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Accepting the Reality of Secular Stagnation

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Accepting the Reality of Secular Stagnation

New approaches are needed to deal with sluggish growth, low interest rates, and an absence of inflation

Finance & Development Magazine,

5 min read
3 take-aways
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What's inside?

Economists must rethink their responses to a moribund global economy.

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  • Analytical
  • Overview
  • For Experts


In this brief survey of old ideas and new realities, noted economist Larry Summers argues persuasively that challenges such as anemic growth need a fresh macroeconomic framework. He resurrects the theory of secular stagnation – a 1930s concept that explains long periods of slow expansion – as the center of a “new old Keynesian economics” suited to fixing modern problems. Though this article predates the coronavirus and the massive US fiscal response, the COVID-19 pandemic makes Summers’s recommendations all the more relevant.


Economists tend to posit theories that apply to their times.

Unlike the natural sciences, in which hypotheses apply universally, theory in economics is contextual. Economist John Maynard Keynes’s ideas were more germane to the 1930s Great Depression than to the inflationary period of the 1970s.

Prevailing macroeconomic thought assumes that monetary policy can set the inflation rate. This precept, however, might not square with the global macroeconomic conditions of the times and may thus result in imprudent policies.

Established macroeconomic thought is ill-suited to circumstances in the 21st...

About the Author

Lawrence H. Summers is a professor at Harvard University. He is a former Treasury secretary and director of the White House National Economic Council.

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    S. B. 2 years ago
    Interesting. On page three he specifically mentions demographics - I'd love to see Summers' next article focus on how he thinks demographics will play into economic consequences for China in particular, Europe in part. In China, are they overbuilt for their coming crash in working-age population? What will this do to the world economy, given the indebtedness? Similarly, while somewhat less in debt, how does the European economy move into growth mode?

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