What is Secular Stagnation?

Secular stagnation is a theory that suggests that an economy can experience persistent low GDP growth, low interest rates, and high long-term unemployment due to a deficiency in aggregate demand.

The term "secular" refers to long-term trends, as opposed to short-term fluctuations. The theory of secular stagnation suggests that an economy can become trapped in a low-growth equilibrium, even in the absence of a recession or other adverse economic conditions.

There are several factors that may contribute to secular stagnation, including declining population growth, declining labour productivity growth, and a declining rate of capital investment and innovation.

Some economists have also argued that persistently low interest rates, which can reduce the incentive to invest, may contribute to secular stagnation. This particular argument is most associated with the Austrian School of economics.

The concept of secular stagnation has been the subject of much debate among economists and has been used to explain the slow economic recovery following the global financial crisis of 2007-2010 in some developed high-income countries. However, the theory of secular stagnation is not universally accepted and there are alternative explanations for persistent low growth and low interest rates. This includes the Keynesian concept of the liquidity trap.

Robert Gordon and Secular Stagnation

Robert Gordon is an economist who has written extensively about the concept of secular stagnation. Gordon has argued that the United States and other developed countries including many inside the European Union are facing a period of secular stagnation due to a number of structural supply-side factors, including declining population growth, declining productivity growth, and a declining rate of investment.

Gordon has also suggested that technological progress, which has traditionally been a major driver of economic growth, may be slowing down, contributing to secular stagnation. He has argued that the technological innovations of the past, such as electricity, the internal combustion engine, and the Internet, had a much larger impact on economic growth than more recent innovations, such as social media and mobile apps.