The Secular Stagnation of Productivity Growth

Servaas Storm ()
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Servaas Storm: Delft University of Technology

No 108, Working Papers Series from Institute for New Economic Thinking

Abstract: The concern that an economy could experience persistent stagnation, caused by a structural weakness of aggregate demand, goes back to Alvin HansenÕs (1939) thesis of `secular stagnation`. HansenÕs thesis has been revived in recent times, when it became clear that productivity and potential growth in the OECD countries have been declining for decades. However, in line with deep-rooted theoretical beliefs, that inadequate demand can only affect growth in the short run, secular stagnation (of potential growth) is treated as an exclusively supply-side problem, the root of which is a worrying steady decline in productivity growth. This paper argues that it is a mistake to dismiss secular demand stagnation as main cause of declining potential growth in the OECD. We argue that the theoretical case for demand-caused secular stagnation is strong and empirical evidence that it has affected the U.S. economy after the mid-1970s is entirely convincing. Demand is leading supply, also in the long run. Hansen had it right, after all.

Keywords: Unbalanced growth; secular stagnation; total factor productivity; labor productivity growth; Solow residual; dual economy. (search for similar items in EconPapers)
JEL-codes: E02 E12 E31 F02 F15 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2019-12
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:thk:wpaper:108

DOI: 10.36687/inetwp108

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