Dec. 6 - Larry Summers has revived the concept of 'secular stagnation'. But he overestimates the power of monetary policy and underestimates the importance of economic trends, says Breakingviews.
This morning I'm breaking views Larry -- suggested cure is aggressive monetary policy to keep real interest rates negative in the -- ten. It is a move in the wrong direction and what how to ask what is breaking these economic Anderson joins me now the only get to that act and less. We talked about sick -- nation and you breaking these peace what exactly is this. The case secular stagnation is an old phrase dates from 1930s. And Larry Summers who is in very intelligent man. Former Treasury Secretary dug it up from the archives and brought it out and said this is what we're suffering from. What is it. It's the idea that the economy has entered into a period of very slow growth and unsatisfactory capacity utilization. And that was seemed like a really plausible idea in the 1930s. And in world war two and some of the best economic growth we've seen around the world for thirty years. 1970s it was a very brief comeback. When there was a lot of high inflation and I'm slow growth. Then again growth picked up and now we've had five years of very modest growth. -- in cumulative and secular state nation time for come back. So that's the Summers thesis is may -- we've got secular stagnation. Serious sinus it just cure just breaking these things at the wrong situation and yet we view. And the real question is why do we have secular state nation is no question that output has stabilized. And that. The financial. Sort of stimulus we have in the ten years up to 2008 crisis. I'm produced financial booms and then bust. Summers agrees with that but what we're saying is that the problem is not where Summers finds it which is in low interest rates we're seeing the problems actually. To use the word secular. That is to say that they are macroeconomic factors which are genuinely changed. Which make it unlikely that no matter what the monetary policy is you're gonna have much growth. Those factors are preacher brought to ask an effective for our demographics primarily from the population is aging. In many countries Japan and Germany -- actually declining the working age population is growing very very slowly. That means you need less growth to keep lifestyles up. And then you also have. The governments -- under invested that's leads to lower growth. And you have in fact what Summers things seem to think is a good thing you have financial access which has. Distorted the economy in many different ways so we see what I see anyway that's my my view. Is that you have an economy that is stagnating for reasons that have nothing to do -- monetary policy. And on the contrary Summers says we need more aggressive monetary policy I think that's likely to make things worse and say basically that these services. What worked then it won't work now because things have changed yeah well actually we don't even know what worked then and that's a good question. Because in 1930s -- -- World War II which was the most destructive war in human history that produced an opportunity for reconstruction much of the world. The United States. Created employment. In very helpful helpful way. And then there was a post war boom. And then -- baby boom so. Was it actually monetary policy or fiscal policy that created that ended secular state nation in the thirties or in the seventies. The late seventies we don't really know. Our reading of economic history is very very doubtful. But it seems to be extremely unlikely that any cure which involves creating financial bubbles actually is a real cure to -- real disease. Thank you very much an average that was at with hot that's been written piece. The launch and assessing financial insights what I US breaking each and every day at twelve that he Easton seventeen that he GMT. I'm bashing on this is what is.