Secular Stagnation

Roger Farmer sobre las razones de peso para creer en la tesis de Summers: Secular Stagflation.

Those who would deny the secular stagnation hypothesis want you to believe that the economy has a very strong tendency to revert to a mean growth path which is independent of shocks. Leave the economy to itself, and the recuperative powers of the market will restore us to the social optimum. The secular stagnationists, and I am one of them, disagree.

We believe that, in the absence of corrective policies by the central bank or the treasury, the economy will never recover after a shock. The unemployment rate will not revert to its social optimum and, associated with that fact, the economy will never revert to its optimum growth path. After a shock, the data do not revert to the same trend that they followed before the shock hit.

We believe that, in the absence of corrective policies by the central bank or the treasury, the economy will never recover after a shock. The unemployment rate will not revert to its social optimum and, associated with that fact, the economy will never revert to its optimum growth path. After a shock, the data do not revert to the same trend that they followed before the shock hit.

GDP per person has a unit root. That is accepted by everyone who has studied these data. The interesting question is why?

If, as Robert Gordon believes, it is caused by random technology shifts then there is not much that monetary policy or macro prudential policies can do about it. If, as I believe, it is caused by random movements from one inefficient equilibrium to another, we should be thinking very hard about how to design a monetary/macro-prudential policy that keeps the economic train on the tracks.

¿Sencillo, no? La economía para los optimistas, se corrige a sí misma. La economía, para los escépticos, no se corrige sin intervención externa del Tesoro y BC, de lo cual en el euro no disponemos en su total eficacia. Es decir, las dificultades de sobrevivir en el euro, su disguncionamiento sin un Tesoro y un BC potentes y relacionados jerárquicamente, demuestra que Larry Summers tiene razón.