Almost exactly eight years ago, the Lehman Brothers collapse plunged the global economy into recession. The interbank market collapsed, and the entire industrialized world was thrown into the worst crisis since the end of World War II.
Though central banks have maintained ultra-low interest rates ever since, the crisis hasn’t yet been fully overcome. On the contrary, numerous economies, such as the southern European countries and France, simply aren’t making any headway. And Japan has been on the ropes for a quarter-century.
Some economists believe that this is evidence of “secular stagnation,” a phenomenon described in 1938 by the American economist Alvin Hansen, who drew on Karl Marx’s Law of the Tendency of the Rate of Profit to Fall. Owing to the gradual exhaustion of profitable investment projects, according to this view, the natural real interest rate has continued to fall. Stabilizing the economy thus is possible only by an equivalent decline in policy interest rates.