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Tags: Gordon | Samuelson | secular | stagnation

WaPo's Samuelson: Secular Stagnation Might 'Be Next Nasty Economic Surprise'

By    |   Monday, 22 September 2014 12:06 PM

A growing number of economists predict a new era of "secular stagnation" — permanently slow economic growth.

For instance, Robert Gordon, a professor of economics and social sciences at Northwestern University, calculates that economic growth will undershoot Congressional Budget Office (CBO) projections by 10 percent in 2024, largely due to the boom of retiring baby boomers and a dearth of technological innovation.

"If he's right, this could be our next nasty economic surprise," writes Washington Post columnist Robert Samuelson.

Editor’s Note:
Dow Predicted Will Hit 60,000 — Buy These 4 Stocks Now


An underperforming economy would lead to more government debt than expected and prompt the Federal Reserve to tighten credit to counter rising inflation sooner than expected.

"Even if productivity growth experiences a rebound and the labor force participation rate stabilizes," Gordon warns in National Bureau of Economic Research paper, "the macro economy is on a collision course between demand-side optimism and supply-side pessimism."

In other words, inflation will increase because slow economic growth won't keep up with rising consumer demand.

Worse yet, Samuelson notes, competition for a shrinking economic pie could increase strife between the rich and poor and different racial, ethnic, generational and ideological groups.

Since World War II, governments around the world have used strong economic growth to finance generous safety nets and welfare benefits, he says. "It was a political narcotic. People took the fruits of growth for granted."

That assumption died with the financial crisis. The CBO predicts 2.1 percent annual GDP growth for the next decade; Gordon forecasts just 1.6 percent.

Many economists think new technologies will continue sparking economic growth, but Gordon maintains the rise of the Internet, with its e-commerce benefits, provided a one-time productivity boost that won't be repeated.

Who's right is hard to say. Anecdotal evidence supports the techno-optimists, Samuelson notes.

"But statistics are firmly on his side; since 2010, annual productivity gains have averaged less than 1 percent."

Former Treasury Secretary Larry Summers, probably the best-know proponent of the secular stagnation theory, advocates concerted efforts to counter the economic malaise. Infrastructure investment, immigration reform, policies that promote family-friendly work, support for exploitation of energy resources and business tax reform are imperative, writes Summers, a Harvard University professor, in an article for the Financial Times.

"To achieve growth of even 2 percent over the next decade, active support for demand will be necessary but not sufficient."

Editor’s Note: Dow Predicted Will Hit 60,000 — Buy These 4 Stocks Now

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A growing number of economists predict a new era of "secular stagnation" — permanently slow economic growth.
Gordon, Samuelson, secular, stagnation
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2014-06-22
Monday, 22 September 2014 12:06 PM
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