The term secular stagnation was coined by American economist Alvin Hansen in his 1938 American Economic Association presidential address, "Economic Progress and Declining Population Growth." Hansen argued that slowing population growth, the closing of the frontier, and a dearth of capital-intensive innovations would leave the U.S. economy with insufficient investment outlets to absorb desired savings, locking it into chronic underemployment. The postwar boom appeared to refute his thesis.
The concept was revived by former U.S. Treasury Secretary Lawrence Summers in a November 2013 speech at the IMF Annual Research Conference. Summers argued that advanced economies—particularly after the 2008 global financial crisis—were exhibiting Hansen's symptoms: persistently low real interest rates, sub-target inflation, and growth that required asset bubbles to reach full employment. In his framing, the equilibrium real interest rate (sometimes called r*) had fallen below zero, meaning conventional monetary policy could not clear the savings-investment market because nominal rates are bounded near zero.
Commonly cited drivers include:
- Demographics: aging populations and shrinking workforces in Japan, Europe, and increasingly China.
- Declining price of capital goods, especially information technology, which reduces investment spending in nominal terms.
- Rising inequality, which shifts income toward high-saving households.
- Global savings glut, a related hypothesis advanced by Ben Bernanke in 2005, emphasizing surplus savings from emerging markets.
- Slower productivity growth and fewer transformative innovations relative to earlier industrial eras.
Policy implications are contested. Summers and Olivier Blanchard have argued for sustained fiscal expansion and public investment, since monetary policy is constrained at the effective lower bound. Critics—including John Taylor and Kenneth Rogoff—attribute weak post-2008 growth instead to debt overhang, regulatory drag, or temporary headwinds, expecting normalization. The post-pandemic inflation surge of 2021–2023 led some, including Summers himself, to question whether secular stagnation conditions still prevail or have merely been paused.*
Example
In his November 2013 IMF speech, Lawrence Summers warned that the United States and Europe risked Japan-style secular stagnation, with negative equilibrium real interest rates preventing full employment without asset bubbles.
Frequently asked questions
Alvin Hansen introduced it in his 1938 American Economic Association presidential address, linking slow growth to declining population and a lack of investment outlets.
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