Long-run Stagnation Research Articles

Understanding Persistent Stagnation

We theoretically explore long-run stagnation at the zero lower bound in a representative agent framework. We analytically compare expectations-driven stagnation to a secular stagnation episode and find contrasting policy implications for changes in government spending, supply shocks and neo-Fisherian policies. On the other hand, a minimum wage policy is expansionary and robust to the source of stagnation. Using Bayesian methods, we estimate a DSGE model that can accommodate two competing hypotheses of long-run stagnation in Japan. We document that equilibrium selection under indeterminacy matters in accounting for model fit.

Understanding Persistent Stagnation

We theoretically explore long-run stagnation at the zero lower bound in a representative agent framework. We analytically compare expectations-driven stagnation to a secular stagnation episode and find contrasting policy implications for changes in government spending, supply shocks and neo-Fisherian policies. On the other hand, a minimum wage policy is expansionary and robust to the source of stagnation. Using Bayesian methods, we estimate a DSGE model that can accommodate two competing hypotheses of long-run stagnation in Japan. We document that equilibrium selection under indeterminacy matters in accounting for model fit.

Introduction: Challenges to Africa's Agricultural Transformation

Introduction: Challenges to Africa's Agricultural Transformation

Aggregate Demand Deficiency, Labor Unions, and Long-run Stagnation

Using a money-in-the-utility-function model, we present long-run stagnation where insatiable demand for money secularly causes deficient aggregate demand and thereby unemployment in the presence of nominal wage stickiness attributable to union wage setting. In this long-run stagnation, generous unemployment benefits reduce unemployment. Moreover, paradoxically, unemployment declines if labor unions give more weight to nominal wage gains compared with employment increases.

Effects of an Employment Subsidy in Long-Run Stagnation

We develop a money-in-the-utility-function model with two features. One is that a Phillips curve relationship between nominal wages and unemployment appears because of efficiency wages. The other is that as in the Japanese economy since the early 1990s, unemployment attributable to aggregate demand deficiency arises even in the long run. We analyze the effect of an employment subsidy in this long-run stagnation and show that an increase in the subsidy may worsen aggregate demand deficiency and unemployment.

Fiscal policy under deflationary gap and long-run stagnation: Reinterpretation of Keynesian multipliers

We develop a Keynesian cross analysis with a dynamic optimization setting that explains long-run stagnation caused by aggregate demand deficiency. We show that an increase in government purchases boosts GDP through a multiplier process, but the implication is quite different from the conventional Keynesian one. It works not through an increase in disposable income but through moderation of deflation. Thus, countries that have lapsed into long-run stagnation should expand government spending that directly creates employment in order to reduce the deflationary gap.

Notes from the Editors, April 2012

buy this issueFor decades we have been arguing in Monthly Review that stagnation is the normal state of the mature monopoly-capitalist economies. Today the reality of stagnation is increasingly gaining the attention of the corporate media itself.… For those accustomed to thinking of the capitalist economy as either growing rapidly or occasionally falling into a severe crisis (from which it quickly bounces back), long-run stagnation is a difficult to understand phenomenon. [A stagnating economy] neither collapses into a full (or "classic") crisis, which would allow it to clear out (or devalue) its overaccumulated capital, nor is it able to achieve a full recovery. Instead, it remains caught in a stagnation trap, limping along at a low rate of growth, with high unemployment and excess capacity. Under the circumstances—and without the help of some external stimulus like a major war, a financial bubble, or an epoch-making innovation—the capital accumulation process is unable to move off dead center.This article can also be found at the Monthly Review website, where most recent articles are published in full.Click here to purchase a PDF version of this article at the Monthly Review website.

Zero Nominal Interest Rates, Unemployment, Excess Reserves and Deflation in a Liquidity Trap

We present a dynamic and monetary model that consistently explains such various phenomena as unemployment, deflation, zero nominal interest rates and excess reserves held by commercial banks. These phenomena are commonly observed during the Great Depression in the United States, the recent long-run stagnation in Japan, and the worldwide financial crisis triggered by the US subprime loan problem of 2008. We show that an excessive liquidity preference leads to a liquidity trap and thereby generates the phenomena.

Forgetting the Lessons of the Great Depression

Gordon, Robert Aaron. Business Fluctuations, Second Edition, New York: Harper & Brothers, 1961. Guthrie, William, and Vincent J. Tarascio. on Economic Growth, Stagnation, and Structural Change: New Light on a 55-Year Controversy, History of Political Economy, 24.2 (Summer 1992), 381-412. Guttmann, Robert. Stagflation and Credit-Money in the U.S.A., British Review of Economic Issues, 6.15 (Autumn 1984), 79-119. Hansen, Alvin H. Full Recovery or Stagnation?, New York: Norton, 1938. I. Introduction With the recent recession and weak recovery of the U.S. economy, mainstream economics and policy have reached a state of bankruptcy and confusion unparalleled since the early-1930s. Working-class living standards have been in decline for a decade and a half, yet business leaders and policymakers continue to call for sacrifice and competitiveness as the way out of the long-run malaise. Rather than bringing a peace dividend, the end of the Cold War poses the threat of an even worse unemployment crisis, as U.S capitalism appears unable to redeploy resources from destructive to constructive uses. Meanwhile the ecological crisis continues to unfold, the medical, education, and transportation systems deteriorate, and unemployment of workers and productive capacity grows while the employed work harder and longer to sustain ecologically and socially irrational modes of private consumption. Hundreds of billions of dollars are spent on high-tech weaponry, financial speculation, advertising, and other unproductive activities in the cultural wasteland of U.S. capitalism, yet we are told that we cannot afford the minimum of socialized health care, vacation times, and public transportation systems available in other advanced capitalist countries. In this context a Democratic president, while dancing to the tunes of Wall Street, the corporate media and the military-industrial complex, claims as his main policy success the refinancing of mortgages by the middle class. How did this situation come about, over 50 years after the Keynesian revolution? The suggestion here is that mainstream economics and policy are unable to come to grips with the basic causes of our current socio-economic problems because of a lack of historical memory. The questions raised by Keynes and other economists in the 1930s led to a debate over the possibility of long-run stagnation in the mature capitalist economy. But this stagnation debate, far from being further developed and applied, was forgotten or consciously abandoned as Keynes' analysis was vitiated and submerged under the synthesis during the long post-World War II boom of the global capitalist economy. The issues raised in the 1930s, concerning the ultimate goals of economic activity, were shunted aside in favor of a technocratic Keynesianism operating in the service of corporate capital and the military-industrial complex. Since Neoclassical-Keynesian economics had no connection with the earlier stagnation debate, it was ill-equipped to confront the subsequent crisis and resurgence of fundamentalist Neoclassical perspectives (Supply-Side economics and the New Classical school) without resorting to pre-Keynesian explanations of crisis-phenomena like involuntary unemployment. Sections II and III survey the stagnation debate of the 1930s and the mainstream abandonment of long-run stagnation issues during and after World War II. Section IV illustrates the historical vacuum in current economic theory via a critical review of Peter Temin's recent book, Lessons from the Great Depression (Temin, 1990). The historical default of mainstream theory and policy is then contrasted with one major tradition that has consistently built upon and developed the historical-systemic questions debated in the 1930s: the Neo-Marxian theory of overaccumulation and stagnation. Section V introduces this alternative perspective and applies it to the inter-war era and the current conjuncture. …