The Economy Has Fallen and it Can’t Get Up

Matt O’Brien of the Washington Post contends that “our slump hasn’t really ended, even though the Great Recession officially did more than five years ago.”

“So why has this time been different?”

Recoveries, can be nasty, brutish, and long … But even so, this doesn’t fully explain the kind of persistent economic weakness we’ve seen here and most everywhere else.”

“It’s brought back the specter of ‘secular stagnation.’ That’s the idea … that an economy can get stuck in a never-ending slump if slower population growth means slower investment.”

“The Fed can’t cut rates below zero and it won’t let inflation go above 2 percent, so the lowest real rates can go is -2 percent. But if the economy needs lower ones than that — say -7 percent, like it did during the crisis — it will just collapse.”

“It’s a grim picture of a recession stamping on a human face — forever. But it wouldn’t be too hard to save ourselves from this dystopian future. All it would take is a higher inflation target that would let real rates go lower, and help households reduce their debt burdens.”

“Stagnation, in other words, is a choice.”

Working Capital Review: The slow decay of U.S. competitiveness

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