Fotios Tsarouhis
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Fotios Tsarouhis in "Profit is sweet, even if it comes from deception." - Sophocles,

Secular Stagnation's new street cred

Who's talking about secular stagnation?  A lot more people than before according to Google.

This week Vox examined the possibilities, the theories, and the realities behind "secular stagnation", a relatively new phrase in modern economic-speak that has only been around for a little over a year.

The Financial Times offers the definition as "a condition of negligible or no economic growth in a market-based economy" before admitting that it may be to blame for economic woes in parts of Europe, including Germany.

The new dialogue on secular stagnation is still developing and even Larry Summers, former Treasury Secretary and Harvard President, has admitted that his earlier statement that asset bubbles might be necessary for developed companies to reach their potential growth may have been wrong.  Summers has second-guessed his earlier statement that we ultimately have a problem of demand, pointing to supply-side restrictions as potential culprits in an economic slowdown.

"It seems much more likely that employment growth would slow at some point, because of rising wage costs or policy actions, or because employers have difficulty finding workers. Then, the economy would be held back not by lack of demand but lack of supply potential." - Larry Summers

Paul Krugman (predictably) wrote in the New York Times to explain the ins and out of secular stagnation to the educated layman.  Fellow Nobel Laureate Robert Shiller, economics professor at Yale, also took to the Times to label it a "thought virus" that was driving stocks down, leading Forbes to scoff "If he presented this argument in front of the MIT economics department that granted him his PhD in 1972, I think that they would demand better proof than he offered Times readers".

When the Economist asked Janet Yellen about reducing the unemployment rate as a way to recover some of the economy's lost potential she played coy.  "If the distance from achieving an objective is particularly large, it would be consistent with the balanced approach that we would tolerate some movement in the opposite direction on the other objective", said the Fed chair, suggesting that such a scenario would be unlikely.  If it were to manifest itself, however, the Fed is prepared to make sacrifices in either employment numbers or inflation to secure the strength of the other.

The Economist projects potential interest rate increases.

The principles and effects of stagnation will be scrutinized more closely in the months to come and it is a conversation worth having if for no other reason than simply the fact that Googling "secular stagnation", while more fruitful than it was in mid-2013, still largely results in entries in decades-old finance journals and long-forgotten macroeconomics textbooks.

Now the modern world is weighing in on the specifics of the theory of secular stagnation with economists, policy makers, and journalists editorializing and proselytizing and monetizing which beats the alternative of confining thought on the matter to a dusty hardcover in the Princeton library for all eternity.