Abstract
The concern that an economy could experience persistent stagnation, caused by a structural weakness of aggregate demand, goes back to Alvin Hansen's thesis of “secular stagnation.” Hansen's 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.
Original language | English |
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Title of host publication | Handbook of Economic Stagnation |
Publisher | Elsevier |
Pages | 37-58 |
Number of pages | 22 |
ISBN (Electronic) | 9780128158982 |
ISBN (Print) | 9780128162705 |
DOIs | |
Publication status | Published - 2022 |
Bibliographical note
Green Open Access added to TU Delft Institutional Repository 'You share, we take care!' - Taverne project https://www.openaccess.nl/en/you-share-we-take-careOtherwise as indicated in the copyright section: the publisher is the copyright holder of this work and the author uses the Dutch legislation to make this work public.
Keywords
- Demand-led growth
- Induced technical progress
- Marx-biased technological progress
- Potential growth
- Secular stagnation
- TFP