By Sakshi Upadhyay
Until last year, hardly anyone knew about “secular stagnation.” But it has been noticed from quite some time that the interest in it has increased to the extent that we already have people complaining about the term being coined inappropriately. Discourse about the idea has started taking its pace and has got itself involved in the conversations dealing with national economics.
So what exactly does this term mean? First and foremost, since the term has ‘secular’ in it, it doesn’t mean it deals with anything related to religion. Instead, the term comes from a presentation given by Alvin Hansen in 1939, titled “Economic Progress and Declining Population Growth.” During the Depression, Hansen was trying to conclude and highlight a contrast between the cyclical period of slow growth and the complete transformation of the economy. Hansen believed that the world was not experiencing a ‘down’ period due to a series of fluctuations. Instead, he said, “We are passing, so to speak, over a divide which separates the great era of growth and expansion of the nineteenth century”.
The Depression, in other words, was not a passing phenomenon but was here to stay longer than any of us might have thought. Nazi Germany launched a war and that battle lasted for years and left nearly no one untouched from its grave repercussions.
During the war, global output increased, though production consisted mostly of arms and ammunitions for killing people rather than increasing living standards. Post the war the economies of certain countries boomed and ‘secular stagnation’ shifted as merely an economic term. But with growth constantly proving to be a disappointment, an interest in Hansen’s theory resurfaced.
Hansen’s argument was that the American economy lacked self-correcting forces that would bring back an adequate level of demand and would be instrumental in putting an end to the era of the everlasting Depression. The return of this interest is credited to the efforts of the former Treasury Secretary and former National Economic Council Director Lawrence Summers, who raised the issue. Recently, Robert Shiller, a Nobel Prize winning economist, argued that Summers’ revival of the term was responsible for the large stock market downturn that played out in early 2014.
Recently, several acclaimed economists and scholars around the globe have indicated that the idea of slow growth theories are becoming a subject of considerable academic inquiry.
Economies have been growing, but slowly, and no one has really experienced the ‘bounce back’ which should have occurred. The unemployment rate remains on the higher side. This convergence of events has made a number of slow growth theories even more popular and fitting in the present scenario.
All the variants of hypothesis agree that faster population growth would cure the problem because when the population is growing rapidly, there is a lot of demand and this avoids stagnation. Population growth is also an aid to the supply side of a national economy, since more workers lead to more capacitive output. No one till now is sure whether this theory of stagnation is correct or not, but it still makes sense considering the low demands and the gradual economic progress. We have suffered through a prolonged period of excessively low demand. These are the days that count as the potential ‘good days’.
Sakshi is a pre final year student pursuing mechanical engineering from RKGIT, Ghaziabad. Passionate about sports like badminton and tennis, she is an ardent reader and dreams of building up her personal library. She firmly believes that the pen is the mighty sword that can instigate social reformations.