Home > Uncategorized > Secular stagnation, yes or no?

Secular stagnation, yes or no?


At this moment there is quite some talk of ‘secular stagnation’, i.e. the possibility that demand is, considering potential supply, continually depressed. Reasons cited for such a situation are demographics (a large amount of middle-aged people who save too much), balance sheet recessions (private debts are too high and people and companies try to pay them off ), overly high exchange rates, a banking sector in distress or combinations of such factors. In the EU, the ‘Troika’ might be added.

But: does secular stagnation exist? Yes.

The first graph compares the Nordic countries with the Netherlands. Almost 25 years after the Scandinavian financial crisis of 1992 total employment in the Netherlands (1992 Q2 =100) is still way higher than in the Scandinavian countries. By far the larger part of this difference originated in a short period: during and directly after the Scandinavian financial crisis. No catching up took place afterwards (until 2008). It has to be added, however, that Dutch employment growth was to an extent enabled by a huge house price bubble (just like around 1980). One might ascribe Scandinavian stagnation to demographic factors, but looking at the last 15 years (graph 2) it shows that after the Great Financial Crisis of 2008 a comparable event took place, albeit this time with Sweden as the lucky country.  A combination of (temporary) low interest and exchange rates enabled Sweden to escape the ‘bad equilibrium’ which for some reason or another (high private debts….) did lead to sclerosis and rigidity in the other countries. It has to be added, however, that Swedish employment growth is to an extent enabled by, well, you know the drill. Again, there is no sign of catching up and except for Sweden even little sign of a return to pre-crisis levels of employment.


The horrifying implication of this is we can’t exclude that even short-term policy failures trigger long-term stagnation. The relatively dismal development of Denmark is surprising, considering that this economy is supposed to be an example of (non-financial) flexibility. A crisis trumps flexibility. The multi billion Euro question is: do, at this moment in time, higher wages (instead of house price bubbles) trump a crisis?

  1. Peretz
    January 6, 2016 at 2:02 pm

    Of course it is possible to progress. It will be if people have enough money to puchase services and art, and so on. I mean only lower class of people . It is exactly what said “Ford If my workers earn much money they will be able to buy the cars they made.

    • BC
      January 6, 2016 at 2:43 pm

      Peretz, increasing “wealth” is no longer obtained from productive investment, production, deploying labor productively, etc., but from levering up existing equity or fixed-income assets to speculate unproductively, acquire equity to sell it at a profit, and to extract evermore future production, profits, and labor product to hoard overvalued financial assets at zero acceleration of velocity in the productive economy.

      This has resulted in labor share of GDP at a record low in the US, Gilded Age-like inequality, successive asset bubbles, unprecedented debt to wages and GDP, half or more of the population on public assistance of various kinds, ongoing fiscal constraints, and the best gov’t that the money of the top 0.001% can buy.

      But there exists no organized, organic constituency in the US (or elsewhere) to challenge and hold accountable the rentier-socialist Power Elite and their bankster oligarchs, plantation managers, politicians, and ministerial intellectuals.

      This is what is “progress” today, that is, for the top 0.001-1%.

      It’s all good . . .

      • January 6, 2016 at 2:54 pm

        Precisely. And this is why monetary grace/monetary gifting is the solution both policy wise and as a new cultural paradigm/zeitgeist. Graciousness, the wisdom mindset that follows from it and the consequent honesty and bravery to maintain it….must take root.

  2. January 6, 2016 at 2:21 pm

    Systemically, the rate of flow of total costs/prices will always tend to exceed the rate of flow of total individual incomes. This has been hidden by the false ideology of DSGE, the inevitable mental result of a second gilded age and the amazing refusal to deal with the monopoly powers and privileges of private Finance.

  3. January 6, 2016 at 10:59 pm

    What about the home economics aspect? There are a few who might see the direction of the graph as a positive, toward relieving stress on Earth’s life support systems.

    Europeans demand the right and the blessing to pollute and occupy at the three planet rate? Is the goal to grow to the US four planet rate? The unit is Earth planet equivalent pollution recycling services and reasonably available natural resources.

    It is my understanding the current global economy uses 1.5 Earth planets of pollution recycling services. Is this urban myth?

    And we know the richer they are the more their life style pollutes, usually. So when stagnated demand for plastic fantastics inadvertently relieves stress on Earth — Eco sciences step in to help determine how to accentuate the positive to maximize Earth health and quality of all life for all life.

    Falling demand accompanied by reasoned consumer power need not lead to austerity and bleak imagination for anyone other than a few thousand super corporatists. A finance transaction tax to finance free public university education that includes Earth balances and a stipend leads to a gently declining population. It is a money maker for world humanity. Is this an urban legend?

    China has joined Japan, Russia, along with many successful European states, have achieved a gently declining population. If current policies continue, China will be a space age super star with half its present population by the end of this century. The US projection is as an overcrowded backwater of underwater beachfront billionaires. This policy might work.

    • January 6, 2016 at 11:58 pm

      Grace as in balance as in enoughness as a paradigm (virtually universally held idea/concept) and zeitgeist (ethic) would do more to make consensus for more rational ecological policy possible…than all of the stymieing effects of economic austerity and compulsively contentious political half assery.

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