Will the Real “Secular Stagnation Thesis” Please Stand Up

Last Thursday I published an oped in the Wall Street Journal criticizing the new “secular stagnation” view as put forth by Larry Summers in a talk at an IMF conference in November. The topic was also the focus of debate at a session in which Larry and I appeared over the weekend at the AEA meetings with Marty Feldstein, Dale Jorgenson, and Ed Prescott.  At the heart of Larry’s thesis is the view that there has been a secular decline in the past decade in the “real interest rate that was consistent with full employment,” and that decline is what I addressed in the oped. (I also gave a paper at the meetings with my views on the subject.)

In the meantime, Jared Bernstein decided that my oped was “worth a brief response” because it goes “after an argument that has resonated with many in recent weeks: secular stagnation.”

A number of people have asked me about Jared’s response. But to my surprise, I see that he does not even mention the decline in the equilibrium interest rate which is at the heart of the view that Larry put forth.  So Jared’s response has missed the main point of the argument between Larry and me, and I’m disappointed that there’s not much to respond to in that regard.

Rather Jared seemed to be defending another secular stagnation thesis.  Apparently it’s a thesis that he has talked about, as he puts it, “for years under the rubric of slack labor markets, which have led to diminished bargaining power and stagnant real earnings for many in the workforce.  It is also a contributor to increased inequality.”  I did not address this thesis in my oped. But in trying to defend it, Jared throws out several incorrect and misleading statements about my policy evaluation research.

First, my criticism of policy does not pertain only to policy in the post 2008 period as Jared suggests. It is a critique that includes fiscal, regulatory, and monetary actions taken from 2003 through 2008 as well as from 2009 to the present.”  Second, I am not trying to disprove, as Jared also suggests, that the economy did “better in the 1990s” than in the past decade . Indeed, in my view, economic performance during the 1980s, 1990s and early 2000s was better than in much of the past decade. 

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