The slow pace of economic growth in developed economies over the last decade has puzzled economists. Some have identified it as a manifestation of long-run “secular stagnation.” But what are the causes of secular stagnation? Professor Steve Fazzari of Washington University in St. Louis considers the evidence and competing explanations. Supply-side explanations urge us to simply accept secular stagnation as the “new normal” in advanced industrial economies. But the demand-side explanation that Fazzari espouses traces the problem to limping household demand. He explains how lagging demand is rooted in the consistent rise in income inequality since the 1970s—even as high household borrowing has temporarily concealed the problem from policymakers. Is this sustainable? Can secular stagnation be overcome, or will it remain a persistent drag on the economy?
Steve Fazzari argues that stimulating demand is the key to jump-starting stagnant economies
From the collection: Economics of Race