“Deleveraging Secular Stagnation

A must read from David Beckworth: “Here’s why Larry Summers is wrong about secular stagnation”

The question, of course, is why growth has been so sluggish. Larry Summers, for one, thinks that it’s part of a longer-term trend towards what he calls “secular stagnation.” The idea is that, absent a bubble, the economy can’t generate enough spending anymore to get to full employment. That’s supposedly because the slowdowns in productivity and labor force growth have permanently lowered the “natural interest rate” into negative territory. But since interest rates can’t go below zero and the Fed is only targeting 2 percent inflation, real rates can’t go low enough to keep the economy out of a protracted slump.

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In short, it doesn’t seem like secular stagnation is the right story for the U.S. economy. A better story is that the economy got hit by a once-in-three-generations crisis that’s taken awhile—too long, really—to overcome. But in the long run, the slump will be dead. And it might just be “Morning in America” again.

Coincidentally, John Taylor has just said:: “People are beginning to realize that there will not be a great recovery.”