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Secular Stagnation Essay

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Secular Stagnation Famously introduced by Alvin Hansen in a Presidential Address in 1938, secular stagnation fears were revived by macroeconomists following sluggish growth in advanced economies since 2008. The causes, still being debated in the field, point to two instigators: chronic low demand argued by Summers or a loss in potential output supported by Gordon. The American economy has not grown at a sustainable pace over the last 25 years. The dot.com bubble supported growth in the 1990s then tumbled the economy between 2001 and 2004 after which the housing bubble took the reins until the financial crisis in 2009. Since then and with interests at their lower zero bound, growth has been sluggish. This signifies, according to Summers, that …show more content…

An empirical paper by Desroches et al minimises the importance of savings in the reduction of world interest rates because of a stable saving-supply equation. Furthermore, in stark contrast with the Ahrend OECD paper, Desroches et al argue that an ageing population has an ambiguous impact on saving. The relative increase of pensioners to the working age population decreases savings as they spend their saved income from working. Conversely, the proportion of young people, who mostly borrow from future consumption to consume now, to the working age population has fallen signifying a relative increase in savings [Desroches, …show more content…

Reducing inequality, improving productivity, and attempting to halt demographical changes are some possible long-term problems that the government can tackle. Some possible solutions would be better redistribution schemes, educational reform to tackle the deficit in STEM careers, and immigration. The long nature of the solutions, however, require excellent foresight regarding unforeseen consequences and political preferences. This is clear in how immigration was met with a strong backlash from sectors of society. Nevertheless, with pragmatism, the drift into secular stagnation could be

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