Estagnação secular

Secular stagnation, monetary policy and John Law by michael roberts

Last week, the prestigious Brooking Institution held a conference on the efficacy of monetary policy in stimulating and sustaining economic growth.  At the conference, Larry Summers, former US Treasury secretary and professor at Harvard University and Lukasz Rachel of the Bank of England, presented a paper that aimed to revive, yet again, the idea that the major capitalist economies are locked into ‘secular stagnation’: “Our findings support the idea that, absent offsetting policies, mature industrial economies are prone to secular stagnation.”

According this thesis, there is a long-term stagnation in the major capitalist economies.  Despite central banks pushing interest rates down to zero or even below (so that bankers and capitalists are paid to borrow!); and despite central banks printing huge amounts of money to buy bonds and other financial assets (quantitative easing), real GDP growth and investment remain weak.  Although unemployment rates are officially near cycle lows in many countries, inflation is equally low, confounding the traditional Keynesian view that there is a trade-off between employment and inflation (the so-called Phillips curve).

Central bank monetary stimulation has failed, except to promote ‘credit bubbles’ and speculation in financial assets and property. For example, here are the conclusions of a recent study on the impact of the monetary injections of the ECB in Europe: "the efforts of the ECB to hit its inflation target would be more credible if there was convincing empirical evidence that its balance sheet policies are effective at stimulating output and inflation. Our recent research shows that this macroeconomic evidence is still lacking."

And there is every prospect of another economic slump approaching in which central banks will be powerless to do anything as interest rates are already near zero and the balance sheets of central banks are already at record highs. “Our findings support the idea that, absent offsetting policies, mature industrial economies are prone to secular stagnation. This raises profound questions about stabilization policy going forward.” (Summers and Rachel)

In the FT, Keynesian columnist Martin Wolf echoed the views of Summers and Rachel.  Interest rates are near all-time lows and if you follow the Fisher-Wicksell theory of a ‘natural’ rate of interest that enables full employment, then it now seems that the natural ‘private sector’ interest rate needed to achieve jobs for all who want them has be in negative territory