Opinion: The risk to our economy from secular stagnation
The Federal Reserve building stands as vehicles pass in Washington. By Lawrence H. Summers Lawrence H. Summers Bio Follow March 7 at 10:03 AM On Thursday at the Brookings Institution I am presenting a paper, with Lukasz Rachel, carrying forward my work on the idea of secular stagnation and the closely related idea that fundamental economic forces are driving down the neutral rate of interest — where savings and investment are balanced at full employment.
World War II and the postwar spending boom lifted the U.S. economy from the stagnation of the 1930s, leading some to conclude that the secular-stagnation hypothesis was wrong.
The core of the problem is that there is not enough private investment to absorb, at normal interest rates, all the private saving. The result is extremely low interest rates, weak demand, and low growth and inflation, along with the bidding up of the price of existing capital assets.
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