Secular stagnation or stagnation policy? Steindl after Summers

Abstract

The debate on secular stagnation suffers from vagueness and several shortcomings, which affect its economic policy implications. In this work we provide an alternative view on the advanced economies’ tendencies to stagnation, based on Josef Steindl’s contributions. Steindl’s pioneering 1952 book in particular is not prone to several problems that affect the current debate on secular stagnation. It does not rely on the dubious notion of an equilibrium real interest rate as the equilibrating force of saving and investment at full employment levels. Rather, it is based on the notion that modern capitalist economies face aggregate demand constraints, and that saving adjusts to investment through income growth and changes in capacity utilisation in the long run. Steindl’s treatment allows for potential growth to become endogenous to actual demand, and it seriously considers the role of institutions and power relationships for long-run growth. In illustrating Steindl’s contributions on this topic, the article presents an original model synthetizing the main points in particular concerning long run growth and stagnation. JEL codes: B22, E11, E12, E65, O11