With a few short-lived and unsustainable exceptions, the story of the last 30 years appears to be one of constantly falling interest rates and disappointing growth. Central banks try to keep stimulating the economy, but investment demand never really seems to gather pace in response to their efforts. Instead, investment seems stagnant and unresponsive to policy during normal periods, but shoots up during events like the dotcom and real estate bubbles, which then burst and leave everyone worse off.
People have been puzzling over this pattern for decades, but it took a speech by Larry Summers to the IMF in 2013 to really crystallise the whole picture, and bring it into the public eye. Ever since, it’s been known by the term he gave the phenomenon: ”˜secular stagnation’. But he didn’t invent it. It was first coined by Alvin Hansen in the post-Depression 30s, when technological progress seemed to have ground to a halt.
The revival of the term could be misleading on a number of levels.