subject, fittingly titled debt supercycle, not secular stagnation. Although would agree that some version of a debt supercycle theory is correct. Economists, such as larry summers have written on secular stagnation arguing the world has entered a period of substantially lower economic growth. To sharpen the discussion, shall contrast i this perspectivewith another one that has gain ed currency secular stagnation. He rejected the view that the world is experiencing secular stagnation with a long future of. Now, instead of being concerned with minor adjustments to stabilize about a given trend, concern is focused on avoiding secular stagnation. In the secular stagnation environment, the need for high public investment or debt is a permanent state of affairs as long as the slow.
Although would agree that some version of a debt supercycle theory is correct, i am unconvinced about rogoffs description of the mechanisms. And former treasury secretary lawrence summers calls for broad structural shifts in government policy to deal with secular stagnation. Kenneth rogoff has been advancing theories that the current environment of disappointing growth rates is the result of a debt supercycle, not secular stagnation. Unfinishedtrying and failing to understand ken rogoff. Moreover, if debt exceeds a threshold level, the borrowers inefficiency continues indefinitely and leads the economy into a persistent stagnation. Secular stagnation is a term coined to describe a prolonged period of lower economic growth. Debt supercycle, not secular stagnation rogoff the coming defaults of greece wyplosz rethinking macroeconomic policy. As reinhart and reinhart 2011 document across the worst financial crises of the second half of the 20th century, ten years after a crash, the median level of real gdp per capita is 15% below the trend predicted from the ten years prior to the crash. Secular stagnation has different interpretations, which complicates the debate, and the objective of this paper is to clarify the demarcation lines between various theories and to show how some of them amalgamated over time. It is highly superficial and dangerous to argue that debt is basically free.
Rather, in the words of investment manager james montier of the gmo llc, secular stagnation is a policy choice that we as citizens and policymakers can confidently attack, especially as cyclical. I will then provide a critique of the secular stagnation. Technological progress, globalization, and secular milenko. The hansensummers secular stagnation hypothesis is just one of five distinct hypotheses postulating a period of low growth in the medium or long term. Aging, secular stagnation and the business cycle, wp1867. In theory, based on the analysis of the causes of the secular stagnation, the us economists put forward a series of solutions aimed at correcting the deficiencies of economic policies and implementing appropriate policy mix to improve both supplyside and demandside management. In this case, the lenders do not have an incentive to reduce debt, and thus government intervention may be necessary to restore economic growth. Pdf the visible hand of the ecbs quantitative easing.
Even more narrowly, i consider a shall specific variant of the secular. The natural rate of interest and secular stagnation. Download pdf save cite this item 1 a road map to progress and confusion 1 a road map to progress and confusion. Secular stagnation, debt overhang and other rationales for sluggish growth, six years on by stephanie lo and kenneth rogoff abstract there is considerable controversy over why sluggish economic growth persists across many advanced economies six years after the onset of the financial crisis. The debt supercycle versus secular stagnation seeking alpha. As shown at the beginning of this paper, this shift and growth rate stagnation are totally attributable. An appropriate policy mix that addresses eurozones secular stagnation and greeces debt supercycle seems to require a reversal of main actions. While this has not been out of choice, descartes would surely have approved. Gdp growth has been not far from historical averages in the. It suggests a change of fundamental dynamics which would play out only in its own time. The debate over secular stagnation is, i be lieve, the. The debt supercycle versus secular stagnation he recently summarised his arguments within the article debt supercycle, not secular stagnation.
Secular stagnation, debt overhang and other rationales for. Essentially, the debt supercycle is the decadeslong growth of debt from small and easilydealtwith levels, to a point where bond markets rebel. An appropriate policy mix that addresses eurozones secular stagnation and greeces debt supercycle seems to require a reversal of main actions, that is, the pursuit of fiscal expansion in the eurozone and the adoption of monetary expansion or debt writeoff in greece. The financial crisis and alternative explanations for the. Secular stagnation under the fear of a government debt crisis. For a year and a half now i have been trying to understand what this passage means, especially the in a world where regulation has sharply curtailed access for many smaller and riskier borrowers, low sovereign bond yields do not necessarily capture the broader. The scary debate over secular stagnation milken institute. Monthly report economic and financial market outlook. The extraordinary events needed to pull the economy out of depression as well as the recent weakness suggest that it is worth considering secular stagnation. Debt supercycle, not secular stagnation kenneth rogoff. Secular stagnation and returns on capital economic.
Secular stagnation, savings glut, debt supercycle, productivity led. Prince tons paul krugman warns of the return of depression economics. Over time, financial innovation will bypass some of the more onerous regulations. Debt supercycle in greece and secular stagnation in the. Weak, postcrisis growth has been blamed on secular stagnation.
Secular stagnation is defined as a situation when policy interest. Facing down the debt supercycle may 2016 for institutional use only. Live alternative perspectives 20170405 20190614 weekend reading. There has been much attention on the secular stagnation trends that have emerged in the. Facing down the debt supercycle in a global environment of virtually unfettered debt, fixed income investors need to navigate macro risks.
He recently summarised his arguments within the article debt supercycle, not secular stagnation. Unlike secular stagnation, the debt supercycle is not forever. To explain the sluggish growth and the low interest rate environment after the financial crisis, rogoff 2015 presents his theory of the debtsupercycle to counter the secular stagnation theory see also lo and rogoff 2015. Debt supercycle, not secular stagnation, centre for economic policy research, 2015. The takeaway here is that the current recovery is not an example of secular stagnation. The threat of secular stagnation has not gone away. This while private sector debt has grown relative to gdp. The evidence on investment and returns on productive capital shatter the essential components of the secular stagnation hypothesis. Summers the nature of macroeconomics has changed dramatically in the last seven years.
The third part examines the current neoclassical arguments that could explain the current state of long stagnation, from the supply and the demand sides. People save some portion of their income each year. In a time of secular stagnation, the normal relationship between saving and investment goes haywire. Introduction blanchard secular stagnation in the us hall an assessment of the state of the world economy blanchard vox av besley, 28 january 2015 listen open.
Secular stagnation of the us economy is depressing, but it is not inevitable. After the 2008 crisis, despite economic recovery that started in 2009, the world economy has experienced a downward shift of its growth path and a consequent decline. Secular stagnation under the fear of a government debt crisis keiichiro kobayashi kozo ueday january 16, 2018 abstract by using a model incorporating the risk of an economic crisis triggered by the accumulation of government debt, we provide a new perspective to explain the driving forces behind a secular stagnation. He points to factors, such as ineffective monetary policy and weak demand for. The issues surrounding the topic of secular stagnation bear on our economic outlook, on the path of interest rates, on the vulnerability of the economy to external shocks and on the. In western europe, growth was rapid and sustained in a manner not. Secular stagnation, hysteresis, and the zero lower bound lawrence h. Rethinking secular stagnation after seventeen months. This column argues that the debt supercycle view provides a more accurate. All of these experts are expecting a future that will be very different than the. Secular stagnation theory claims that the weakness of the current expansionary phase is due to the structural trend of advanced economies towards a fall in the growth potential of per capita gdp. The secular stagnation hypothesis links weak growth to a decline in natural interest rates. The core of the theory suggests that there are phases in economic history that are characterized by increasing.
Let us not have collective amnesia overly optimistic forecasts played a central role in every aspect of most countries responses to. In this context, the term secular means longterm from latin saeculumcentury or lifetime, and is used in contrast to cyclical or shortterm. He predicted that secular stagnation would turn out to be a temporary phenomenon. Debt supercycle, not secular stagnation vox, cepr policy. Another drag on growth is public and privately held debt. Rogoff, kenneth, debt supercycle, not secular stagnation, 2015.