Without new economic thinking, macro policy will retain its deflationary biases and secular stagnation remains the ‘normal’. A spectre is haunting the U.S. economy — the threat of stagnation. The anaemic recovery of the American economy after the Global Financial Crisis of 2008-09 looked uncomfortably similar to what Alvin E. Hansen (1939, p. 4) in the late stage of the Great Depression had called “sick recoveries which die in their infancy and depressions [….] feed on themselves and leave a hard and seemingly immovable core of unemployment.”

Not surprisingly, therefore, interest is once again growing in Hansen’s ‘secular stagnation’ thesis which stated that an economy could experience persistent stagnation as a result of a structural shortage of aggregate demand.

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