Mario Seccareccia — Larry Summers, Secular Stagnation, and the Crisis of the New Consensus Model

Over a week ago Lawrence Summers stunned the world of economics by the remarks he made at the IMF‘s 14th Annual Research Conference on the Economic Crisis, where he pronounced the dreaded “SS” words: “secular stagnation”. His comments seem to have shocked much of the mainstream that still believes that the economy will return to the pre-2008 potential growth. Indeed, he surprised many by stating that, after effectively preventing the complete collapse of the financial system in 2008 through the government bailout and liquidity measures undertaken by the US Fed, there is still no real evidence that there will be a restoration of “normal” growth and that the “new normal” may well be secular stagnation. According to Summers, the principal culprit is the simple fact that nominal interest rates cannot fall below zero and that this zero lower bound will remain “a chronic and systemic inhibitor” of growth. While agreeing that Western economies are headed towards long-term stagnation, in this commentary I would like to question the analysis of the cause of this problem, as well as the solution being offered to address it.

Naked Capitalism
Mario Seccareccia: Larry Summers, Secular Stagnation, and the Crisis of the New Consensus Model
Mario Seccareccia | Professor of Economics, University of Ottawa