Economic stagnation
Economic stagnation or economic immobilism, often called simply stagnation or immobilism, is a prolonged period of slow economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...

 (traditionally measured in terms of the GDP growth), usually accompanied by high unemployment. Under some definitions, "slow" means significantly slower than potential growth as estimated by experts in macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...

. Under other definitions, growth less than 2-3% per year is a sign of stagnation.

The term bears negative connotations, but slow economic growth is not always the fault of economic policymakers. For example, potential growth may be slowed down by catastrophic or demographic reasons.

Economic stagnation theories originated during the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

 and came to be associated with early Keynesian economics
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...

 and Harvard University
Harvard University
Harvard University is a private Ivy League university located in Cambridge, Massachusetts, United States, established in 1636 by the Massachusetts legislature. Harvard is the oldest institution of higher learning in the United States and the first corporation chartered in the country...

Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

 professor Alvin Hansen
Alvin Hansen
Alvin Harvey Hansen , often referred to as "the American Keynes," was a professor of economics at Harvard, a widely read author on current economic issues, and an influential advisor to the government who helped create the Council of Economic Advisors and the Social security system...


Secular stagnation theory

Chapter IV in Postwar Economic Problems is titled Secular Stagnation Theory.

“The basic changes going on since the beginning of the century are not only important in explaining the unprecedented severity and persistence of the depression of the thirties but also in appraising the outlook for the future. The reduced rate of growth, with respect to both population and territory, is likely to be permanent. Technological change is still going on, at a rapid rate, and, so far as anyone can see, is likely to continue for a long, long time to come. In the thirties the changes were predominantly of the sort that requires relatively small investment of new capital. This, of course, may change. There may be innovations in the future comparable in their effect on investment to the railroad, the automobile, or electricity. It is highly likely, however, that further technical change will be so much ‘’more’’ capital using as to make up for the reduced rate of territorial expansion and population growth. This is the basis on which the stagnation school predicts a long-run deficiency of investing opportunity.” Harris (1943)

Following the Great Depression, capital investment fell because of excess capacity. Secular stagnation theory blamed inadequate capital investment for hindering full deployment of labor and other economic resources. Secular stagnation theory differs from the theory of the tendency of the rate of profit to fall
Tendency of the rate of profit to fall
The tendency of the rate of profit to fall is a hypothesis in economics and political economy, most famously expounded by Karl Marx in chapter 13 of Das Kapital Vol. 3. It was generally accepted in the 19th century...

 in that businesses will curtail investment in industries with falling rates of return.

According to Harris (1943) "the idea of secular stagnation runs through much of Keynes General Theory".

Historical periods of stagnation in the U.S.

  • The years following the Panic of 1873
    Panic of 1873
    The Panic of 1873 triggered a severe international economic depression in both Europe and the United States that lasted until 1879, and even longer in some countries. The depression was known as the Great Depression until the 1930s, but is now known as the Long Depression...

     was characterized by business bankruptcies, low interest rates and deflation. According to David Ames Wells (1891) the economic problems were the result of rapid changes in technology, such as railroads, steam powered ocean ships, steel displacing iron and the telegraph system.

  • The Great Depression of the 1930s and the rest of the period lasting until WW II. Harris (1943) was written with the expectation that the stagnation would continue after the war ended. See: Causes of the Great Depression
    Causes of the Great Depression
    The causes of the Great Depression are still a matter of active debate among economists, and is part of the larger debate about economic crises, although the popular belief is that the Great Depression was caused by the crash of the stock market...

  • The Great Recession or Late-2000s recession is characterized by high unemployment, low GDP growth, low interest rates and lack of good investment opportunities.


The period following the 1973 oil crisis
1973 oil crisis
The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC proclaimed an oil embargo. This was "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war. It lasted until March 1974. With the...

 was characterized by stagflation
In economics, stagflation is a situation in which the inflation rate is high and the economic growth rate slows down and unemployment remains steadily high...

, the combination of low economic and productivity growth and high inflation. The period was also characterized by high interest rates, which is not consistent with secular stagnation. Stronger economic growth resumed and inflation declined during the 1980s.

See also

  • Era of Stagnation
  • Agflation
    Agflation, a term coined in the late first decade of the 21st century, describes generalised inflation led by rises in Agricultural commodity prices. In the United States, agricultural prices are not generally factored into core inflation figures...

  • Biflation
    Biflation is a state of the economy where the processes of inflation and deflation occur simultaneously. The term was first introduced by Dr. F. Osborne Brown, a Senior Financial Analyst for the Phoenix Investment Group...

  • Business cycle
    Business cycle
    The term business cycle refers to economy-wide fluctuations in production or economic activity over several months or years...

  • De-growth
    Degrowth is a political, economic, and social movement based on environmentalist, anti-consumerist and anti-capitalist ideas...

  • Recession
    In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...

  • Stagflation
    In economics, stagflation is a situation in which the inflation rate is high and the economic growth rate slows down and unemployment remains steadily high...

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