Paul Krugman provides three slides in this article which explain why he believes that the US economy will experience periods of secular stagnation. We have secular stagnation when even zero interest rates are not able to restore full employment. We have spent the last seven years with real interest rates below zero and we have not restored full employment. Moreover, real interest rates have declined over the last three business cycles and we did not get much traction from monetary policy even before the 2008 crisis.
The 2001-2007 business cycle recovery was based upon an explosion of household debt as a percent of GDP. Households have been deleveraging during the current business cycle but even if household debt as a percent of GDP stabilized at the current level, spending would be 4% lower than it was during the 2001-2007 business cycle.
A slowdown in population growth will have a negative impact on GDP growth in the US. Krugman argues that slower population growth will cause the growth in potential GDP to decline by 1%. Consequently, if we assume a 3:1 ratio of capital spending to output, a 1% decline in potential GDP growth will lead to a 3% drop in business investment.
If we add up the effect of a 4% decline in spending due to stabilizing household debt to GDP at the current level, and a 3% drop in business investment in response to a 1% decline in the growth of potential GDP, the US economy is faced with a 7% anti-stimulus burden to overcome relative to the 2001-2007 business cycle. Negative real interest rates may not provide the traction necessary to produce full employment.