Sunday, November 24, 2013

The Focus Now Shifts To Explaining Secular Stagnation

Larry Summers suggested that the US economy may have been in a state of secular stagnation prior to the financial crisis, and that it was obscured by asset bubbles maintained full employment.  He did not bother to describe the path that the economy followed to arrive at stagnation.  This article provides an explanation for the path to stagnation.  It was the unintended consequence of government policies to expand debt financed consumption in order to compensate for negative net exports. 

The comments that follow the article are very interesting.  Some are quite critical, others offer support, and some expand the possible explanations for stagnation.  I think that Summers may have opened up a discussion that may go beyond what he intended.  After all, he was part of the Clinton team that formulated some of the economic policies that may have contributed to secular stagnation.  Paul Krugman praised Summers for introducing the concept of secular stagnation.  His first pass at an explanation, however, had little to do with government policy.  He suggested that bad demographics may have been the culprit.  He reserves his criticism of government policy to inadequate fiscal stimulus during the recession.

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