Creative Destruction

Out With the Old, In with the Bold

Construction of a passive house, ultra-low energy house in Hauville (27). Installation of the exterior wooden frame of this house built in the workshops of 'Airelles Construction'. Winner of the 'Laureat Prebat Normandie' price, Research and Experimentation on Energy in the Building sector, managed by ADEME. (Photo by: Andia/UIG via Getty Images)
New approaches would help move beyond boom-bust cycle.
  • Why it matters

    Why it matters

    The economy is caught in a trap fueled by generous monetary policy. What it needs is a period of “creative destruction” – allowing bad companies to fail and new ones to take their place – to let the economy grow at a normal rate again.

  • Facts


    • Some economists say the world is currently going through an inevitable period of “secular stagnation.” The author argues it’s more like a “self-inflicted malaise.”
    • The European Central Bank has pushed interest rates to a record low of 0 percent as it continues to seek ways to boost inflation to 2 percent.
    • Leading German economic researchers expect less growth next year due to economic uncertainty.
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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.

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