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Have We Dodged the Secular-Stagnation Bullet?

Is the world on the cusp of a sustainable acceleration in global economic growth? The answer hinges on whether today’s much-touted innovative technologies finally have an appreciable impact on labor and total-factor productivity.

WASHINGTON, DC – In 2016, Northwestern University’s Robert Gordon published his 700-plus-page magnum opus, The Rise and Fall of American Growth. Two years on, with not just the United States, but the entire world economy experiencing a synchronized acceleration in growth, the second noun in Gordon’s title seems excessively pessimistic, to say the least.

Gordon’s main argument was that the century after the US Civil War – from about 1870 to 1970 – brought an unprecedented economic revolution, as innovations like electricity and piped water rapidly raised productivity and transformed people’s lifestyles. In his view, today’s innovations – especially in digital technology, machine learning, and artificial intelligence – may be breathtaking, but they do not have the same broad productivity-raising potential. Gordon is essentially a supply-side pessimist, though he also points out that income inequality can act as a drag on growth, by lowering effective demand.

Another gloomy take on future growth, advanced by former US Treasury Secretary Lawrence H. Summers after the global economic crisis, has a decidedly more Keynesian or “demand-side” flavor. Summers’ theory of “secular stagnation” (a term first used by the economist Alvin Hansen back in 1938) holds that, in the United States, the desire to save chronically outweighs the desire to spend on growth-enhancing investments.

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