Lawrence Summers Deserves a Nobel Prize for Reviving the Theory of Secular Stagnation
(2019) In Econ Journal Watch 16(2). p.342-373- 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... (More)
- 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. (Less)
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https://lup.lub.lu.se/record/7deace36-6bdf-4a13-8a40-8f2b1ba1d26f
- author
- Probst, Julius LU
- organization
- publishing date
- 2019-09-30
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- New Keynesian Macroeconomics, Secular stagnation, macroeconomic policy, real interest rates, falling productivity growth, B3, E6
- in
- Econ Journal Watch
- volume
- 16
- issue
- 2
- pages
- 342 - 373
- publisher
- Institute of Spontaneous Order Economics
- external identifiers
-
- scopus:85073448645
- ISSN
- 1933-527X
- language
- English
- LU publication?
- yes
- id
- 7deace36-6bdf-4a13-8a40-8f2b1ba1d26f
- alternative location
- https://econjwatch.org/articles/lawrence-summers-deserves-a-nobel-prize-for-reviving-the-theory-of-secular-stagnation?fbclid=IwAR3qyP_dSitZtiLPQjj6gSf7V00vugUcxssSwAOPErLXUG7rF_RF0DVhfP0
- date added to LUP
- 2019-10-01 11:52:52
- date last changed
- 2022-04-18 18:14:15
@article{7deace36-6bdf-4a13-8a40-8f2b1ba1d26f,
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.}},
author = {{Probst, Julius}},
issn = {{1933-527X}},
keywords = {{New Keynesian Macroeconomics; Secular stagnation; macroeconomic policy; real interest rates; falling productivity growth; B3; E6}},
language = {{eng}},
month = {{09}},
number = {{2}},
pages = {{342--373}},
publisher = {{Institute of Spontaneous Order Economics}},
series = {{Econ Journal Watch}},
title = {{Lawrence Summers Deserves a Nobel Prize for Reviving the Theory of Secular Stagnation}},
url = {{https://econjwatch.org/articles/lawrence-summers-deserves-a-nobel-prize-for-reviving-the-theory-of-secular-stagnation?fbclid=IwAR3qyP_dSitZtiLPQjj6gSf7V00vugUcxssSwAOPErLXUG7rF_RF0DVhfP0}},
volume = {{16}},
year = {{2019}},
}