When “Secular Stagnation” Meets Piketty’s Capitalism in the Twenty-First Century: Growth and Inequality Trends in Europe Reconsidered

Abstract

The spectre of “secular stagnation” has been haunting both pundits and policymakers for some time. In weighing the question of whether slow growth in Europe and other advanced countries reflects some kind of ongoing stagnation problem, it’s important to be clear on the concept. Moreover, in view of the hotly debated bi-causal interaction between lacklustre economic growth and growing inequalities in the distribution of income and wealth fuelled by Piketty’s recent bestseller, it may be useful to recall some of the fundamental insights about capital accumulation, growth and distribution in order to take a look at the secular stagnation hypothesis from this angle as well. Against that background, the paper first reviews the secular stagnation hypothesis and variants thereof, discussing its plausibility and confronting it with the empirical evidence from a European perspective. It then looks into the nexus between growth patterns and the trends in the distribution of income and wealth. Finally, it offers some policy conclusions that can be derived from the analysis.