Four years ago Larry Summers argued that the economy was suffering from secular stagnation. That is, a relatively long period of slow economic growth. He doubles down on that argument today. We are now in period of full employment, with stable inflation, but economic growth remains very low. Low interest rates, which ordinarily stimulate growth, have not done much to increase the growth rate. That, of course, defines secular stagnation. The neutral rate of interest remains low but economic growth has stagnated. Since interest rates no longer work to grow the economy Summers argues for an expansion of fiscal policy to increase the growth rate. That is the best way to deal with secular stagnation in the industrialized world according to Summers. Some economists criticize him for focusing on the demand side of the equation instead of a supply side shock to the economy. Summers argues that a supply side shock would raise prices while demand shocks lower prices. Low inflation rates are more consistent with a demand shock.
Summers supports Trump's proposal to stimulate the economy with infrastructure investments. However, he argues that Trump has taken the wrong approach in his proposed policies which place the emphasis on private investments in infrastructure.
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