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The Fear of Secular Stagnation

I love the prospect of secular stagnation (raised by Bob Reich) primarily because the answers are so easy: Let’s keep our eyes on the ball.  The problem in this picture is that we are capable of producing more goods and services than we want to consume.  It’s a problem of too little money chasing too many goods and services.

Well, there are two really simple answers to this problem:

1) Work fewer hours — while workers in other wealthy countries can count on 4-6 weeks a year of vacation, workers in the United States are guaranteed no paid time off.  As a result, the average work year in the United States involves almost 20 percent more hours than the work year in Western European countries.  As fringe benefits a shorter work year can be more family friendly and also we can be less polluting if we take the benefits of our productivity growth in leisure instead of income.

2) Support growth in the developing world — back in the good old days economists used to think that capital should flow from rich countries to poor countries so that they could build up their capital stock and infrastructure at the same time that they fed and clothed their populations.  This thinking conveniently disappeared from view when the United States began to run large trade deficits in the late 90s.

I would argue that this old-fashioned view still holds water.  Countries obviously can develop without importing capital as China and other East Asian countries have shown, but that doesn’t mean that they should have to follow this route.  If we had an international monetary system that was operating effectively, capital flows could go from rich countries to poor countries and more quickly provide people in the developing countries with a decent standard of living.

So, for these reasons I don’t worry about the risks of secular stagnation.  If that is our main economic problem, then we should consider ourselves fortunate.


Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR).  He is the author of False Profits: Recovering from the Bubble Economy.  He also has a blog Beat the Press, where he discusses the media’s coverage of economic issues.  This article was first published in TPM Café on 16 December 2008; it is reproduced here for non-profit educational purposes.




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