Tags: Summers | Economy | Secular | Stagnation

Summers: Economy May Be Mired in 'Secular Stagnation'

By    |   Monday, 16 December 2013 04:55 PM

There is reason to worry that the economy is stuck in the muck of "secular stagnation," says Harvard professor Lawrence Summers, a former top economic adviser to President Barack Obama.

"My concern rests on a number of considerations," Summers writes in the Financial Times. "First, even though financial repair had largely taken place four years ago, recovery has only kept up with population growth and normal productivity growth in the U.S., and has been worse elsewhere in the industrial world."

In addition, asset-value bubbles, easy credit standards and accommodative monetary policy during the middle of the last decade created only moderate economic growth, Summers says.

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

And with short-term interest rates so close to zero already, rates may not be a significant impetus to spur substantial hiring, he writes.

"In such situations, falling wages and prices . . . are likely to worsen performance by encouraging consumers and investors to delay spending, and to redistribute income and wealth from high-spending debtors to low-spending creditors," Summers writes.

"The implication of these thoughts is that the presumption that normal economic and policy conditions will return at some point cannot be maintained."

Summers makes some good points, says John Carney of CNBC.com. "We do seem to only be able to generate full employment in asset bubbles; inflation has been a non-issue for generations; our recovery has been pathetic and has stuck us with high employment," he writes.

Long-term wage stagnation is likely part of the reason for this, Carney says.

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

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Economy
There is reason to worry that the economy is stuck in the muck of "secular stagnation," says Harvard professor Lawrence Summers, a former top economic adviser to President Barack Obama.
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2013-55-16
Monday, 16 December 2013 04:55 PM
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