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Concept
Economic stagnation
Summary
Economic stagnation is a prolonged period of slow economic growth (traditionally measured in terms of the GDP growth), usually accompanied by high unemployment. Under some definitions, "slow" means significantly slower than potential growth as estimated by macroeconomists, even though the growth rate may be nominally higher than in other countries not experiencing economic stagnation.
Secular stagnation#DefinitionSecular stagnation theory
The term "secular stagnation" was originally coined by Alvin Hansen in 1938 to "describe what he feared was the fate of the American economy following the Great Depression of the early 1930s: a check to economic progress as investment opportunities were stunted by the closing of the frontier and the collapse of immigration".
Warnings similar to secular stagnation theory have been issued after all deep recessions, but they usually turned out to be wrong because they underestimated the potential of existing technologies.
Secular stagnation refers to "a condition of negligible or no economic growth in a market-based economy". In this context, the term secular is used in contrast to cyclical or short-term, and suggests a change of fundamental dynamics which would play out only in its own time. Alan Sweezy described the difference:
But, whereas business-cycle theory treats depression as a temporary, though recurring, phenomenon, the theory of secular stagnation brings out the possibility that depression may become the normal condition of the economy. According to Alan Sweezy "the idea of secular stagnation runs through much of Keynes General Theory".
The years following the Panic of 1873, known as the Long Depression, were followed by periods of stagnation intermixed with surges of growth until steadier growth resumed around 1896. The period was characterized by business bankruptcies, low interest rates and deflation. According to David Ames Wells (1891) the economic problems were the result of rapid changes in technology, such as railroads, steam-powered ocean ships, steel displacing iron and the telegraph system.
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