Larry Summers Makes The Case For Insuring Against Stagnation

In this article, Larry Summers restates his rationale for suggesting that we may be in for a long period of economic stagnation.  He then makes the point that stagnation is not inevitable.  It is a contingency that we should take steps to insure against.

Some may believe that it is not necessary to insure against stagnation.  They may point to the signs of recovery in the US as one reason to be unconcerned about stagnation.  Summers makes the case that there is a global shortfall in demand despite the signs of recovery in the US.  He also argues that the economy may not recover simply because the worse effects of the financial crisis are behind us.

Lastly, he argues against the use of asset bubbles to stimulate economic growth.  Asset bubbles are only natural given the low interest rates that have been necessary during the recovery.  They increase the risk of financial instability and provide another reason for insuring against stagnation.  He doesn't go into much detail about what should be done to insure against stagnation but he views the basic problem as a demand shortfall, and that implies looking at policies that will stimulate worthwhile consumption and investment in infrastructure.