Growth Debate

The Big Mistake of the Keynesians

ARCHIV - Passanten gehen am 06.06.2014 mit Einkaufstüten durch die Innenstadt in Hamburg. Foto: Bodo Marks/dpa (zu dpa "Niedrige Inflation - Verbraucher dennoch besorgt" vom 13.08.2014)) +++(c) dpa - Bildfunk+++
People need more time to get back to historic spending levels, Mr. Rürup writes.
  • Why it matters

    Why it matters

    A long period of weak growth in Europe might trigger a new round of economic stimuli.

  • Facts


    • Many industrial countries today have weak growth, high unemployment, flat inflation, low interest rates but high per-capita income.
    • Keynesians such as such as former presidential economics advisor Larry Summers call for governments to stimulate demand
    • Today’s tepid growth can be ascribed to a typical occurrence after severe finance- and debt-crises, the writer argues.
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Weak growth, high unemployment, low inflation, low interest rates but high per-capita income describe the situation in many industrial countries today.

Many economists are reminded of their studies of economic doctrines throughout history, and especially of Harvard economist Alvin Hansen and his theory, presented in 1938, regarding “secular stagnation.”

Mr. Hansen made the observation that the American population was only increasing slowly and, years after the Great Depression, unemployment had still not declined. Mr. Hansen, who has been called the American version of British economist John Maynard Keynes, considered the slow rise in population as a cause of sluggish investment and the related, stubbornly enduring underemployment.

But as economic developments after World War II refuted this hypothesis, widely-used economic textbooks made no mention of the phenomenon of secular stagnation – at least not until recently.

In 2011, the Nobel economics prize wineer Paul Krugman rediscovered the term. But it was Harvard professor and former U.S. treasury secretary Lawrence “Larry” Summers who, in a lecture in 2013, pulled secular stagnation out of the heap of outdated doctrines and ignited a new debate about growth.

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