real-world economics review, issue no. 100 subscribe for free
Issue no. 6, 2014
Secular stagnation and endogenous money Steve Keen
Copyright: Steve Keen, 2014
You may post comments on this paper at https://rwer.wordpress.com/comments-on-rwer-issue-no-100/
The crisis of 2007/08 has generated many anomalies for conventional economic theory, not the least that it happened in the first place. Though mainstream economic thought has many channels, the common belief before this crisis was that either crises cannot occur (Edward C. Prescott, 1999), or that the odds of such events had either been reduced (Ben Bernanke, 2002) or eliminated (Robert E. Lucas, Jr., 2003) courtesy of the scientific understanding of the economy that mainstream theory had developed. This anomaly remains unresolved, but time has added another that is more pressing: the fact that the downturn has persisted for so long after the crisis. Recently Larry Summers suggested a feasible explanation in a speech at the IMF. Sec a ag a ,S e gge ed, a the real explanation for the continuing slump, and it had been with us for long before this crisis began. Its visibility was obscured by the Subprime Bubble, but once that burst, it was evident. This hypothesis asserts, in effect, that the crisis itself was a second-order event: the main event was a tendency to inadequate private sector demand which may have existed for decades, and has only been masked by a sequence of bubbles. The policy implication of this hypothesis is that generating adequate demand to ensure full employment in the future may require a permanent stimulus from the government meaning both the Congress and the Fed and perhaps the regular creation of asset market bubbles. What could be causing the secular stagnation if it exists? Krugman (Paul Krugman, 2013b) noted a couple of factors: a slowdown in population growth (which is obviously happening: see F g e 1); a d a B b G d e e dec e a ( c a e e c ec a ). T g S e e a a ea c c , e e a chorus of New Keynesian support f e ec a ag a ag e , c e bec e e c e a explanation for the persistence of this slump long after the initial financial crisis has passed. K g a c a ge f e ee epresentative. His most recent book-length foray into what caused the crisis and what policy would get us out of it was entitled End This Depression NOW!. T e e, a e a eb c e , c a ed a c c d be e ded the blin f a e e . A d a e, K g a e ed, a a ff c e a ge f ca e e ca e e Ze L e B d:
81