Monday, September 8, 2014

Secular Stagnation Cannot Be Altered Without Structural Changes In Major Economies

Larry Summers has revived the concept of secular stagnation to explain slow growth in major economies even at low interest rates.  He argues active support for demand creation (fiscal policies) is necessary but not sufficient to produce even a modest 2% growth rate.  That is because structural changes have occurred which have reduced potential GDP.  We need to increase the capacity of the economy to produce output.  That will require a larger and more productive workforce.  It will require a more family friendly workplace, immigration reform and infrastructure investments.  It may also require business tax reform. 

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