Hiding behind “Secular Stagnation”

Scott Sumner comments on a post by Edward Hugh:

The focus of Hugh’s piece is Finland.  He points to the very weak recovery, and suggests that structural factors are involved. Perhaps so, but some of the data he cites point in exactly the opposite direction.  Finnish unemployment has been rising, and at 9.2% is at the highest rate in more than a decade.  Meanwhile Hugh’s post shows inflation in Finland falling to zero. Those data points suggest a lack of aggregate demand, not structural problems.

EH shows several charts to further his “secular stagnation” claims. One chart he doesn´t show is a comparative chart of nominal spending (NGDP) relative to trend. I do so below and add Austria and Spain as “evidence” of the degree of the AD shortfall in Finland.

Finland

Every country in the world could do with some structural reforms, some more, some less, but the big problem with most of those economies, as exemplified by the charts for the three countries above, where all are subject to the same monetary policy, is differing degrees of  aggregate demand shortfall.

One thought on “Hiding behind “Secular Stagnation”

  1. Right! Every nation has structural impediments. If you put a monetary noose on a nation with structural impediments, the result is a perma-recession.

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