Lawrence Summers Deserves a Nobel Prize for Reviving the Theory of Secular Stagnation

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Abstract

Lawrence Summers produced a big upset within the economics profession when he revived Alvin Hansen’s theory of secular stagnation, which had been thought of as an old-Keynesian fallacy. While some economists like Brad DeLong and Paul Krugman instantly recognized Summers’s contribution, a large share of the economics profession remained skeptical at first. Whereas most New Keynesian models allow for macroeconomic shocks to have only transitory effects, Summers argued that the global natural real interest rate has fallen into negative territory. Furthermore, he suggested a number of reasons why this equilibrium might not be only transitory in nature. This also led Summers to believe that economies could be more prone to financial bubbles and persistent shortfalls in aggregate demand. I summarize the secular stagnation debate and outline the main empirical support of the secular stagnation interpretation, including falling real interest rates, lower productivity growth, increasing inequality, and rising asset prices. Ever since Summers first outlined his theory, global growth has been extremely anemic and interest rates have declined to even lower levels. Given that many aspects of the secular stagnation debate now find increasing empirical support, I argue that Summers deserves to win the Nobel Prize in economics on the grounds of reviving a once-dismissed theory and initiating the most important macroeconomic debate of our times.

Detaljer

Författare
Enheter & grupper
Forskningsområden

Ämnesklassifikation (UKÄ) – OBLIGATORISK

  • Ekonomisk historia

Nyckelord

Originalspråkengelska
Sidor (från-till)342-373
TidskriftEcon Journal Watch
Volym16
Utgåva nummer2
StatusPublished - 2019 sep 30
PublikationskategoriForskning
Peer review utfördJa