Secular Stagnation: Determinants and Consequences for Australia

Abstract

Larry Summers’ re-use of the phrase appears justified in the present global economic climate since many factors contribute to comparatively poor OECD economic performance and weakening macroeconomic policy instruments. Some are measurement issues and others might be seen as the downsides of globalisation, which has integrated financial markets and redirected growth from the advanced toward the emerging economies. Yet measurable rates of return on investment do appear to be impaired by rises in perceived investment risks, institutionalised risk aversion, increased ageing and dependency, declining shares of government spending in public investment and R&D with rising shares of these directed to health, the retention of trade distortions, new concentration in industrial structure and a slower rate of human capital accumulation, not to mention an unexpected global abundance of fossil fuels and a slower Chinese economy. The information and literature supporting these concerns is reviewed and implications for global and Australian policy are inferred.