Former Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Larry Summers have a scholarly disagreement over economic analysis.
Summers, now a Harvard professor, has been pounding the hustings in recent months with the idea that the U.S. economy may be in the midst of "secular stagnation."
He has defined secular stagnation as a period when the normal, self-restorative properties of the economy might not be sufficient to allow sustained full employment along with financial stability without extraordinary expansionary policies.
But Bernanke, now a distinguished fellow in residence at the Brookings Institution, disagrees with Summers.
"Does the U.S. economy face secular stagnation?" Bernanke asks in his new blog
. "I am skeptical, and the sources of my skepticism go beyond the fact that the U.S. economy looks to be well on the way to full employment today."
So what are those other sources?
"First, as I pointed out as a participant on the IMF [International Monetary Fund] panel at which Larry first raised the secular stagnation argument, at real interest rates persistently as low as minus 2 percent it's hard to imagine that there would be a permanent dearth of profitable investment projects," Bernanke writes.
Second, Bernanke disputes Summers' claim that we haven't experienced full employment during the past several decades without the presence of a financial bubble.
"My greatest concern about Larry's formulation, however, is the lack of attention to the international dimension. . . . All else equal, the availability of profitable capital investments anywhere in the world should help defeat secular stagnation at home."
Summers took to his own blog
to respond. "I would like nothing better than to be wrong . . . with respect to secular stagnation," he writes.
"It may be that growth will soon take hold in the industrial world and allow interest rates and financial conditions to normalize. If so, those like Ben who judged slow recovery to be a reflection of temporary headwinds and misguided fiscal contractions will be vindicated and fears of secular stagnation will have been misplaced."
So what's the worry?
"Throughout the industrial world the vast majority of the revisions in growth forecasts have been downwards for many years now," Summers says. "So, I continue to urge that it is worth taking seriously the possibility that we face a chronic problem of an excess of desired saving relative to investment."
And if that possibility is reality, "monetary policy will not be able to normalize, there will be a continuing need for expanded public and private investment, and there will be a need for global coordination to assure an adequate level of demand and its appropriate distribution," he states.
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